Taxation Full Cases

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TAXATION

General Principles

1. Walter Lutz v. J. Antonio Araneta, 98 Phil 148
[G.R. No. L-7859. December 22, 1955.]

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, Plaintiff-
Appellant, v. J. ANTONIO ARANETA, as the Collector of Internal Revenue, Defendant-Appellee.

Ernesto J. Gonzaga for Appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R.
Rosete for Appellee.

SYLLABUS

1. CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN AND SUPPORT OF SUGAR INDUSTRY. As
the protection and promotion of the sugar industry is a matter of public concern the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative
must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of Commonwealth Act No. 567 bear no relation to the objective pursued or are oppressive in
character. If objective an methods are alike constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation may be made the implement. Taxation may be
made the implement of the states police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U.S. 412, 81 L. Ed.
1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477; MCulloch v. Maryland, 4 Wheat, 316, 4 L. Ed. 579).

2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF TAXATION. It is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation (Carmicheal v.
Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous authorities, at 1251).

D E C I S I O N

REYES, J. B. L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed
by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffie Act, and
the "eventual loss of its preferential position in the United States market" ; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of the export taxes."cralaw virtua1aw library

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactures; while section 3 levies on owners or persons in control of
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lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise

"a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land."cralaw virtua1aw library

According to section 6 of the law

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as
the Sugar Adjustment and Stabilization Fund, and shall be paid out only for any or all of the following purposes or
to attain any or all of the following objectives, as may be provided by law.

First, to place the sugar industry in a position to maintain itself despite the gradual loss of the preferential position
of the Philippine sugar in the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets
of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the
mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all
might continue profitably to engage therein;

Third, to limit the production of sugar to areas more economically suited to the production thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions:
Provided, That the President of the Philippines may, until the adjournment of the next regular session of the
National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and
operation of sugar experiment station or stations and the undertaking of researchers (a)to increase the recoveries
of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to different distinct conditions in the Philippines, (c) to
lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for
motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what
crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the
solution of which would help rehabilitated and stabilize the industry, and (2) for the improvement of living and
working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or
agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount of
amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses or said agency or
agencies."cralaw virtua1aw library

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry exclusively, which in plaintiffs opinion is not a
public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of
First Instance, the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiffs position is his assumption that the tax provided for in Commonwealth Act No. 567
is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full),
will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization
of the threatened sugar industry. In other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production in one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in
fields and factories; that it is a great source of the states wealth, is one of the important sources of foreign
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exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it
was competent for the legislature to find that the general welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the law-making body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in
taxes that it had to sustain (Sligh v. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson v. State ex rel. Marey, 99 Fla.
1311, 128 So 853; Maxcy Inc. v. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson v. State ex rel. Marey, with reference to the citrus industry in Florida

"The protection of a large industry constituting one of the great sources of the states wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an
extent by public interests as to be within the police power of the sovereign." (128 So. 857)

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only
to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above
quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not be levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the states police power (Great Atl. & Pac. Tea Co. v.
Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. v. Butler, 297 U. S. 1, 80 L. Ed. 477; MCulloch v. Maryland, 4 Wheat.
318, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint;
indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael v. Southern Coal &
Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization
Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is
being protected. It may be that other industries are also in need of similar protection; but the legislature is not
required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson v. Probate
Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been applied;" and that the legislative
authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. v. Jones &
Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by- products and solution of
allied problems, as well as to the improvement of living and working conditions in sugar mills or plantations,
without any part of such money being channeled directly to private persons, constitutes expenditure of tax money
for private purposes, (compare Everson v. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Tio v. Videogram Regulatory Board, 151 SCRA 208

G.R. No. L-75697 June 18, 1987
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VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took
effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The
Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes,
discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of
moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent
(40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned
industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an
environment conducive to growth and development of all business industries, including the movie industry which
has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial
condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize
the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present
danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic efficiency and the development of moral character and promote
their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the
national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
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1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER
and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due
process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by
Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the
title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject
and title. 2 An act having a single general subject, indicated in the title, may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing for the method and means of carrying out the
general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so
narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather than
technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the
creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or
that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax,
the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive
taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization
that earnings of videogram establishments of around P600 million per annum have not been subjected to tax,
thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers
for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or
borne by the movie industry which the theater-owners pay to the government, but which is passed on to the
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entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that
is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the
movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang
Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that
in his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The
grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction
is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The
first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree,
the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of such authority might be
the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one
which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs,
cassettes or other technical improvements or variations thereof, before they could be sold, leased, or otherwise
disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business
without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree,
whether the possession of such videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of
any videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of human
conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People vs.
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Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-
641). And the "legislature may enact that when certain facts have been proved that they shall be prima facie
evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational
connection between the facts proved and the ultimate facts presumed so that the inference of the one from proof
of the others is not unreasonable and arbitrary because of lack of connection between the two in common
experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While
the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public
welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the
erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with brutally violent sequences; and losses in government
revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are
required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated the
respective authority of each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender
should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar
as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no
clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.

Roxas v. CTA 23 SCRA 276

G.R. No. L-25043 April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians
of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Leido, Andrada, Perez and Associates for petitioners.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas
province;
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(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its
part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion
them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences
were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares
to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey
and subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the
arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and
contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71.
Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for
more than one year pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which
they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else
leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the
sum of P8,000.00 a year.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate
dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax
for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate
dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of
P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income
therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the
corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas
y Cia., on the fact that said partnership made profits from the purchase and sale of securities.
In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the
years 1953 and 1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net
profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the
Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers
on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence,
100% of the profits derived therefrom was taxed.
The following deductions were disallowed:

ROXAS Y CIA.:
9

Tickets for Banquet in honor of
S. Osmea
P
40.00
Gifts of San Miguel beer 28.00
Contributions to
Philippine Air Force Chapel 100.00
Manila Police Trust Fund 150.00
Philippines Herald's fund for Manila's
neediest families 100.00
1955
Contributions to Contribution to
Our Lady of Fatima Chapel, FEU 50.00

ANTONIO ROXAS:
1953
Contributions to
Pasay City Firemen Christmas Fund 25.00
Pasay City Police Dept. X'mas fund 50.00
1955
Contributions to
Baguio City Police Christmas fund 25.00
Pasay City Firemen Christmas fund 25.00
Pasay City Police Christmas fund 50.00

EDUARDO ROXAS:
1953
Contributions to
Hijas de Jesus' Retiro de Manresa 450.00
Philippines Herald's fund for Manila's
1955
Contributions to Philippines
Herald's fund for Manila's

JOSE ROXAS:
1955
Contributions to Philippines
Herald's fund for Manila's
The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal
in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31,
10

1965 sustaining the assessment except the demand for the payment of the fixed tax on dealer of securities and the
disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de
Manresa. The Tax Court's judgment reads:
WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo
Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the
amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953
and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate
dealer's tax. With costs against petitioners.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue
did not appeal.
The issues:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?
(2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because
it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the
Nasugbu farm lands and selling them to the farmers-occupants on installment. To bolster his stand on the point,
he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership, quoted below:
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus
gerentes no deben conservarse;
The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be
favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there
were hundreds of vendees. Although they paid for their respective holdings in installment for a period of ten years,
it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization
period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of
our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among
the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack
of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly
to the farmers in the same way and under the same terms as would have been the case had the Government done
it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution
to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and
confidence in the Government this power must be used justly and not treacherously. It does not conform with Our
sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later
on to penalize him for duly answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section
34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio
Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as
representation expenses. Representation expenses are deductible from gross income as expenditures incurred in
carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the
evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court
of Tax Appeals must therefore be sustained.
11

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio
City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and
Our Lady of Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not
deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the
families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible
when used exclusively for public purposes. For this reason, the disallowance must be sustained. On the other hand,
the contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila
Police, a government entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground
that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It
should be noted however that the contributions were not made to the Philippines Herald but to a group of civic
spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question that the
members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes
mentioned in Section 30(h) of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far
Eastern University on the ground that the said university gives dividends to its stockholders. Located within the
premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any
religious organization. On the other hand, the lower court found that it belongs to the Far Eastern University,
contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income
of said university injures to the benefit of its stockholders. The disallowance should be sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it
earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the
partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals
of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals. The law, which
states: 1wph1.t
. . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or
renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate
or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year: . . . (Emphasis supplied) .
is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1wph1.t
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For
1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively,
computed as follows: *
ANTONIO ROXAS
Net income per return P315,476.59

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15

Less amount declared 146,135.46

Amount understated

P 7,113.69
Contributions disallowed 115.00

P 7,228.69
Less 1/3 share of contributions amounting to
P21,126.06 disallowed from partnership but 7,042.02 186.67
12

allowed to partners
Net income per review

P315,663.26
Less: Exemptions

4,200.00

Net taxable income

P311,463.26
Tax due 154,169.00

Tax paid 154,060.00

Deficiency

P 109.00
==========

EDUARDO ROXAS

Net income per return

P
304,166.92
Add: 1/3 share, profits in Roxas y Cia P 153,249.15

Less profits declared 146,052.58

Amount understated

P 7,196.57
Less 1/3 share in contributions amounting to
P21,126.06 disallowed from partnership but
allowed to partners 7,042.02 155.55


P304,322.47
Less: Exemptions

4,800.00

Net taxable income

P299,592.47
Tax Due P147,250.00

Tax paid 147,159.00

Deficiency

P91.00
===========

JOSE ROXAS

Net income per return

P222,681.76

Add: 1/3 share, profits in Roxas y Cia. P153,429.15

Less amount reported 146,135.46

13

Amount understated

7,113.69
Less 1/3 share of contributions disallowed from
partnership but allowed as deductions to
partners 7,042.02 71.67


P222,753.43
Less: Exemption

1,800.00

Net income subject to tax

P220,953.43
Tax due P102,763.00

Tax paid 102,714.00

Deficiency

P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as
real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the
respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the
year 1955. No costs. So ordered.

PAL v. Edu, 164 SCRA 320
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity as
National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:
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
14

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:
15

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 portionabout 5 per centumof 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 functionsthe 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
imposedthough called feesare 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. CollectedMonies 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
16

and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand,
thePhilippine 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.
17

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.

18

Tio v. Videogram, 151 SCRA 208 (katulad lang noong naunang case)

Caltex v. Commissioner, 208 SCRA 755
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and
HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:
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:
19

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
20

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,
21

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
22

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
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's 17 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.
V
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
23

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:
Financing Period Reimbursement Rate
Pesos per Barrel
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:
Financing Period Reimbursement Rate
(PBbl.)
24

Less than 180 days None
240 days to 229 (sic) days 4.02
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
charges. 29
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
25

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
thereofprovided:
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 34and 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.
26

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
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
27

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. . . .
28

In applying said provision, this Court ruled in the case of Taada 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 otherwiseprovided.
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
29

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 . .
.," 56and 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. 58Taxes 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.
30

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.
Chavez v. Ongpin, 186 SCRA 331
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal
Treasurer of the Municipality of Las Pias, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio) for
petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote
in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS
PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978
revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect
on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of
revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising
cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest
general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax
collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this Executive
Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive Order
are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order
No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following:
that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987
thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to
100% on land; that any increase in the value of real property brought about by the revision of real property values
and assessments would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is
the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that
31

the increase in the market values of real property as reflected in the schedule of values was brought about only by
inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of
owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally
alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one
percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax
for local governments; that the General Revision of Assessments does not meet the requirements of due process
as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost"
of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative
regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is
even more oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the
revision of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive
Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest
general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax
collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464
which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor shall make a calendar year 1978, the
provincial or city general revision of real property assessments in the province or city to take effect January 1,
1979, and once every five years thereafter: Provided; however, That if property values in a province or city, or in
any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with the
approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in the
province or city, or in any municipality before the fifth year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis
as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No.
464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However,
Chavez failed to raise any objection against said decree. It was ROAP which questioned the constitutionality
thereof. Furthermore, Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be
questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the provincial or
city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written
notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city,
by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax
declarations and such affidavit or documents submitted in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The Local Board of Assessment Appeals shall decide
the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision rendered
must be based on substantial evidence presented at the hearing or at least contained in the record and disclosed
to the parties or such relevant evidence as a reasonable mind might accept as adequate to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths,
conduct ocular inspection, take depositions, and issue subpoena and subpoenaduces tecum. The proceedings of
the Board shall be conducted solely for the purpose of ascertaining the truth without-necessarily adhering to
technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy each of
the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall
be his duty to notify the property owner of such fact using the form prescribed for the purpose. The owner or
administrator of the property or the assessor who is not satisfied with the decision of the Board of Assessment
Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to the Central Board of
Assessment Appeals by filing his appeal under oath with the Secretary of the proper provincial or city Board of
32

Assessment Appeals using the prescribed form stating therein the grounds and the reasons for the appeal, and
attaching thereto any evidence pertinent to the case. A copy of the appeal should be also furnished the Central
Board of Assessment Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned shall
forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the
Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of Assessment Appeals shall have jurisdiction over
appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall decide cases
brought on appeal within twelve (12) months from the date of receipt, which decision shall become final and
executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority,
the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the conduct of
its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who
doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner
or administrator of the property or the assessor is not satisfied with the decision of the Local Board of Assessment
Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board of Assessment
Appeals. The decision of the Central Board of Assessment Appeals shall become final and executory after the lapse
of fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No.
73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the
cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v.
Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement called for therein
applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real
property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of
the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to
January 1, 1988. Section 5 thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided for
under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be collected
beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the Ministry of
Local Government to establish the new systems of tax collection and assessment provided herein and in order to
alleviate the condition of the people, including real property owners, as a result of temporary economic
difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property
taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample
justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect
on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of
revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising
cost of rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in
the present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order
No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature
of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main
proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open
to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).
33

We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis
for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue
collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the
value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
CIR v. Algue, Inc. [158 SCRA 9]
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other
hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and
the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The
corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal
Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue
flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the
office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending
protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy
and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he
accepted the warrant of distraint and levy earlier sought to be served. 5Sixteen days later, on April 23, 1965, Algue
filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal
may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the
warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted
doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it
filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara
gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and
was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was
filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The
period started running again only on April 7, 1965, when the private respondent was definitely informed of the
implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on
April 23, 1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
34

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with
Algue, it held that the said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in
the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 but later conformed to the decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons
among whom it was distributed It has been established that the Philippine Sugar Estate Development Company
had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest
in it. 14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence,
that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such payments were made, whether
by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a
tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but
periodically and in different amounts as each payee's need arose. 19 It should be remembered that this was a
family corporation where strict business procedures were not applied and immediate issuance of receipts was not
required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all
of the fees received by him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be
informal. This arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent
court is in accord with the following provision of the Tax Code:
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; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for
personal services actually rendered. The test of deductibility in the case of compensation payments is whether
they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and
its practical application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible.
(a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in
the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the
35

salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a
close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not
paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it
was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.

CIR v. Pineda, 21 SCRA 105
G.R. No. L-22734 September 15, 1967
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom
is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No.
71129) wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to
the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were
not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the
basis of information and data obtained from the aforesaid estate proceedings and issued an assessment for the
following:
1. Deficiency income tax
1945 P135.83

36

1946 436.95

1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98

1% monthly interest from
November 30, 1953 to April 15,
1957 720.77

Compromise for late filing 80.00

Compromise for late payment 40.00
Total amount due

P2,707.44
===========
2. Additional residence tax for 1945
P14.50
===========
3. Real Estate dealer's tax for the fourth
quarter of 1946 and the whole year
of 1947
P207.50
===========
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of
Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the
heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner
on the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this
Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held
that the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns
were filed on August 24, 1953; assessments for both taxable years were made within five years therefrom or on
October 19, 1953; and the action to collect the tax was filed within five years from the latter date, on August 7,
1957. For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess income tax
for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further appropriate
proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the
payment corresponding to his share of the following taxes:
Deficiency income tax
1945
P135.8
3
1946 436.95

Real estate dealer's fixed
tax 4th quarter of 1946
and whole year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for
the payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28
instead of only for the amount of taxes corresponding to his share in the estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the
estate only up to the extent of and in proportion to any share he received. He relies on Government of the
Philippine Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs and distributees are
liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount
or value of the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.
37

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he
received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to the last paragraph of
Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company
liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor
of the Government of the Philippines from the time when the assessment was made by the Commissioner of
Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto upon all
property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the
P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy
was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action rests on the concept that hereditary property
consists only of that part which remains after the settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.6 The reason why in case suit is filed against all the heirs the tax
due from the estate is levied proportionately against them is to achieve thereby two results: first, payment of the
tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to
property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in
the hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax
as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an imperious need.7 And as afore-stated in this case the
suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the
heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom
the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate
dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered.
CIR v. CTA, 234 SCRA 348
G.R. No. 106611 July 21, 1994
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:
The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the Court of
Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund to herein private
respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid
income taxes for 1984 and 1985, but denied its claim for the alleged refundable amount reflected in its 1983
income tax return on the ground of prescription. 1 That judgment of the tax court was affirmed by respondent
Court of Appeals in its judgment in CA-G.R. SP
38

No. 26839. 2 The case was then elevated to us in the present petition for review on certiorari wherein the latter
judgment is impugned and sought to be nullified and/or set aside.
It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim for refund
with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate of
the excess of its carried-over total quarterly payments over the actual income tax due, plus carried-over
withholding tax payments on government securities and rental income, as computed in its final income tax return
for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period, Citytrust filed a
petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the refund of its income
tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent commissioner, it
was asserted that the mere averment that Citytrust incurred a net loss in 1985 does not ipso facto merit a refund;
that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax
overpayment, taxes withheld on proceeds of government securities investments, as well as on rental income,
respectively, are not properly documented; that assuming arguendo that petitioner is entitled to refund, the right
to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the National
Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. 5
On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence submitted
by herein private respondent Citytrust. Herein petitioner could not present any evidence by reason of the repeated
failure of the Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as the investigation
report thereon, to the Solicitor General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion praying for the
suspension of the proceedings in the said case on the ground that the claim of Citytrust for tax refund in the
amount of P19,971,745.00 was already being processed by the Tax Credit/Refund Division of the BIR, and that said
bureau was only awaiting the submission by Citytrust of the required confirmation receipts which would show
whether or not the aforestated amount was actually paid and remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired jurisdiction
over the case, it could no longer be divested of the same; and, further, that the proceedings therein could not be
suspended by the mere fact that the claim for refund was being administratively processed, especially where the
case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3 adduced in
the case, which clearly showed that there was an overpayment of income taxes and for which a tax credit or
refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an admission by herein
petitioner that there had been an overpayment of income taxes. 8
The tax court denied the motion to suspend proceedings on the ground that the case had already been submitted
for decision since February 20, 1991. 9
Thereafter, said court rendered its decision in the case, the decretal portion of which declares:
WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for the overpaid taxes incurred in
1984 and 1985. The refundable amount as shown in its 1983 income tax return is hereby denied on the ground of
prescription. Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking Corp. in the amount
of P13,314,506.14 representing the overpaid income taxes for 1984 and 1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67

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

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

39

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

Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00

Amount Refundable for 1985 P (17,842.47)
* Note:
These credits are smaller than the claimed amount because only the above figures are well supported by the
various exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of withholding
has been established by the statements and certificates of withholding taxes accomplished by herein private
respondent's withholding agents, the authenticity of which were neither disputed nor controverted by herein
petitioner; (2) no evidence was presented which could effectively dispute the correctness of the income tax return
filed by herein respondent corporation and other material facts stated therein; (3) no deficiency assessment was
issued by herein petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch,
recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which enjoys the
presumption of regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole ground that
the statements and certificates of taxes allegedly withheld are not conclusive evidence of actual payment and
remittance of the taxes withheld to the BIR. 12 A supplemental motion for reconsideration was thereafter filed,
wherein it was contended for the first time that herein private respondent had outstanding unpaid deficiency
income taxes. Petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division,
dated August 8, 1991, he came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the
amount of P56,588,740.91 representing deficiency income and business taxes covered by Demand/Assessment
Notice No. FAS-1-84-003291-003296. 13
Oppositions to both the basic and supplemental motions for reconsideration were filed by private respondent
Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions for the reason that
Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was declared as part
of the gross income, and that the fact of withholding was duly established. Moreover, with regard to the argument
raised in the supplemental motion for reconsideration anent the deficiency tax assessment against herein
petitioner, the tax court ruled that since that matter was not raised in the pleadings, the same cannot be
considered, invoking therefor the salutary purpose of the omnibus motion rule which is to obviate multiplicity of
motions and to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of Appeals
which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals. Petitioner
eventually elevated the case to this Court, maintaining that said respondent court erred in affirming the grant of
the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and substantiate
its claim for such refund; and, secondly, the bureau's findings of deficiency income and business tax liabilities
against private respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this case, the ends of
substantial justice and public interest would be better subserved by the remand of this case to the Court of Tax
Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal Revenue, was
denied its day in court by reason of the mistakes and/or negligence of its officials and employees. It can readily be
gleaned from the records that when it was herein petitioner's turn to present evidence, several postponements
were sought by its counsel, the Solicitor General, due to the unavailability of the necessary records which were not
transmitted by the Refund Audit Division of the BIR to said counsel, as well as the investigation report made by the
Banks/Financing and Insurance Division of the said bureau/ despite repeated requests. 17 It was under such a
predicament and in deference to the tax court that ultimately, said records being still unavailable, herein
40

petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without presenting any
evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court of Tax
Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax Appeals which
provides that the Commissioner of Internal Revenue and the Commissioner of Customs shall certify and forward to
the Court of Tax Appeals, within ten days after filing his answer, all the records of the case in his possession, with
the pages duly numbered, and if the records are in separate folders, then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the aforementioned initiatory
petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the BIR still continued to
act administratively on the claim for refund previously filed therein, instead of forwarding the records of the case
to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its
agents. 19In the performance of its governmental functions, the State cannot be estopped by the neglect of its
agent and officers. Although the Government may generally be estopped through the affirmative acts of public
officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not
and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the Government
cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation
through which the government agencies continue to operate and with which the State effects its functions for the
welfare of its constituents. 21The errors of certain administrative officers should never be allowed to jeopardize
the Government's financial position, 22especially in the case at bar where the amount involves millions of pesos
the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's supplemental motion
for reconsideration alleging bringing to said court's attention the existence of the deficiency income and business
tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably
intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund
despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein
private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for
the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are
true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a
challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when the
claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement, or return,
which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or contained any
understatement or undervaluation, no tax collected under such assessment shall be recovered by any suits unless
it is proved that the said list, statement, or return was not false nor fraudulent and did not contain any
understatement or undervaluation; but this provision shall not apply to statements or returns made or to be made
in good faith regarding annual depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably
result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the
Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which
recourse must be filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in
the false or fraudulent return involved. 23 This would necessarily require and entail additional efforts and
expenses on the part of the Government, impose a burden on and a drain of government funds, and impede or
delay the collection of much-needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary and legally
appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly with its claim for
tax refund, to determine once and for all in a single proceeding the true and correct amount of tax due or
refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that the
taxpayer and the Government alike be given equal opportunities to avail of remedies under the law to defeat each
41

other's claim and to determine all matters of dispute between them in one single case. It is important to note that
in determining whether or not petitioner is entitled to the refund of the amount paid, it would necessary to
determine how much the Government is entitled to collect as taxes. This would necessarily include the
determination of the correct liability of the taxpayer and, certainly, a determination of this case would constitute
res judicata on both parties as to all the matters subject thereof or necessarily involved therein.
The Court cannot end this adjudication without observing that what caused the Government to lose its case in the
tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and not to syndicated intent
or corruption. The evidential cul-de-sac in which the Solicitor General found himself once again gives substance to
the public perception and suspicion that it is another proverbial tip in the iceberg of venality in a government
bureau which is pejoratively rated over the years. What is so distressing, aside from the financial losses to the
Government, is the erosion of trust in a vital institution wherein the reputations of so many honest and dedicated
workers are besmirched by the acts or omissions of a few. Hence, the liberal view we have here taken pro hac
vice, which may give some degree of assurance that this Court will unhesitatingly react to any bane in the
government service, with a replication of such response being likewise expected by the people from the executive
authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE and the
case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate action, more
particularly, the reception of evidence for petitioner and the corresponding disposition of CTA Case No. 4099 not
otherwise inconsistent with our adjudgment herein.
SO ORDERED.

Marcos II v. CA, 273 SCRA 47
[G.R. No. 120880. June 5, 1997]
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN,respondents.
D E C I S I O N
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair,
suffering the basic and oftly implored requisites of due process of law. Specifically, the petition assails the
Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said court held:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax assessment, are
already final and (u)nappealable -and- the subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy
is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari with prayer
for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of
the Philippines, the matter of the settlement of his estate, and its dues to the government in estate taxes, are still
unresolved, the latter issue being now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos
II, the eldest son of the decedent, questions the actuations of the respondent Commissioner of Internal Revenue in
assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax
delinquencies upon the estate and properties of his father, despite the pendency of the proceedings on probate of
the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch
156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an
application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to -
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by
respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
42

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the Auction
of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision[2] on November 29, 1994,
ruling that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari with
prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the
following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES RESORTED TO BY THE
GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING
PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF
THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX ASSESSMENTS OF
PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO
INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS
HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER
AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE
FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue Memorandum
Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership or interests in several
properties (both personal and real) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents assessment of the estate tax and their
issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with copies of
the Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY ERRED IN RULING
THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax
liabilities and obligations of the late president, as well as that of his family, associates and "cronies". Said audit
team concluded its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon City
for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in relation to Section 252- a & b)
of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the
estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the
Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
43

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464
(against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2)
Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-
91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in
the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency
income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments were
all personally and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos
(through her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D'
and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand
'Bongbong' Marcos II were also personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M.
(Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were served on October 20, 1992,
upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the late
president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain
parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses
Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the
deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax
remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the
attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting the interest
of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the late president - copies of the aforesaid
notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their
counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The
public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the
lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and prohibition
under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary
injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of
taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government
and should be collected without unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the
respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President
Marcos effected by the BIR are null and void for disregarding the established procedure for the enforcement of
taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos[4] is specifically cited to bolster the
argument that "the ordinary procedure by which to settle claims of indebtedness against the estate of a deceased,
person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate court so that said
court may order the administrator to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.
44

Petitioner goes further, submitting that the probate court is not precluded from denying a request by the
government for the immediate payment of taxes, and should order the payment of the same only within the
period fixed by the probate court for the payment of all the debts of the decedent. In this regard, petitioner cites
the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was
held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803), relied
upon by the petitioner-appellant is good authority on the proposition that the court having control over the
administration proceedings has jurisdiction to entertain the claim presented by the government for taxes due and
to order the administrator to pay the tax should it find that the assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that case must be understood in relation to the case of Collector of
Customs vs. Haygood, supra., as to the procedure to be followed in a given case by the government to effectuate
the collection of the tax. Categorically stated, where during the pendency of judicial administration over the estate
of a deceased person a claim for taxes is presented by the government, the court has the authority to order
payment by the administrator; but, in the same way that it has authority to order payment or satisfaction, it also
has the negative authority to deny the same. While there are cases where courts are required to perform certain
duties mandatory and ministerial in character, the function of the court in a case of the present character is not
one of them; and here, the court cannot be an organism endowed with latitude of judgment in one direction, and
converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is
paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over the same. According to the
respondent, claims for payment of estate and income taxes due and assessed after the death of the decedent need
not be presented in the form of a claim against the estate. These can and should be paid immediately. The
probate court is not the government agency to decide whether an estate is liable for payment of estate of income
taxes. Well-settled is the rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a probate court
over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once invoked, and made
effective, cannot be treated with indifference nor should it be ignored with impunity by the very parties invoking
its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the sale of
properties of a deceased person by his prospective heirs before final adjudication;[5] to determine who are the
heirs of the decedent;[6] the recognition of a natural child;[7] the status of a woman claiming to be the legal wife
of the decedent;[8] the legality of disinheritance of an heir by the testator;[9] and to pass upon the validity of a
waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to
collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a decedent's
estate, although it may be viewed as an incident to the complete settlement of an estate, and, under some
statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the estate as
such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and determination of the cash value
of the assets and the determination of the tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National Internal
Revenue Code attests to this:
45

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall
comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect
to and administer the supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are
the lifeblood of the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to
the committee on claims in the ordinary course of administration. In the exercise of its control over the
administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs
even after the distribution of the properties of the decedent. They are exempted from the application of the
statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received. Another
remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands
of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda,
21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal
over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the
estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been pursued
through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a
period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in
such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the
decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time required for the filing of the same,
petitioner, and the other heirs never questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by President
Marcos.
46

Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the
Government, collection thereof may have been done in violation of the law. Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective of the finality of the former, because
the Government does not have the unbridled discretion to enforce collection without regard to the clear provision
of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and
324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of said
assessments were still issued by respondents well beyond the period mandated in Revenue Memorandum Circular
No. 38-68. These Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at least seventeen
(17) months had already lapsed from the last service of tax assessment on 12 September 1991. As no notices of
distraint of personal property were first issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor later than
six (6) months from 12 September 1991. In accordance with the Circular, respondents only had until 12 March
1992 (the last day of the sixth month) within which to issue these Notices of Levy. The Notices of Levy, having
been issued beyond the period allowed by law, are thus void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in
accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the summary remedy of distraint or levy
pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency in
this instance is Article 223 of the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a) In the case of a false or
fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding
in court for the collection of such tax may be begun without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection
thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by
the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return, the
tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by
levy upon real property within three years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards protesting the validity of the said
assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on
protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or
interests in several properties (both real and personal) make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question
the ownership and interests of the late President in real and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of
estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere
fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
47

Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of P23,292,607,638.00,
stating that this amount deviates from the findings of the Department of Justice's Panel of Prosecutors as per its
resolution of 20 September 1991. Allegedly, this is clear evidence of the uncertainty on the part of the
Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already
become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due
upon the subject estate, but the Bureau of Internal Revenue[16] whose determinations and assessments are
presumed correct and made in good faith.[17] The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment
is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said
assessment.[18] In this instance, petitioner has not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the
taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded
the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The
course of action taken by the petitioner reflects his disregard or even repugnance of the established institutions
for governance in the scheme of a well-ordered society. The subject tax assessments having become final,
executory and enforceable, the same can no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or remedy.[19] This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent
appellate court's pronouncements sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts and
circumstances, as well as evidences, that there was sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and September 12, 1991, as well as the notices of
assessment personally given to the caretaker of petitioner also at his last known address on September 12, 1991 -
the subsequent notices given thereafter could no longer be ignored as they were sent at a time when petitioner
was already here in the Philippines, and at a place where said notices would surely be called to petitioner's
attention, and received by responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner, at his
office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex
"B", p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the petitioner and
their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June 10,
1993. Despite all of these Notices, petitioner never lifted a finger to protest the assessments, (upon which the
Levy and sale of properties were based), nor appealed the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner
continuously ignored said Notices despite several opportunities given him to file a protest and to thereafter appeal
to the Court of Tax Appeals, - the tax assessments subject of this case, upon which the levy and sale of properties
were based, could no longer be contested (directly or indirectly) via this instant petition for certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued
without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that
he has an interest in the subject estate, and notices of levy upon its properties should have been served upon him.
48

We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer
is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the
same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province
or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant
of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa.[21] We cannot therefore, countenance petitioner's insistence that he
was denied due process. Where there was an opportunity to raise objections to government action, and such
opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor
of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not
only taints his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated
November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.

Philex Mining Corporation v. CIR, 294 SCRA 687
[G.R. No. 125704. August 28, 1998]
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and
THE COURT OF TAX APPEALS, respondents.
D E C I S I O N
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R.
SP No. 36975[1] affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16,
1995[2] ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter
of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd,
3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount ofP123,821,982.52
computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
------------------- ----------------- ----------------- ---------------------
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
========== ========== =========== ===========[3]
In a letter dated August 20, 1992,[4] Philex protested the demand for payment of the tax liabilities stating that it
has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount
of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.[5]
49

In reply, the BIR, in a letter dated September 7, 1992,[6] found no merit in Philexs position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can take
place. Hence, he BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the
receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input credit/refund against its exercise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992.[7] In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to
the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax obligation
of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance
of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. Liquidated
debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines,
Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still
pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). Afortiori, the liquidated
debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compaia General de Tabacos vs.French and Unson, No. 14027,
November 8, 1918, 39 Phil. 34).[8]
Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on compensation since claim for
taxes is not a debt or contract.[9] The dispositive portion of the CTA decision[10] provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED
to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-G.R. CV No.
36975.[11] Nonetheless, on April 8, 1996, the Court of Appeals affirmed the Court of Tax Appeals observation. The
pertinent portion of which reads:[12]
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16,
1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities[15] since both had already become due and demandable, as well as fully
liquidated;[16] hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and
debtors of each other.[17] There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.[18] We find
no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,[19] we categorically held that taxes
cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes him
50

an amount equal to or greater than the tax being collected. The collection of tax cannot await the results of a
lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on
Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off.
Further, Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein
we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was anchored on Section 51(d) of
the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the
same provision upon which the Itogon-Suyoc pronouncement was based was omitted.[22] Accordingly, the
doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise liabilities within the prescribed period since, after all, it still has
pending claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic principle in tax law that taxes
are the lifeblood of the government and so should be collected without unnecessary hindrance.[24] Evidently, to
countenance Philexs whimsical reason would render ineffective our tax collection system. Too simplistic, it finds
no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending
tax claim for refund or credit against the government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.[25] Hence, a tax does not
depend upon the consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising the defense
that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A
taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government.[27] Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner
by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial
for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection
thereof.[28] The same cannot be condoned for flimsy reasons,[29] similar to the one advanced by Philex in
justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e)[30] of the National Internal Revenue Code of 1977,
which requires the refund of input taxes within 60 days,[31] when it took five years for the latter to grant its tax
claim for VAT input credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund,[33] however, once the claimant has submitted all the
required documents, it is the function of the BIR to assess these documents with purposeful dispatch. After all,
since taxpayers owe honesty to government it is but just that government render fair service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid
taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could
have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's
discharge of its function. As aptly held in Roxas v. Court of Tax Appeals:[36]
"The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly,
51

lest the tax collectot kill the 'hen that lays the golden egg.' And, in the order to maintain the general public's trust
and confidence in the Government this power must be used justly and not treacherously."
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that
in the performance of governmental function, the State is not bound by the neglect of its agents and officers.
Nowhere is this more true than in the field of taxation.[37] Again, while we understand Philex's predicament, it
must be stressed that the same is not valid reason for the non- payment of its tax liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public servants or employees especially
BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in
acting upon the taxpayer's claims for refund, the latter can seek judicial remedy before the Court of Tax Appeals in
the manner prescribed by law.[38] Second, if the inaction can be characterized as willful neglect of duty, then
recourse under the Civil Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:
"Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an action for damages and other relief against the latter,
without prejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of
official duties.[39] In no uncertain terms must we stress that every public employee or servant must strive to
render service to the people with utmost diligence and efficiency. Insolence and delay have no place in
government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot
be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening
the country's development. We take judicial notice of the taxpayer's generally negative perception towards the
BIR; hence, it is up to the latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot
justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should
have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court
of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.

Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775
G.R. No. L-22074 September 6, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, ET AL., respondents.
R E S O L U T I O N*
BENGZON, J.P., J.:
The Philippine Guaranty Company, Inc. moves for the reconsideration of our decision, promulgated on April 30,
1965, holding it liable for the payment of income tax which it should have withheld and remitted to the Bureau of
Internal Revenue in the total sum of P375,345.00.
The grounds raised in the instant motion all spring from movant's view that the Court of Tax Appeals as well as this
Court, found it "innocent of the charges of violating, willfully or negligently, subsection (c) of Section 53 and
Section 54 of the National Internal Revenue Code." Hence, it cannot subsequently be held liable for the
assessment of P375,345.00 based on said sections.
The premise of movants' reasoning cannot be accepted. The Court of Tax Appeals and this Court did not find that it
did not violate Sections 53 (c) and 54 of the Tax Code. On the contrary, movant was found to have violatedSection
53(c) by failing to file the necessary withholding tax return and to pay tax due. Still, finding that
movant'sviolation was due to a reasonable cause namely, reliance on the advice of its auditors and opinion of
the Commissioner of Internal Revenue no surcharge to the tax was imposed. Section 72 of the Tax Code
provides:
52

SEC. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns. The
Commissioner of Internal Revenue shall assess all income taxes. In case of willful neglect to file the return or list
within the time prescribed by law or in case a false or fraudulent return or list is willfully made, the Commissioner
of Internal Revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis
of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such
tax or deficiency tax. In case of any failure to make and file a return or list within the time prescribed by law or by
the Commissioner or other internal-revenue officer, not due to willful neglect, the Commissioner of Internal
Revenue shall add to the tax twenty-five per centum of its amount, except that, when a return is voluntarily and
without notice from the Commissioner or other officer filed after such time, and it is shown that the failure to file
it was due to a reasonable cause, no such addition shall be made to the tax ... .
It will be noted that the first half of the above-quoted section covers failure to file a return, willingly and/or due to
negligence, in which case the surcharge is, 50%. In the second part of the law it covers failure to make and file a
return "not due to willful neglect," in which case only 25% surcharge should be added. As a further concession to
the taxpayer the above-quoted section provides that if "it is shown that the failure to file it was due to
a reasonable cause, no such addition shall be made to the tax."
It would, therefore, be incorrect for movant to state that it was found "innocent of the charges of violating,
willfully or negligently, sub-section (c) of Section 53 and Section 54. For, precisely, the mere fact that it was
exempted from paying the penalty necessarily implies violation of Section 53(c). Violating Section 53(c) is one
thing; imposing the penalty for such violation under Section 72 ** is another. If it is found that the failure to file is
due to a reasonable cause, then exemption from surcharge sets in but never exemption from payment of the tax
due.
Since movant failed to pay the tax due, in the sum of P375,345.00, this Court ordered it to pay the same. Simply
because movant was relieved from paying the surcharge for failure to file the necessary returns, it now wants us to
absolve it from paying even the tax. This, we cannot do. The non-imposition of the 25% surcharge does not carry
with it remission of the tax.
Movant argues that it could not be expected to withhold the tax, for as early as August 18, 1953 the Board of Tax
Appeals held in the case of Franklin Baker 1 that the reinsurance premiums in question were not subject to
withholding. On top of that, movant maintains, the Commissioner of Internal Revenue, in reply to the query of its
accountants and auditors, issued on September 5, 1953 an opinion subscribing to the ruling in the Franklin Baker
case. As already explained in our decision a mistake committed by Government agents is not binding on the
Government.
Inasmuch as movant insists on this point in its motion for reconsideration, we shall further elaborate on the same.
Section 200 of the Income Tax Regulations expressly grants protection to him only if and when he follows strictly
what has been provided therein.
Section 53 (c) makes the withholding agent personally liable for the income tax withheld under Section 54. It
states:
SEC. 53(c). Return and payment. Every person required to deduct and withhold any tax under this section shall
make return thereof, in duplicate, on or before the fifteenth day of April of each year, and, on or before the time
fixed by law for the payment of the tax, shall pay the amount withheld to the officer of the Government of the
Philippines authorized to receive it. Every such person is made personally liable for such tax, and is indemnified
against the claims and demands of any person for the amount of any payments made in accordance with the
provisions of this section.
The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the
tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction.
Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to
the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary
income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding
agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally
liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies
are not made liable by law.
Movant then further contends that as agent of the Government it was released from liability for the tax after it
was advised by the Commissioner of Internal Revenue that the reinsurance premiums involved were not subject to
53

withholding. It relies on the provisions of the second paragraph of Section 200 of the Income Tax Regulations
which states:
In case of doubt, a withholding agent may always protect himself by withholding the tax due, and promptly causing
a query to be addressed to the Commissioner of Internal Revenue for the determination of whether or not the
income paid to an individual is not subject to withholding. In case the Commissioner of Internal Revenue decides
that the income paid to an individual is not subject to withholding the withholding agent may thereupon remit the
amount of tax withheld.
The section above-quoted relaxes the application of the stringent provisions of Section 53 of the Tax Code.
Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps to be taken by the
withholding agent, namely: (1) that he withholds the tax due; (2) that he promptly addresses a query to the
Commissioner of Internal Revenue for determination whether or not the income paid to an individual is subject to
withholding; and (3) that the Commissioner of Internal Revenue decides that such income is not subject to
withholding. Strict observance of said steps is required of a withholding agent before he could be released from
liability. Generally, the law frowns upon exemption from taxation, hence, an exempting provision should be
construed strictis simi juris.2
It may be illuminating to mention here, however, that the Income Tax Regulations was issued by the Secretary of
Finance upon his authority, "to promulgate all needful rules and regulations of the effective enforcement" of the
provisions of the Tax Code.3 The mission, therefore, of Section 200, quoted above, is to implement Section 53 of
the Tax Code for no other purpose than to enforce its provisions effectively. It should also be noted, that Section
53 provided for no exemption from the duty to withhold except in the cases of tax-free covenant bonds
dividends.1awphl.nt
The facts in this case do not support a finding that movant complied with Section 200. For, it has not been shown
that it withheld the amount of tax due before it inquired from the Bureau of Internal Revenue as to the taxability
of the reinsurance premiums involved. As a matter of fact, the Court of Tax Appeals found that "upon advice of its
accountants and auditors, ... petitioner did not collect and remit to the Commissioner of Internal Revenue the
withholding tax." This finding of fact of the lower court, unchallenged as it is, may not be disturbed.4
The requirement in Section 200 that the withholding agent should first withhold the tax before addressing a query
to the Commissioner of Internal Revenue is not without meaning for it is in keeping with the general operation of
our tax laws: payment precedes defense. Prior to the creation of the Court of Tax Appeals, the remedy of a
taxpayer was to pay an internal revenue tax first and file a claim for refund later.5 This remedy has not been
abrogated for the law creating the Court of Tax Appeals merely gives to the taxpayer an additional remedy. With
respect to customs duties the consignee or importer concerned is required to pay them under protest, before he is
allowed to question the legality of the imposition.6 Likewise, validity of a realty tax cannot be assailed until after
the taxpayer has paid the tax under protest.7 The legislature, in adopting such measures in our tax laws, only
wanted to be assured that taxes are paid and collected without delay. For taxes are the lifeblood of government.
Also, such measures tend to prevent collusion between the taxpayer and the tax collector. By questioning a tax's
legality without first paying it, a taxpayer, in collusion with Bureau of Internal Revenue officials, can unduly delay, if
not totally evade, the payment of such tax.
Of course, in this case there was absolutely no such collusion. Precisely, the Philippine Guaranty Company, Inc. was
absolved from the payment of the 25% surcharge for non-filing of income tax returns inasmuch as the Tax Court as
well as this Court believes that its omission was due to a reasonable cause.

Villanueva v. City of Iloilo, 265 SCRA 538
G.R. No. L-26521 December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal
Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The
54

Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of
collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as
follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in
or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not
appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to
the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act
2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance
similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder
quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING
TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264,
otherwise known as the Autonomy Law of Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of
payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting
space divided into separate apartments or accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:
I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.
(b) Apartment house made of mixed materials P10.00 per door p.a.
II Rooming house of strong materials P10.00 per door p.a.
Rooming house of mixed materials P5.00 per door p.a.
III. Tenement house partly or wholly engaged in or dedicated to business in
the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma
from Plazoleto Gay to Valeria. St. P30.00 per door p.a.
IV. Tenement house partly or wholly engaged in or dedicated to business in
any other street P12.00 per door p.a.
V. Tenement houses at the streets surrounding the super market as soon as
said place is declared commercial P24.00 per door p.a.
Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred
Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners
of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a
Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the
55

owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City,
Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios
S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S.
Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has
likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be
declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the
equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from
them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a)
"Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and
unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it
constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. 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 licences 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 services
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; Provided,
That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in
any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions
of the National Internal Revenue Code;Provided, however, That no city, municipality or municipal district may levy
or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review
or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not
published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and
power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for
the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all
other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance
companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide
otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any
56

ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or
imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the
effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal council or municipal
district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of
Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing
authority which extends to almost "everything, excepting those which are mentioned therein," provided that the
tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is
not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the
general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus
non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the
Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees
strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the
title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating
tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement
houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a
real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one
per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the
appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not
applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax
on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable
regardless of whether the property is used or not, although the value may vary in accordance with such
factor.9The tax is usually single or indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to separate owners.10 It is a fixed
proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of
assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable
against the property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the
land on which the tenement houses are erected, although both land and tenement houses may belong to the
same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require
the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable
against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate
tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to
its words and more to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is
within the ordinance although it is not within the letter thereof, while that which is in the letter, although not
within the spirit, is not within the ordinance."15 It is within neither the letter nor the spirit of the ordinance that an
additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement
houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax
on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and
body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself,
means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or
calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but
such words must be taken in the connection in which they are used and the true character is to be deduced from
the nature and essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature
and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for
renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios
57

Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a tenement house18 as "any house or
building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or
residence of three families or more living independently of each other and doing their cooking in the premises or
by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways,
yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by
their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or
motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why
this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra
vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax,
fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which
constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of
Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly
granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance
in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax.
Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other
hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement
houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the
authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform
taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because
"buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal
Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as
"income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National
Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their
account as principals or as owners of rental property or properties," are considered "real estate dealers" and are
taxed according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal
Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against
double taxation may not be invoked. The same tax may be imposed by the national government as well as by the
local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the
same occupation, calling or activity by both the State and a political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the
tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license
tax may be levied upon a business or occupation although the land or property used in connection therewith is
subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time
impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed
twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for
the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing
district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown
that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing
authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not
favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the
requirement that taxes must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive
because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners
of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said
ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for
58

non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it
made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or non-
payment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred
by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment
thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for
the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a
specified territory, without regard to their property or the occupations in which they may be
engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other
hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which
shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for
each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the
lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various
professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance
imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of
real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be
properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay
apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and
"relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their
tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are
permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has already ruled that
tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal
when imposed upon all property of the same class or character within the taxing authority."31 The fact, therefore,
that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in
question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality
and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not
require that taxes for the same purpose should be imposed in different territorial subdivisions at the same
time.32So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as
owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly
distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and
equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere
reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires,
the decision in that case should be accorded the effect of res judicata in the present case or should constitute
estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in
that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with
tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City
charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act.
There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the
Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the
decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the
Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the
enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local
Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized
by law, and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby
dismissed. No pronouncement as to costs..
59

Francia v. IAC, 162 SCRA 622
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate
Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow
him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the
latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio
San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is
described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the
Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property
was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464
known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the
highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship
bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New
Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his
name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale
had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the
final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January
24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and
ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho
Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances
appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING
PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT
OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING
THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO
TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS
60

GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF
PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID.
(pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property
was sold at public auction without notice to him and that the price paid for the property was shockingly
inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon
himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant
of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims
that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977.
Hence, his tax obligation had been set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the
case do not satisfy the requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the
other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not
be the subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are
they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80
C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the general rule is
based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are
the positive acts of the government to the making and enforcing of which, the personal consent of individual
taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim
against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue
taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and
debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city government
while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the
national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank
long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977
was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew
about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to
withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he
pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions
of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by
61

law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of
this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ...
.(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof
to show that there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and thegeneral rule is that
the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings
leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his
property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This
is actually an exception to the rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied
with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain
the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction
sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977
(Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial
compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question
shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read
the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such
notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the
auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not
material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289;
Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we
held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to
effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering
the wide divergence between their assessed values and the amounts for which they had been actually sold.
However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of
inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such
does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction,
upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly
said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment
debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have
suffered by reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash.
162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner
would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the
62

correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid
objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it
would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax
sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367,
369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship from which we would be glad to
relieve, but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of
taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely
because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas,
real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot
appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny
the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong
considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the
date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an
act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine
National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another
notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr.
Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent
court is affirmed.
SO ORDERED.

Philex Mining Corp. v. CIR, 294 SCRA 687 [1998]
G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS,respondents.

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R.
SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering
it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the
2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249
of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd,
3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52
computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
63

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3
========= ========= ========= =========
In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it
has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling inCommissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can take
place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the
receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to
the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated"
debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines,
Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still
pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated
debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compaia General de Tabacos vs. French and Unson, No. 14027,
November 8, 1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for
taxes is not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to
PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant
to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation.
The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995
is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence,
legal compensation can properly take place.
We see no merit in this contention.
64

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and
debtors of each other. 17 There is a material distinction between a tax and debt. Debts are due to the Government
in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 18 We find no cogent
reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes
cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on
Audit,20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot
be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein
we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner, 21 is no longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d)
of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted,
the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the
doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still
has pending claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes
are the lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to
countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds
no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending
tax claim for refund or credit against the government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not
depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense
that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A
taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner
by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial
for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection
thereof.28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying
its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for
VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the
required documents it is the function of the BIR to assess these documents with purposeful dispatch. After all,
since taxpayers owe honestly to government it is but just that government render fair service to the taxpayers. 34
65

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid
taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could
have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's
discharge of its function. As aptly held in Roxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution
to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden egg" And, in order to maintain the general public's trust and
confidence in the Government this power must be used justly and not treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that
in the performance of governmental function, the State is not bound by the neglect of its agents and officers.
Nowhere is this more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it
must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees,
especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR
takes time in acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of
Tax Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of
duty, then recourse under the Civil Code and the Tax Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an action for damages and other relief against the latter,
without prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of
official duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render
service to the people with utmost diligence and efficiency. Insolence and delay have no place in government
service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic
and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's
development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is
up to the latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot
justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should
have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court
of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Domingo v. Garlitos [8 SCRA 443
G.R. No. L-18994 June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron.
Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing
the respondent court below to execute the judgment in favor of the Government against the estate of Walter
Scott Price for internal revenue taxes.
66

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court
declared as final and executory the order for the payment by the estate of the estate and inheritance taxes,
charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special
proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to
enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the
execution of the judgment. The petition was, however, denied by the court which held that the execution is not
justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The
orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of
her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956
and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary
De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated
August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of
Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc.,
represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering
these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court
promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to
the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without
further delay. (Order of August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the
claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the
administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the
Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the
latter's account to it, specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of the Government
against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim
before the probate court so that said court may order the administrator to pay the amount thereof. To such effect
is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29,
1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and
expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale
or mortgage of real property of the deceased and all debts or expenses of administrator and with the written
notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90,
section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7,
should be complied with.1wph1.t
Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective
portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later
ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the
estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how
much and in what manner each person shall contribute, and mayissue execution if circumstances require" (Rule
89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a
deceased person, the properties belonging to the estate are under the jurisdiction of the court and such
jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the
pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff,
in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator
to pay the amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the
estate had found that the claim of the estate against the Government has been recognized and an amount of
P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the
67

above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for
services rendered have already become overdue and demandable is well as fully liquidated. Compensation,
therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation
of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not
aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of
the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy
for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.

Republic v. Ericta, [173 SCRA 623], (di ko po Makita)

CIR v. Esso Standard, [172 SCRA 364
G.R. Nos. L-28502-03 April 18, 1989
vs.
ESSO STANDARD EASTERN, INC. and THE COURT OF TAX APPEALS, respondents.

NARVASA, J.:
In two (2) cases appealed to it 1 by the private respondent, hereafter simply referred to as ESSO, the Court of Tax
Appeals rendered judgment2 sustaining the decisions of the Commissioner of Internal Revenue excepted to, save
"the refund-claim .. in the amount of P39,787.94 as overpaid interest which it ordered refunded to ESSO
Reversal of this decision is sought by the Commissioner by a petition for review on certiorari filed with this Court.
He ascribes to the Tax Court one sole error: "of applying the tax credit for overpayment of the 1959 income tax of
.. ESSO, granted by the petitioner (Commissioner), to .. (ESSO's) basic 1960 deficiency income tax liability x x and
imposing the 1-1/2% monthly interests 3 only on the remaining balance thereof in the sum of
P146,961.00" 4 (instead of the full amount of the 1960 deficiency liability in the amount of P367,994.00). Reversal
of the same judgment of the Court of Tax Appeals is also sought by ESSO in its own appeal (docketed as G.R. Nos.
L28508-09); but in the brief filed by it in this case, it indicates that it will not press its appeal in the event that "the
instant petition for review be denied and that judgment be rendered affirming the decision of the Court of Tax
Appeals."
The facts are simple enough and are quite quickly recounted. ESSO overpaid its 1959 income tax by P221,033.00. It
was accordingly granted a tax credit in this amount by the Comissioner on August 5,1964. However, ESSOs
payment of its income tax for 1960 was found to be short by P367,994.00. So, on July 10, 1964, the Commissioner
wrote to ESSO demanding payment of the deficiency tax, together with interest thereon for the period from April
18,1961 to April 18,1964. On August 10, 1964, ESSO paid under protest the amount alleged to be due, including
the interest as reckoned by the Commissioner. It protested the computation of interest, contending it was more
than that properly due. It claimed that it should not have been required to pay interest on the total amount of the
deficiency tax, P367,994.00, but only on the amount of P146,961.00representing the difference between said
deficiency, P367,994.00, and ESSOs earlier overpayment of P221,033.00 (for which it had been granted a tax
credit). ESSO thus asked for a refund.
The Internal Revenue Commissioner denied the claim for refund. ESSO appealed to the Court of Tax Appeals. As
aforestated. that Court ordered payment to ESSO of its "refund-claim x x in the amount of P39,787.94 as overpaid
interest. Hence, this appeal by the Commissioner. The CTA justified its award of the refund as follows:
... In the letter of August 5, 1964, .. (the Commissioner) admitted that .. ESSO had overpaid its 1959 income tax by
P221,033.00. Accordingly .. (the Commissioner) granted to .. ESSO a tax credit of P221,033.00. In short, the said
sum of P221,033.00 of ESSO's money was in the Government's hands at the latest on July 15, 1960 when it ESSO
paid in full its second installment of income tax for 1959. On July 10, 1964 .. (the Commissioner) claimed that for
1960, .. ESSO underpaid its income tax by P367,994.00. However, instead of deducting from P367,994.00 the tax
credit of P221,033.00 which .. (the Commissioner) had already admitted was due .. ESSO .. (the Commissioner) still
insists in collecting the interest on the full amount of P367,994.00 for the period April 18, 1961 to April 18,1964
68

when the Government had already in its hands the sum of P221,033.00 of .. ESSOs money even before the latter's
income tax for 1960 was due and payable. If the imposition of interest does not amount to a penalty but merely a
just compensation to the State for the delay in paying the tax, and for the concomitant use by the taxpayer of
funds that rightfully should be in the Government's hand (Castro v. Collector, G.R. No. L-1274, Dec. 28, 1962), the
collection of the interest on the full amount of P367,994.00 without deducting first the tax credit of P221,033.00,
which has long been in the hands of the Government, becomes erroneous, illegal and arbitrary.
.. (ESSO) could hardly be charged of delinquency in paying P221,033.00 out of the deficiency income tax of
P367,994.00, for which the State should be compensated by the payment of interest, because the said amount of
P221,033.00 was already in the coffers of the Government. Neither could .. ESSO be charged for the concomitant
use of funds that rightfully belong to the Government because as early as July 15, 1960, it was the Government
that was using .. ESSOs funds of P221,033.00. In the circumstances, we find it unfair and unjust for .. (the
Commissioner) to exact the interest on the said sum of P221,033.00 which, after all, was paid to and received by
the Government even before the incidence of the deficiency income tax of P367,994.00. (Itogon-Suyoc Mines, Inc.
v. Commissioner, C.T.A. Case No. 1327, Sept. 30,1965). On the contrary, the Government should be the first to
blaze the trail and set the example of fairness and honest dealing in the administration of tax laws.
Accordingly, we hold that the tax credit of P221,033.00 for 1959 should first be deducted from the basic deficiency
tax of P367,994.00 for 1960 and the resulting difference of P146,961.00 would be subject to the 18% interest
prescribed by Section 51 (d) of the Revenue Code. According to the prayer of ..(ESSO) .. (the Commissioner) is
hereby ordered to refund to .. (ESSO) the amount of P39,787.94 as overpaid interest in the settlement of its 1960
income tax liability. However, as the collection of the tax was not attended with arbitrariness because .. (ESSO)
itself followed x x (the Commissioner's) manner of computing the tax in paying the sum of P213,189.93 on August
10, 1964, the prayer of .. (ESSO) that it be granted the legal rate of interest on its overpayment of P39,787.94 from
August 10, 1964 to the time it is actually refunded is denied. (See Collector of Internal Revenue v. Binalbagan
Estate, Inc., G.R. No. 1,12752, Jan. 30, 1965).
The Commissioner's position is that income taxes are determined and paid on an annual basis, and that such
determination and payment of annual taxes are separate and independent transactions; and that a tax credit could
not be so considered until it has been finally approved and the taxpayer duly notified thereof. Since in this case, he
argues, the tax credit of P221,033.00 was approved only on August 5, 1964, it could not be availed of in reduction
of ESSOs earlier tax deficiency for the year 1960; as of that year, 1960, there was as yet no tax credit to speak of,
which would reduce the deficiency tax liability for 1960. In support of his position, the Commissioner invokes the
provisions of Section 51 of the Tax Code pertinently reading as follows:
(c) Definition of deficiency. As used in this Chapter in respect of tax imposed by this Title, the term 'deficiency'
means:
(1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon
his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or
collected without assessment) as a deficiency, and decreased by the amount previously abated credited, returned,
or otherwise in respect of such tax; ..
xxx xxx xxx
(d) Interest on deficiency. Interest upon the amount determined as deficiency shall be assessed at the same
time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and
shall be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for the
payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first
installment) to the date the deficiency is assessed; Provided, That the amount that may be collected as interest on
deficiency shall in no case exceed the amount corresponding to a period of three years, the present provision
regarding prescription to the contrary notwithstanding.
The fact is that, as respondent Court of Tax Appeals has stressed, as early as July 15, 1960, the Government already
had in its hands the sum of P221,033.00 representing excess payment. Having been paid and received by mistake,
as petitioner Commissioner subsequently acknowledged, that sum unquestionably belonged to ESSO, and the
Government had the obligation to return it to ESSO That acknowledgment of the erroneous payment came some
four (4) years afterwards in nowise negates or detracts from its actuality. The obligation to return money
mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the
obligation to reimburse. The obligation of the payee to reimburse an amount paid to him results from the mistake,
not from the payee's confession of the mistake or recognition of the obligation to reimburse. In other words, since
69

the amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960,
although the latter had no right whatever to the amount and indeed was bound to return it to ESSO, it was neither
legally nor logically possible for ESSO thereafter to be considered a debtor of the Government in that amount of
P221,033.00; and whatever other obligation ESSO might subsequently incur in favor of the Government would
have to be reduced by that sum, in respect of which no interest could be charged. To interpret the words of the
statute in such a manner as to subvert these truisms simply can not and should not be countenanced. "Nothing is
better settled than that courts are not to give words a meaning which would lead to absurd or unreasonable
consequences. That is a principle that goes back to In re Allen (2 Phil. 630) decided on October 29, 1903, where it
was held that a literal interpretation is to be rejected if it would be unjust or lead to absurd results." 6"Statutes
should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an
unjust or absurd conclusion." 7
WHEREFORE, the petition for review is DENIED, and the Decision of the Court of Tax Appeals dated October 28,
1967 subject of the petition is AFFIRMED, without pronouncement as to costs.

Pascual v. Sec. of Public Works 110 SCRA Phil 331
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the
above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating
Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road
terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen.
Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads
were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio
Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B,
near Shaw Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main highway"; that the
aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were
private properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a
member of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the
Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal;
that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would
submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor
of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another
letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00
appropriated therein for the construction of the projected feeder roads in question; that the municipal council of
Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not
made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at
the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for
the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal
and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members
were made to believe that the projected feeder roads in question were "public roads and not private streets of a
private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he was a member of
the Senate of the Philippines, an alleged deed of donation copy of which is annexed to the petition of the
70

four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the
Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation partook of the nature of a contract; that, such, said
donation violated the provision of our fundamental law prohibiting members of Congress from being directly or
indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as
null and voidab initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from
relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the
construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and
that, unless restrained by the court, the respondents would continue to execute, comply with, follow and
implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not
only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that
a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the
Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-
mentioned feeder roads project, and from making and securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and
Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned
parties respondent from making and securing any new and further releases on the aforesaid item of Republic Act
No. 920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and
that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the
Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section
1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the
appropriation of public funds for the improvements of . . . private property"; and that, the constitutional provision
invoked by petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a
contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved"
and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its
enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial
fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of
the disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for
anything but a public purpose", that the instructions and improvement of the feeder roads in question, if such
roads where private property, would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will
use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being
expressly understood that should the Government of the Republic of the Philippines violate the condition hereby
imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the DONOR,
JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by
the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in
existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . .
or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, because
his "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should be
upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to
dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of
appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land
situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the
71

projected feeder roads aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the President on June
20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the
aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden
of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the
value of the subdivision" of said respondent. The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because Congress is the source of all
laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of public
funds for the improvement of what we, in the meantime, may assume as private property . . . (Record on Appeal,
p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government
established under the Constitution of the Republic of the Philippines and the system of checks and balances
underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative
enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling
Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-
400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only, discussedsupra sec.
14, money raised by taxation can be expended only for public purposes and not for the advantage of private
individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than
for a public purpose.
x x x x x x x x x
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a
necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of
the general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose
constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our
own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground
that petitioner may not contest the legality of the donation above referred to because the same does not affect
him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said
donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be
annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth
in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.
72

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which, latter on, became
Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement
of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the
projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said
appropriation sought a private purpose, and hence, was null and void. 4 The donation to the Government, over
five (5) months after the approval and effectivity of said Act, made, according to the petition, for the purpose of
giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic
defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance,
the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code,
exercise the rights and actions of the latter, except only those which are inherent in his person, including
therefore, his right to the annulment of said contract, even though such creditors are not affected by the same,
except indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an
officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such
funds," which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality
of a statute, the general rule is that not only persons individually affected, but alsotaxpayers, have sufficient
interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the
constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447),
insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal
Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under
the composite system of government existing in the U.S., the states of the Union are integral part of the
Federation from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty,
subject to the limitations imposed by the Federal Constitution. In fact, the same was made by representatives
ofeach state of the Union, not of the people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the others, ratified said Constitution.
In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S.
in consequence of an act of, and, in this sense, through the respective states of the Union of which they are
citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is
reflected in the election of its President, who is chosen directly, not by the people of the U.S., but by electors
chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal
Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of
each state and the government thereof, except that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the states of the Union, insofar as
the simple and unitary type of our national government is not subject to limitations analogous to those imposed by
the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the
interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted with respect
to acts of Congress of the United States appropriating federal funds.
73

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of
Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to
the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243),
a taxpayer and employee of the Government was not permitted to question the constitutionality of an
appropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers
impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason
that impelled this Court to take such position in said two (2) cases the importance of the issues therein raised
is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not
merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most
populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in
the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners
action in contesting the appropriation and donation in question; that this action should not have been dismissed
by the lower court; and that the writ of preliminary injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for
further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C.
Zulueta. It is so ordered.
CIR v. Santos, 277 SCRA 617 [1997]
[G.R. No. 119252. August 18, 1997]
COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF CUSTOMS, petitioners, vs. HON. APOLINARIO B.
SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig City; ANTONIO M. MARCO;
JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS, INC., respondents.
D E C I S I O N
HERMOSISIMA, JR., J.:
Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff
& Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the
Regional Trial Courts declare a law inoperative and without force and effect or otherwise unconstitutional? If it
can, under what circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal
of the Decision,[1] dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding
Judge of Branch 67 of the Regional Trial Court of Pasig City.
The following facts, concisely related in the petition[2] of the Office of the Solicitor General, appear to be
undisputed:
"1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the
manufacture of jewelers (sic) and allied undertakings. Among its members are Hans Brumann, Inc., Miladay Jewels
Inc., Mercelles, Inc., Solid Gold International Traders inc., Diagem Trading Corporation, and Private respondent
Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President of the Guild.
2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal Revenue,
acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order No. 109-88 to BIR
officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported articles of Hans
Brumann, Inc., and place the same under preventive embargo. The duration of the mission was from August 8 to
August 20, 1988 (Exhibit 1; Exhibit A).
3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR officers proceeded to the
establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they were
going to make an inventory of the articles involved to see if the proper taxes thereon have been paid. They then
made an inventory of the articles displayed in the cabinets with the assistance of an employee of the
establishment. They listed down the articles, which list was signed by the assistant employee. They also
requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles (pp,
10-15, TSN April 12,1993, Exhibits 2, 2-A, 3, 3-a).
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the necessary
taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment, signed a receipt
for Goods, Articles, and Things Seized under Authority of the National Internal Revenue Code (dated August 17,
74

1988), acknowledging that the articles inventoried have been seized and left in his possession, and promising not
to dispose of the same without authority of the Commissioner of Internal Revenue pending investigation.[3]
5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted and a
computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition.[4]
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive
embargo of the articles.[5]
7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D. Santos to
BIR officers to examine the books of accounts and other accounting records of Hans Brumann, Inc., for stocktaking
investigation for excise tax purposes for the period January 1, 1988 to present (Exhibit C). In a latter dated
October 27, 1988, in connection with the physical count of the inventory (stocks on hand) pursuant to said Letter
of Authority, Hans Brumann, Inc. was requested to prepare and make available to the BIR the documents indicated
therein (Exhibit 'D').
8. Hans Brumann, inc., did not produce the documents requested by the BIR.[6]
9. Similar Letters of Authority were issued to BIR officers to examine the books of accounts ans other accounting
records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibit E, G and N) and
Diagem Trading Corporation[7] for stocktaking/investigation for excise tax pirpose for the period January 1, 1988
to present.
10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in the
implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the articles in
the establishment.[8] The same is true with respect to Diagem Traders Corporation.[9]
12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed with
the Regional Trial Court, National Capital Judicial Region, Pasig City, Meto Manila, a petition for declaratory relief
with writ of preliminary injunction and/or temporary restraining order against herein petitioners and Revenue
Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying that Sections 126, 127(a) and (b) and
150 (a) of the National Internal Revenue Code and Hdg. No 71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff
and Customs Code of the Philippines be declared unconstitutional and void, and that the Commissioner of Internal
Revenue and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. x x
x
13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x
14. On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as
petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. x x x
15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.
16. On February 16, 1995, public respondent rendered a decision, the dispositive portion of which reads:
'In view of the foregoing reflections, judgment is hereby rendered, as follows:
1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg, 71.01, 71.02, 71.03, and 71.04,
Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%) percent tariff and customs
duty on natural and cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the National
Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive Order 273, imposing
twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as INOPERATIVE and WITHOUT
FORCE and EFFECT insofar as petitioners are concerned.
2. Enforcement of the same is hereby enjoined.
No cost.
SO ORDERED.
Section 150 (a) of Executive Order No. 273 reads:
SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20% based on
the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs
duties; net of the excise tax and value-added tax, of the following goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-
precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted with, precious metals
or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or
mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used in filling,
mounting or fitting of the teeth); opera glasses and lorgnettes. The term precious metals shall include platinum,
75

gold, silver, and other metals of similar or greater value. The term imitation thereof shall include platings and
alloys of such metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163
(a) of the Tax Code of 1986 which provided that:
SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected, once
only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended
to transfer ownership of, or title to, the article herein below enumerated a tax equivalent to 50% of the gross value
in money of the articles so sold, bartered. Exchanged or transferred, such tax to be paid by the manufacturer or
producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-
precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted with, precious metals
or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or
mounting for spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in filling,
mounting or fitting of the teeth); opera glasses, and lorgnettes. The term precious metals shall include platinum,
gold, silver, and other metals of similar or greater value. The term imitations thereof shall include platings and
alloys of such metals;
Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the
Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-
added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage
tax under then Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by
Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or
semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the
court a quo.
In support of their petition before the lower court, the private respondents submitted a position paper purporting
to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates
levied on the same in the Philippines.[10]
The following issues were thus raised therein:
"1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition.
2. Whether the petition states a cuase of action or whether the petition alleges a justiciable controversy
between the parties.
3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff
and Customs Code are unconstitutional.
4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.
In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take
cognizance of the petition since jurisdiction over the nature of the suit is conferred by law and it is detemine*d+
through the allegations in the petition, and that the Court of Tax Appeals ha no jurisdiction to declare a statute
unconstitutional much less issue writs of certiorari and prohibition in order to correct acts of respondents allegedly
committed with grave abuse of discretion amounting to lack of jurisdiction.
As to the second issue, the public respondent, made the holding that there exist a justiciable controversy between
the parties, agreeing with the statements made in the position paper presented by the private respondents, and
considering these statements to be factual evidence, to wit:
Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other
precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric cost of
taxation is killing the local manufacturing jewelry industry because they cannot compete with the neighboring and
other countries where importation and manufacturing of jewelry is not taxed heavily, if not at all; that while
government incentives and subsidies exist, local manufacturers cannot avail of the same because officially many of
them are unregistered and are unable to produce the required official documents because they operate
underground, outside the tariff and tax structure; that local jewelry manufacturing is under threat of extinction,
otherwise discouraged, while domestic trading has become more attractive; and as a consequence, neighboring
countries, such as Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors supplying the
76

Philippine market either through local channels or through the black market for smuggled goods are the ones who
are getting business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are
constantly subjected to bureaucratic harassment instead of being given by the government the necessary support
in order to survive and generate revenue for the government, and most of all fight competitively not only in the
domestic market but in the arena of world market where the real contest is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds that the
petition states a cause of action and there exist a justiciable controversy between the parties which would require
determination of constitutionality of laws imposing excise tax and customs duty on jewelry.[11] (emphasis ours)
The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and
oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their position
paper, the lower court stated:
The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item and
therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers
contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on
imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other precious
metals are duty free in Hongkong, Thailand, Malaysia and Singapore.
The court elaborates further on the experience of other countries in their treatment of the jewelry sector.
MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in
1984. They were removed to encouraged the development of Malaysias jewelry manufacturing industry and to
increase exports of jewelry.
THAILAND
Gems and jewelry are Thailands ninth most important export earner. In the past, the industry was overlooked by
successive administrations much to the dismay of those involved in developing trade. Prohibitive import duties
and sales tax on precious gemstones restricted the growth (sic) of the industry, resulting in most of the business
being unofficial. It was indeed difficult for a government or businessman to promote an industry which did not
officially exist.
Despite these circumstances, Thailands Gem business kept growing up in (sic) businessmen began to realize its
potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a sales tax
of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in gemstones and
jewelry would increase local manufacturing and exports or if it would mean more foreign made jewelry pouring
into Thailand. However, as time progressed, there were indications that local manufacturing was indeed being
encouraged and the economy was earning more from exports. The government soon removed the 3% sales tax
too. Putting Thailand at par with Hongkong and Singapore. In these countries, there are no more import duties
and sales tax on gems. (Cited in pages 6 and 7 of Exhibit M. The Center for Research and Communication in
cooperation with the Guild of Philippine Jewelers, Inc., June 1986).
To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and other percious and semi-
precious stones compared to other neighboring countries, to wit:
Tariff on imported
Jewelry and (MANUFACTURING) Sales Tax 10% (VAT)
Precious stones Excise Tax
Philippines 3% to 10% to be 20% 10% VAT
applied in stages
Malaysia None None None
Thailand None None None
Singapore None None None
Hongkong None None None
In this connection, the present tariff and tax structure increases manufacturing costs and renders the local jewelry
manufacturers uncompetitive against other countries even before they start manufacturing and trading. Because
of the prohibitive cast(sic) of taxation, most manufacturers source from black market for smuggled goods, and that
while manufacturers can avail of tax exemption and/or tax credits from the (manufacturing) excise tax, they have
no documents to present when filing this exemption because, as pointed out earlier, most of them source their
raw materials from the black market, and since many of them do not legally exist or operate onofficially(sic), or
77

underground, again they have no records (receipts) to indicate where and when they will utilize such tax credits.
(Cited in Exhibit M Buencamino Report).
Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if only to
be able to compete even ineffectively, or cease manufacturing activities and instead engage in the tradinf (sic) of
smuggled finished jewelry.
Worthy of not is the fact that indeed no evidence was adduced by respondents to disprove the foregoing
allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory provisions
confiscatory and destructive of the proprietary right of the petitioners to engage in business in violation of Section
1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law x x x.[12]
Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his
opinion, the same has been rendered moot and academic by the aforementioned pronouncement.[13]
The petitioners now assail the decision rendered by the public respondent, contending that the latter has no
authority to pass judgment upon the taxation policy of the government. In addition, the petitioners impugn the
decision in question by asserting that there was no showing that the tax laws on jewelry are confiscatory and
desctructive of private respondents proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind
his limitations under the law as a trial judge, did not go so far as to declare the laws in question to be
unconstitutional. However, therein he declared the laws to be inoperative and without force and effect insofar as
the private respondents are concerned. But, respondent judge, in the body of his decision, unequivocally but
wrongly declared the said provisions of law to be violative of Section 1, Article III of the Constitution. In fact, in
their Supplemental Comment on the Petition for Review,[14] the private respondents insist that Judge Santos, in
his capacity as judge of the Regional Trial Court, acted within his authority in passing upon the issues, to wit:
A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment on
the soundness or wisdom of the governments tax policy on jewelry. True, public respondent, in his questioned
decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential item, and
therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and renders the local
jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading;
that many of the local manufacturers do not legally exist or operate unofficially or underground; and that the
manufacturers have no recourse but to the back door for smuggled goods if only to be able to compete even if
ineffectively or cease manufacturing activities.
BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the l egislature
to determine what should be the tax policy on jewelry. On the other hand, the issue raised before, and passed
upon by, the public respondent was whether or not Section 150, paragraph (a) of the National Internal Revenue
Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the Tariff and Customs Code are
unconstitutional, or differently stated, whether or not the questioned statutory provisions affect the constitutional
right of private respondents to engage in business.
It is submitted that public respondent confined himself on this issue which is clearly a judicial question.
We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that
private respondents can still persist in their argument that the former did not overreach the restrictions dictated
upon him by law. There is no doubt in the Courts mind, despite protestations to the contrary, that respondent
judge encroached upon matters properly falling within the province of legislative functions. In citing as basis for
his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and
concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon
himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty
on jewelry simply because other countries have adopted such policies, the respondent judge overlooked the fact
that such matters are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in
this country, and these reasons, deliberate upon by our legislature, are beyond the reach of judicial
questioning. As held in Macasiano vs. National Housing Authority:[15]
The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the political
departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain,
this presumption is based on the doctrine of separation of powers which enjoins upon each department a
78

becoming respect for the acts of the other departments. The theory is that as the joint act of Congress and the
President of the Philippines, a law has been carefully studied and determined to be in accordance with the
fundamental law before it was finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not
competent to rule.[16] As Cooley observed: Debatable questions are for the legislature to decide. The courts do
not sit to resolve the merits of conflicting issues.[17] In Angara vs. Electoral Commission,[18] Justice Laurel made
it clear that the judiciary does not pass upon question of wisdom, justice or expediency of legislation. And
fittingly so, for in the exercise of judicial power, we are allowed only to settle actual controversies involving rights
which are legally demandable and enfoceable, and may not annul an act of the political departments simply
because we feel it is unwise or impractical.[19] This is not to say that Regional Trial Courts have no power
whatsoever to declare a law unconstitutional. In J. M. Tuason and Co. v. Court of Appeals[20] we said that
*p+lainly the Constitution contemplates that the inferior courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases
where such constitutionality happens to be in issue. this authority of lower courts to decide questions of
constitutionality in the first instance was reaffirmed in Ynos v. Intermediate Court of Appeals.[21] But this
authority does not extend to deciding questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The
arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial
Courts can only look into the validity of a provision, that is, whether or not it has been passed according to the
procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendo that
the private respondents may have provided convincing arguments why the jewelry industry in the Philippines
should not be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature
primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly
rest on legislative judgment.[22]
As succinctly put in Lim vs. Pacquing:[23] Where a controversy may be settled an a platform other than one
involving constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional
question. As judges, we can only interpret and apply the law and, despite our doubts about its wisdom, cannot
repeal or amend it.[24]
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian
countries. This is meant to convince us that compared to other countries, the tax rates imposed on said industry in
the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax
rates of other countries should be used as a yardstick in determining what may be the proper subjects of taxation
in our own country. It should be pointed out that in imposing the aforementioned taxes and duties, the State,
acting through the legislative and executive branches, is exercising its sovereign prerogative. It is inherent in the
power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
inequalities which result from singling out of one particular class for taxation, or exemption, infringe no
constitutional limitation.[25]
WHEREFORE, premises considered, the petition is hereby GRANTED, and the DECISION in Civil Case No. 56736 is
hereby REVERSED and SET ASIDE. No costs.
SO ORDERED

Gomez v. Palomar 25 SCRA 827
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity as Secretary
of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
79

CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631,2 which
provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from
August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five centavos for
the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on newspapers.
The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out its
noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957, for
lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5"
centavos, will soon be released for use by the public on their mails to be posted during the same period starting
with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever class,
and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this country or
abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing the additional
value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage meters,
each piece of such mail shall bear at least one such semi-postal stamp if posted during the period above stated
starting with the year 1958, in addition to being charged the usual postage prescribed by existing regulations. In
the case of business reply envelopes and cards mailed during said period, such stamp should be collected from the
addressees at the time of delivery. Mails entitled to franking privilege like those from the office of the President,
members of Congress, and other offices to which such privilege has been granted, shall each also bear one such
semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without
the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the affixing of
such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded to the Dead
Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos for the
Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class mail matter,
and the total sum thus collected shall be entered in the same official receipt to be issued for the postage at the
second-class rate. In making such entry, the total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from the
postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits issued by
this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended for said
society. The total extra charge thus received shall be entered in the same official receipt to be issued for the
postage collected, as in subparagraph 1.
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3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit issued
by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an official receipt
issued for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders of
business reply permits, the five-centavo charge intended for said society shall be collected in cash on each reply
card or envelope delivered, in addition to the required postage which may also be paid in cash. An official receipt
shall be issued for the total postage and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the franking
privilege under existing laws may pay in cash such extra charge intended for said society, instead of affixing the
semi-postal stamps to their mails, provided that such mails are presented at the post-office window, where the
five-centavo extra charge for said society shall be collected on each piece of such mail matter. In such case, an
official receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed with
the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the same
way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class of mail matter, including newspapers and magazines
admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and
equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief
is unavailing because this suit was filed after the petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of
Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that under
section 6 of Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation of ... a
statute ... should take place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of
the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court
to treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the
filing of the action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action,
then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an
ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach
of the statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in
terms provides that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does
not follow, however, that only postal authorities can be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are people
who use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a
breach of the law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not
only with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that
81

he might send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails
without the semi-postal stamps which he may deliver for mailing ... if any, during the period covered by Republic
Act 1635, as amended, as well as other mails hereafter to be sent by or to other mailers which bear the required
postage, without collection of additional charge of five centavos prescribed by the same Republic Act." As one
whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute requiring
the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the
claim is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of
the population and that even among postal patrons the statute discriminatorily grants exemption to newspapers
while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices
performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to
grant exemptions.4 This power has aptly been described as "of wide range and flexibility."5 Indeed, it is said that in
the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and
that absent such relationship the selection of mail users is constitutionally impermissible. This is altogether a
different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the legislation and
its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to raise
revenue ... So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79
S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation
must be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on
ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose
who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled principle
of law that "consideration of practical administrative convenience and cost in the administration of tax laws afford
adequate ground for imposing a tax on a well recognized and defined class."9 In the case of the anti-TB stamps,
undoubtedly, the single most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The small
amount of five centavos does not justify the great expense and inconvenience of collecting through the regular
means of collection. On the other hand, by placing the duty of collection on postal authorities the tax was made
almost self-enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were
already a class by themselves even before the enactment of the statue and all that the legislature did was merely
to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a
distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law;
to disregard [them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been thought of as
raising issues under the equal protection clause.
82

It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law
and administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The
application of the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable
in the light of differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster
what it conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the amendment
introduced by Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is
to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various
offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection
that all evils of the same genus be eradicated or none at all.13 As this Court has had occasion to say, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which
it might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose
as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in
taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer
is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society,
established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the
levying of taxes except as they are used to compensate for the burden on those who pay them and would involve
the abandonment of the most fundamental principle of government that it exists primarily to provide for the
common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We
have said that considerations of administrative convenience and cost afford an adequate ground for classification.
The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within the class regardless of the amount involved.16 As Mr. Justice
Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100 face
value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax, so
far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of
income or earning capacity, and many others, illustrate the necessity and practice of sometimes substituting count
for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General
points out, the Society is not really the beneficiary but only the agency through which the State acts in carrying out
what is essentially a public function. The money is treated as a special fund and as such need not be appropriated
by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in
cash instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August
83

19 to September 30 of each year in mail boxes without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking.
The authority given to the Postmaster General to raise funds through the mails must be liberally construed,
consistent with the principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but
also that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their cards would be to make them pay much more because the cards
likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB
stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-
postal stamp" is a declaration that such mail matter is nonmailable within the meaning of section 1952 of the
Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9, we have already said that in listing the
offices and entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to
costs.

Punsalan v. City of Manila [95 Phil 46]
G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other
professionals practising in the City of Manila who may desire to join it." Object of the suit is the annulment of
Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter authorizing it and the
refund of taxes collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950,
imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-
payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not more than six
months, or by both such fine and imprisonment in the discretion of the court." Among the professions taxed were
those to which plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised
Charter of the City of Manila (as amended by Republic Act No. 409), which empowers the Municipal Board of said
city to impose a municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon
being required to pay the additional tax prescribed in the ordinance, paid the same under protest and then
brought the present suit for the purpose already stated. The lower court upheld the validity of the provision of law
authorizing the enactment of the ordinance but declared the ordinance itself illegal and void on the ground that
the penalty there in provided for non-payment of the tax was not legally authorized. From this decision both
parties appealed to this Court, and the only question they have presented for our determination is whether this
ruling is correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no assignment
of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in express terms also
empowers the Municipal Board "to fix penalties for the violation of ordinances which shall not exceed to(sic) two
84

hundred pesos fine or six months" imprisonment, or both such fine and imprisonment, for a single
offense." Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a
penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute class
legislation, are unjust and oppressive, and authorize what amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to
which they respectively belong have been singled out for the imposition of this municipal occupation tax; and in
any event, the Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise of that
discretion it may tax all, or it may select for taxation certain classes and leave the others untaxed. (Cooley on
Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of
Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention
municipalities. We do not think it is for the courts to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to encroach upon it.
Moreover, as the seat of the National Government and with a population and volume of trade many times that of
any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their
brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class
in that while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but
practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the
ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing" in the City of Manila
naturally any one of the occupations named, but does not say that such person must have his office in Manila.
What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. The argument
against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the
city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently obnoxious in
the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of the
City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila charter
authorizing it. With costs against plaintiffs-appellants.

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