Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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. 5 Sixteen 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," 9being "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.
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 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.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 134062

April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision 3 and
resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPIs) deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax

Deficiency percentage tax

P 7, 270,892.88

Add: 25% surcharge

1,817,723.22

20% interest from 1-21-87 to 10-28-88

3,215,825.03

Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE

15,000.00

P12,319,441.13

1986 Deficiency Documentary Stamp Tax

Deficiency percentage tax

Add: 25% surcharge
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE

P93,723,372.40
23,430,843.10
15,000.00

P117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown above. Said assessment has been based on return (filed by you) (as verified)
(made by this Office) (pending investigation) (after investigation). You are requested to pay the above amount to this Office or to our Collection Agent in the Office of the City or
Deputy Provincial Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is being assessed a deficiency. The very purpose
of a deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment.
This is all the more so when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer has a deficiency documentary and percentage
taxes, and as to the percentage tax, it is important that the taxpayer be informed also as to what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and the Bankers Association of the Philippines [BAP] on
this issue and of BPIs submission of its computations under this compromise. There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the
BAP compromise. On the other hand, if it relates to documentary stamp tax on some other issue, we should like to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform
you of the taxpayers decision on whether to pay or protest the assessment. 7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as no valid issue was
raised against the validity of our assessment still we obliged to explain the basis of the assessments.

xxx xxx xxx

this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on
January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments
had become final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to
Section 11 of RA 1125.12 It denied reconsideration in a resolution dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not
valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared that the proper assessments were those contained in the May 8, 1991 letter
which provided the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] 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 [CIR] shall issue an
assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices 19 were valid assessments. If they were not, as held by the CA, then the correct assessments were in the May
8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the findings which the CIR denied in his December 12, 1991 letter,
received by BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18, 1992 would be well within the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964)
which was designed for the precise purpose of notifying taxpayers of the assessed amounts due and demanding payment thereof. 21 He contends that there was no law or jurisprudence
then that required notices to state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the assessments were based be provided to the taxpayer. It insists that the NIRC, as worded now
(referring to Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due process requires even under the former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes were made. He merely notified BPI of his findings, consisting only of
the computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997). 23 In CIR v.
Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the
CIR, who had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was
also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law.25 (emphasis supplied; italics in the
original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the
old law required a written statement to the taxpayer of the law and facts on which the assessments were based. The Court cannot read into the law what obviously was not intended by
Congress. That would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer was to pay and a demand for payment within a
prescribed period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Evidently, the legislature saw the need to modify the former Section 270 by inserting
the aforequoted sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the amendment, the statute had an entirely different meaning. 28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an affirmation of what the law required under the former Section 270. The amendment
introduced by RA 8424 was an innovation and could not be reasonably inferred from the old law.29 Clearly, the legislature intended to insert a new provision regarding the form and
substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the legal and factual basis of the formers decision to charge the latter for deficiency
documentary stamp and gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it in writing of the factual and legal bases of the assessments even if these were
not called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be deprived of his property without due process of law." 32 We note, however, what
the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice
(which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh] out the issues, present evidences as to what they need." Now, how can
[BPI] and/or its counsel honestly tell this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant
Manager of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which contain his analysis regarding the findings of the [CIRs] examiner, Mr. San
Pedro and that the same worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the assessments, and was given all the opportunity to contest the same
but ignored it despite the notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after
receipt." Counsel resorted to dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client. 33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the [CTA]. 34
Under the former Section 270, there were two instances when an assessment became final and unappealable: (1) when it was not protested within 30 days from receipt and (2) when the
adverse decision on the protest was not appealed to the CTA within 30 days from receipt of the final decision: 35
Sec. 270. Protesting of assessment.

1a\^/phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by the implementing
regulations within thirty (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 [CTA] within thirty (30) days from
receipt of the said decision; otherwise, the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the
CIR did not qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers
decision on whether to pay or protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a protest against the assessments. As a matter of fact, BPI
never deemed this a protest since it did not even consider the October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period provided in the former Section 270 meant that they became final and unappealable. Thus,
the CTA correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputing the correctness of the assessments or invoking any defense that would
reopen the question of its liability on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the
correctness of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIRs final decision regarding the disputed assessments
within the 30-day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final decision on the matter." BPI therefore had 30 days from the time it received
the decision on June 27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18, 1992, way beyond the
reglementary period. BPI must now suffer the repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination
on the disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis of his statement indubitably showing that the Commissioner's
communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the
collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the [CIR], this would encourage his office to conduct a
careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the [CIR] from unfairly making the
taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair
play, regularity, and orderliness in administrative action. 39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public will suffer if taxpayers will not be held liable for the proper taxes assessed against
them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source
from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax
emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. 40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.
RENATO C. CORONA
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-75697 June 18, 1987
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:

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

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." 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. It should be given practical rather than
technical construction.
as long as they are not inconsistent with or foreign to the general subject and title. 2

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

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.
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

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

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. In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10
not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.

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
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. 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.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF TAX APPEALS, respondents.

PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for amounts representing pre-payment of income and common carrier's taxes
under the National Internal Revenue Code, section 24 (b) (2), as amended. 1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In

chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. On December 23,
1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and common
carrier's taxes in the respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and
SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS
(P47,619.00), or a total of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTYFIVE CENTAVOS (P107,142.75) based on the expected gross receipts of the vessel. Upon arriving, however, at
Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private respondent's
agent mutually agreed to have the vessel sail for Japan without any cargo.
December 1980, NASUTRA 2

Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from the charter agreement, private respondent instituted a claim for tax credit
or refund of the sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of
Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review 6

before public

respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to have been collected in accordance with law; that in an action for
refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said burden is fatal to the action for refund;
and that claims for refund are construed strictly against tax claimants. 7
After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with the mentioned statutory requirement by having filed a written claim for refund within the twoyear period from date of payment; 2) the respondent has not issued any deficiency assessment nor disputed the correctness of the tax returns and the
corresponding amounts of prepaid income and percentage taxes; and 3) the chartered vessel sailed out of the Philippine port with absolutely no cargo laden on
board as cleared and certified by the Customs authorities; nonetheless 4) respondent's apparent bit of reluctance in validating the legal merit of the claim, by and
large, is tacked upon the "examiner who is investigating petitioner's claim for refund which is the subject matter of this case has not yet submitted his report.
Whether or not respondent will present his evidence will depend on the said report of the examiner." (Respondent's Manifestation and Motion dated September 7,
1982). Be that as it may the case was submitted for decision by respondent on the basis of the pleadings and records and by petitioner on the evidence presented
by counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to relatively simple material facts. The circumstances obtaining amply justify
petitioner's righteous indignation to a more expeditious action. Respondent has offered no reason nor made effort to submit any controverting documents to bash
that patina of legitimacy over the claim. But as might well be, towards the end of some two and a half years of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would furnish the satisfaction of ultimate solution by manifesting that "it is now his turn to present evidence,
however, the Appellate Division of the BIR has already recommended the approval of petitioner's claim for refund subject matter of this petition. The examiner who
examined this case has also recommended the refund of petitioner's claim. Without prejudice to withdrawing this case after the final approval of petitioner's claim,
the Court ordered the resetting to September 7, 1983." (Minutes of June 9, 1983 Session of the Court) We need not fashion any further issue into an apparently
settled legal situation as far be it from a comedy of errors it would be too much of a stretch to hold and deny the refund of the amount of prepaid income and
common carrier's taxes for which petitioner could no longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and
(3) it suppressed evidence when it did not present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue Code which at that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as
provided in subsection (a) of this section upon the total net income derived in the preceding taxable year from all sources within the Philippines: Provided,
however, That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross
revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines. The gross revenue realized from the said cargo or mail include the
gross freight charge up to final destination. Gross revenue from chartered flights originating from the Philippines shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the
Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.

and should be construed in strictissimi juris against the

taxpayer. Likewise, there can be no disagreement with petitioner's stance that private respondent has the burden of proof
to establish the factual basis of its claim for tax refund.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption 8
9

The pivotal issue involves a question of fact whether or not the private respondent was able to prove that it derived no receipts from its charter agreement, and hence is entitled to a
refund of the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been adduced by the private respondent proving that it derived no receipt from its charter agreement with NASUTRA. This finding of
fact rests on a rational basis, and hence must be sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found
no raw sugar to load and returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo
while Exhibit "F" is the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The correctness of the contents of these documents regularly issued by
officials of the Bureau of Customs cannot be doubted as indeed, they have not been contested by the petitioner. The records also reveal that in the course of the proceedings in the court a
quo, petitioner hedged and hawed when its turn came to present evidence. At one point, its counsel manifested that the BIR examiner and the appellate division of the BIR have both
recommended the approval of private respondent's claim for refund. The same counsel even represented that the government would withdraw its opposition to the petition after final
approval of private respondents' claim. The case dragged on but petitioner never withdrew its opposition to the petition even if it did not present evidence at all. The insincerity of petitioner's
stance drew the sharp rebuke of respondent court in its Decision and for good reason. Taxpayers owe honesty to government just as government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the private respondent, petitioner contends that private respondent suppressed evidence when it did not present its charter
agreement with NASUTRA. The contention cannot succeed. It presupposes without any basis that the charter agreement is prejudicial evidence against the private

Allegedly, it will show that private respondent earned a charter fee with or without transporting its supposed
cargo from Iloilo to Japan. The allegation simply remained an allegation and no court of justice will regard it as truth.
Moreover, the charter agreement could have been presented by petitioner itself thru the proper use of asubpoena duces
tecum. It never did either because of neglect or because it knew it would be of no help to bolster its position. For
whatever reason, the petitioner cannot take to task the private respondent for not presenting what it mistakenly calls
"suppressed evidence."
respondent. 10

11

We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND
SEVENTY FIVE CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in 1980 and despite the clear showing that it was erroneously paid, the
government succeeded in delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to the private
respondent is just worth a damaged nickel. This is not, however, the kind of success the government, especially the BIR, needs to increase its collection of taxes. Fair deal is expected by
our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. Our ruling inRoxas v. Court of Tax
Appeals 12

is apropos to recall:
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.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15, 1983, is AFFIRMED in toto. No costs.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168557

February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628

February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution 2 dated
June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision 3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both
petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic
of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (other
than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and
other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges. 6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which
likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate
taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision to assess real property taxes on the power barges. However, the motion was denied
on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the
setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to
make the necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion 10 dated May 20, 1996, where it is
clearly stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount ofP56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they
are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the bargesFELS, a private corporationis the one being taxed, not NPC. A
mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by Distraint 13over the power barges, seeking to collect real property taxes amounting
to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying
that the Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the
event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of
Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of
Batangas is hereby directed to act accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by
the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax
exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution 22 dated October 19,
2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who
should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the
ground of prescription. The decretal portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The
petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently show that the CA committed any reversible error in the challenged decision.
NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution 26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the
failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial
Government to collect the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution 28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC").
C.
Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioners personal properties is imprescriptible. 29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution 31 dated March 8, 2006.

1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties
had not submitted their respective memoranda. Considering that taxesthe lifeblood of our economyare involved in the present controversy, the Court was prompted to dispense with
the said pleadings, with the end view of advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS argues that when NPC moved to have the assessment reconsidered on September
7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of
the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the

province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of
the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition
under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal. 32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy not
sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject
to appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of
the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last
action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration
before the local assessor. The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure
would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high,
and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently
take place. Such occasion for mischief must be prevented and excised from our system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law. It
follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491. 37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory
and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the
merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a
final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes
forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that
it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping
could have been committed since the elements of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity,
which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause nemo debet bis vexari et eadem
causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to
the preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority is conclusive
on the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters
in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with
finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing
party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the
subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of
action. The application of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there
is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review
docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision
of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of
interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition filed by NPC
is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly
favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings
grounded on the same cause, on the gamble that one or the other court would make a favorable disposition. 44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly
applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one
court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is
successful, would amount to res judicata in the other.47
Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the
peace and contentment of petitioners, we shall shed light on the merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R.
No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having
the burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we
will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave
the assessment undisturbed.49 We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a power company brought an action to review property tax assessment. On the citys motion to
dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river,
lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. 51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under
Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges
which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find
solace in this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate
the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53
It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties
to the contract are bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55 The law does not look with favor on tax exemptions and the entity that would seek
to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 56 Thus, applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case,
the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local governments deprivation of revenues. The power to tax is an incident of sovereignty and
is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax
on the constituency who are to pay for it.57 The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with
the State policy to guarantee the autonomy of local governments58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower
them to achieve their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. 59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. 60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 172598

December 21, 2007

PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006 Decision 1 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 64, which upheld
respondents assessment against petitioner for deficiency excise taxes for the taxable years 1992 and 1994 to 1997. Said En Banc decision reversed and set aside the August 2, 2004
Decision2 and January 20, 2005 Resolution3 of the CTA Division in CTA Case No. 6003 entitled Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue, which ordered
the withdrawal of the April 22, 1998 collection letter of respondent and enjoined him from collecting said deficiency excise taxes.
The Facts
Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the international petroleum giant Shell, and is engaged in the importation, refining and sale of
petroleum products in the country.
From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center (Center) from other Board of Investment (BOI)-registered companies. The Center is a composite body run by four government agencies, namely: the
DOF, Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), and BOI.
Through the Center, PSPC acquired for value various Center-issued TCCs which were correspondingly transferred to it by other BOI-registered companies through Center-approved Deeds
of Assignments. Subsequently, when PSPC signified its intent to use the TCCs to pay part of its excise tax liabilities, said payments were duly approved by the Center through the issuance
of Tax Debit Memoranda (TDM), and the BIR likewise accepted as payments the TCCs by issuing its own TDM covering said TCCs, and the corresponding Authorities to Accept Payment
for Excise Taxes (ATAPETs).
However, on April 22, 1998, the BIR sent a collection letter4 to PSPC for alleged deficiency excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997,
inclusive of delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-registered
companies. These alleged excise tax deficiencies covered by the collection letter were already paid by PSPC with TCCs acquired through, and issued and duly authorized by the Center,
and duly covered by TDMs of both the Center and BIR, with the latter also issuing the corresponding ATAPETs.
PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR through the Regional Director of Revenue Region No. 8. PSPC filed its motion for reconsideration.
However, due to respondents inaction on the motion, on February 2, 1999, PSPC filed a petition for review before the CTA, docketed as CTA Case No. 5728.
On July 23, 1999, the CTA rendered a Decision5 in CTA Case No. 5728 ruling, inter alia, that the use by PSPC of the TCCs was legal and valid, and that respondents attempt to collect
alleged delinquent taxes and penalties from PSPC without an assessment constitutes denial of due process. The dispositive portion of the July 23, 1999 CTA Decision reads:
[T]he instant petition for review is GRANTED. The collection letter issued by the Respondent dated April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to
collect from petitioner the specific tax, surcharge and interest subject of this petition.6
Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court of Appeals (CA) through a petition for review 7 docketed as CA-G.R. SP No. 55329. This case was
subsequently consolidated with the similarly situated case of Petron Corporation under CA-G.R. SP No. 55330. To date, these consolidated cases are still pending resolution before the CA.
Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center sent several letters to PSPC dated August 31, 1999,8 September 1, 1999,9 and October 18,
1999.10 The first required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale transactions of PSPC products to the TCC assignors/transferors purportedly
in connection with an ongoing post audit. The second letter similarly required submission of the same documents covering PSPC Industrial Fuel Oil (IFO) deliveries to Spintex International,
Inc. The third letter is in reply to the September 29, 1999 letter sent by PSPC requesting a list of the serial numbers of the TCCs assigned or transferred to it by various BOI-registered
companies, either assignors or transferors.
In its letter dated October 29, 1999 and received by the Center on November 3, 1999, PSPC emphasized that the required submission of these documents had no legal basis, for the
applicable rules and regulations on the matter only require that both the assignor and assignee of TCCs be BOI-registered entities.11 On November 3, 1999, the Center informed PSPC of
the cancellation of the first batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs as well as the corresponding TCC assignments. PSPCs motion for
reconsideration was not acted upon.
On November 22, 1999, PSPC received the November 15, 1999 assessment letter12 from respondent for excise tax deficiencies, surcharges, and interest based on the first batch of
cancelled TCCs and TDM covering PSPCs use of the TCCs. All these cancelled TDM and TCCs were also part of the subject matter in CTA Case No. 5728, now pending before the CA in
CA-G.R. SP No. 55329.
PSPC protested13 the assessment letter, but the protest was denied by the BIR, constraining it to file another petition for review 14 before the CTA, docketed as CTA Case No. 6003.
Parenthetically, on March 30, 2004, Republic Act No. (RA) 928215 was promulgated amending RA 1125,16expanding the jurisdiction of the CTA and enlarging its membership. It became
effective on April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was heard and decided by a CTA Division.
The Ruling of the Court of Tax Appeals Division
(CTA Case No. 6003)
On August 2, 2004, the CTA Division rendered a Decision17 granting the PSPCs petition for review. The dispositive portion reads:
[T]he instant petition is hereby GRANTED. Accordingly, the assessment issued by the respondent dated November 15, 1999 against petitioner is hereby CANCELLED and SET ASIDE. 18
In granting PSPCs petition for review, the CTA Division held that respondent failed to prove with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as
respondents finding of alleged fraud was merely speculative. The CTA Division found that neither the respondent nor the Center could state what sales figures were used as basis for the
TCCs to issue, as they merely based their conclusions on the audited financial statements of the transferors which did not clearly show the actual export sales of transactions from which
the TCCs were issued.
In the same vein, the CTA Division held that the machinery and equipment cannot be the basis in concluding that transferor could not have produced the volume of products indicated in its
BOI registration. It further ruled that the Center erroneously based its findings of fraud on two possibilities: either the transferor did not declare its export sales or underdeclare them. Thus,
no specific fraudulent acts were identified or proven. The CTA Division concluded that the TCCs transferred to PSPC were not fraudulently issued.

On the issue of whether a TCC transferee should be a supplier of either capital equipment, materials, or supplies, the CTA Division ruled in the negative as the Memorandum of Agreement
(MOA)19 between the DOF and BOI executed on August 29, 1989 specifying such requirement was not incorporated in the Implementing Rules and Regulations (IRR) of Executive Order
No. (EO) 226.20 The CTA Division found that only the October 5, 1982 MOA between the then Ministry of Finance (MOF) and BOI was incorporated in the IRR of EO 226. It held that while
the August 29, 1989 MOA indeed amended the October 5, 1982 MOA still it was not incorporated in the IRR. Moreover, according to the CTA Division, even if the August 29, 1989 MOA
was elevated or incorporated in the IRR of EO 226, still, it is ineffective and could not bind nor prejudice third parties as it was never published.
Anent the affidavits of former Officers or General Managers of transferors attesting that no IFO deliveries were made by PSPC, the CTA Division ruled that such cannot be given probative
value as the affiants were not presented during trial of the case. However, the CTA Division said that the November 15, 1999 assessment was not precluded by the prior CTA Case No.
5728 as the latter concerned the validity of the transfer of the TCCs, while CTA Case No. 6003 involved alleged fraudulent procurement and transfer of the TCCs.
Respondent forthwith filed his motion for reconsideration of the above decision which was rejected on January 20, 2005. And, pursuant to Section 1121 of RA 9282, respondent appealed the
above decision through a petition for review22 before the CTA En Banc.
The Ruling of the Court of Tax Appeals En Banc
(CTA EB No. 64)
The CTA En Banc, however, rendered the assailed April 28, 2006 Decision23 setting aside the August 2, 2004 Decision and the January 20, 2005 Resolution of the CTA Division.
The fallo reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. The assailed Decision and Resolution dated August 2, 2004 and January 20, 2005, respectively, are
hereby SET ASIDE and a new one entered dismissing respondent Pilipinas Shell Petroleum Corporations Petition for Review filed in C.T.A. Case No. 6003 for lack of merit. Accordingly,
respondent is ORDERED TO PAY the petitioner the amount of P570,577,401.61 as deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20%
interest, computed as follows:
Basic Tax P285,766,987.00
Add:
Surcharge (25%) 71,441,746.75
Interest (20%) 213,368,667.86
Total Tax Due P570,577,401.61
In addition, respondent is hereby ORDERED TO PAY 20% delinquency interest thereon per annum computed from December 4, 1999 until full payment thereof, pursuant to Sections 248
and 249 of the NIRC of 1997.
SO ORDERED.24
The CTA En Banc resolved respondents appeal by holding that PSPC was liable to pay the alleged excise tax deficiencies arising from the cancellation of the TDM issued against its TCCs
which were used to pay some of its excise tax liabilities for the years 1992 and 1994 to 1997. It ratiocinated in this wise, to wit:
First, the finding of the DOF that the TCCs had no monetary value was undisputed. Consequently, there was a non-payment of excise taxes corresponding to the value of the TCCs used
for payment. Since it was PSPC which acquired the subject TCCs from a third party and utilized the same to discharge its own obligations, then it must bear the loss.
Second, the TCCs carry a suspensive condition, that is, their issuance was subject to post audit in order to determine if the holder is indeed qualified to use it. Thus, until final determination
of the holders right to the issuance of the TCCs, there is no obligation on the part of the DOF or BIR to recognize the rights of the holder or assignee. And, considering that the subject
TCCs were canceled after the DOFs finding of fraud in its issuance, the assignees must bear the consequence of such cancellation.
Third, PSPC was not an innocent purchaser for value of the TCCs as they contained liability clauses expressly stipulating that the transferees are solidarily liable with the transferors for any
fraudulent act or violation of pertinent laws, rules, or regulations relating to the transfer of the TCC.
Fourth, the BIR was not barred by estoppel as it is a settled rule that in the performance of its governmental functions, the State cannot be estopped by the neglect of its agents and
officers. Although the TCCs were confirmed to be valid in view of the TDM, the subsequent finding on post audit by the Center declaring the TCCs to be fraudulently issued is entitled to the
presumption of regularity. Thus, the cancellation of the TCCs was legal and valid.
Fifth, the BIRs assessment did not prescribe considering that no payment took effect as the subject TCCs were canceled upon post audit. Consequently, the filing of the tax return sans
payment due to the cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax return which put them in the ambit of the applicability of the 10-year prescriptive
period from the discovery of falsity, fraud, or omission.
Finally, however, the CTA En Banc applied Aznar v. Court of Tax Appeals,25 where this Court held that without proof that the taxpayer participated in the fraud, the 50% fraud surcharge is
not imposed, but the 25% late payment and the 20% interest per annum are applicable.
Thus, PSPC filed this petition with the following issues:
I
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ORDERING PETITIONER PSPC TO PAY THE AMOUNT OF TWO HUNDRED EIGHTY FIVE
MILLION SEVEN HUNDRED SIXTY SIX THOUSAND NINE HUNDRED EIGHTY SEVEN PESOS (P285,766,987.00), AS ALLEGED DEFICIENCY EXCISE TAXES, FOR THE
TAXABLE YEARS, 1992 AND 1994 TO 1997.
II
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN ISSUING THE QUESTIONED DECISION DATED 28 APRIL 2006 UPHOLDING THE
CANCELLATION OF THE TAX CREDIT CERTIFICATES UTILIZED BY PETITIONER PSPC IN PAYING ITS EXCISE TAX LIABILITIES.
III
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN IMPOSING SURCHARGES AND INTERESTS ON THE ALLEGED DEFICIENCY EXCISE TAX OF
PETITIONER PSPC.
IV

WHETHER OR NOT THE ASSESSMENT DATED 15 NOVEMBER 1999 IS VOID CONSIDERING THAT IT FAILED TO COMPLY WITH THE STATUTORY AS WELL AS
REGULATORY REQUIREMENTS IN THE ISSUANCE OF ASSESSMENTS. 26
The Courts Ruling
The petition is meritorious.
First Issue: Assessment of excise tax deficiencies
PSPC contends that respondent had no basis in issuing the November 15, 1999 assessment as PSPC had no pending unpaid excise tax liabilities. PSPC argues that under the IRR of EO
226, it is allowed to use TCCs transferred from other BOI-registered entities. On one hand, relative to the validity of the transferred TCCs, PSPC asserts that the TCCs are not subject to a
suspensive condition; that the post-audit of a transferred TCC refers only to computational discrepancy; that the solidary liability of the transferor and transferee refers to computational
discrepancy resulting from the transfer and not from the issuance of the TCC; that a post-audit cannot affect the validity and effectivity of a TCC after it has been utilized by the transferee;
and that the BIR duly acknowledged the use of the subject TCCs, accepting them as payment for the excise tax liabilities of PSPC. On the other hand, PSPC maintains that if there was
indeed fraud in the issuance of the subject TCCs, of which it had no knowledge nor participation, the Centers remedy is to go after the transferor for the value of the TCCs the Center may
have erroneously issued.
PSPC likewise assails the BIR assessment on prescription for having been issued beyond the three-year prescriptive period under Sec. 203 of the National Internal Revenue Code (NIRC);
and neither can the BIR use the 10-year prescriptive period under Sec. 222(a) of the NIRC, as PSPC has neither failed to file a return nor filed a false or fraudulent return with intent to
evade taxes.
Respondent, on the other hand, counters that petitioner is liable for the tax liabilities adjudged by the CTA En Banc since PSPC, as transferee of the subject TCCs, is bound by the liability
clause found at the dorsal side of the TCCs which subjects the genuineness, validity, and value of the TCCs to the outcome of the post-audit to be conducted by the Center. He relies on
the CTA En Bancs finding of the presence of a suspensive condition in the issuance of the TCCs. Thus, according to him, with the finding by the Center that the TCCs were fraudulently
procured the subsequent cancellation of the TCCs resulted in the non-payment by PSPC of its excise tax liabilities equivalent to the value of the canceled TCCs.
Respondent likewise posits that the Center erred in approving the transfer and issuance of the TDM, and of the TDM and ATAPETs issued by the BIR in accepting the utilization by PSPC of
the subject TCCs, as payments for excise taxes cannot prejudice the BIR from assessing the tax deficiencies of PSPC resulting from the non-payment of the deficiencies after due
cancellation by the Center of the subject TCCs and corresponding TDM.
Respondent concludes that due to the fraudulent procurement of the subject TCCs, his right to assess has not yet prescribed. He relies on the finding of the Center that the fraud was
discovered only after the post-audit was conducted; hence, Sec. 222(a) of the NIRC applies, reckoned from October 24, 1999 or the date of the post-audit report. In fine, he points that
what is at issue is the resulting non-payment of PSPCs excise tax liabilities from the cancellation of subject TCCs and not the amount of deficiency taxes due from PSPC, as what was
properly assessed on November 15, 1999 was the amount of tax declared and found in PSPCs excise tax returns covered by the subject TCCs.
We find for PSPC.
The CTA En Banc upheld respondents theory by holding that the Center has the authority to do a post-audit on the TCCs it issued; the TCCs are subject to the results of the post-audit
since their issuance is subject to a suspensive condition; the transferees of the TCCs are solidarily liable with the transferors on the result of the post-audit; and the cancellation of the
subject TCCs resulted in PSPC having to bear the loss anchored on its solidary liability with the transferor of the subject TCCs.
We can neither sustain respondents theory nor that of the CTA En Banc.
First, in overturning the August 2, 2004 Decision of the CTA Division, the CTA En Banc applied Article 1181 of the Civil Code in this manner:
To completely understand the matter presented before Us, it is worth emphasizing that the statement on the subject certificate stating that it is issued subject to post-audit is in the nature of
a suspensive condition under Article 1181 of the Civil Code, which is quoted hereunder for ready reference, to wit:
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the
condition.
The above-quoted article speaks of obligations. These conditions affect obligations in diametrically opposed ways. If the suspensive condition happens, the obligation arises; in other
words, if the condition does not happen, the obligation does not come into existence. On the other hand, the resolutory condition extinguishes rights and obligations already existing; in
other words, the obligations and rights already exist, but under the threat of extinction upon the happening of the resolutory condition. (8 Manresa 130-131, cited on page 140, Civil Code
of the Philippines, Tolentino, 1962 ed., Vol. IV).
In adopting the foregoing provision of law, this Court rules that the issuance of the tax credit certificate is subject to the condition that a post-audit will subsequently be conducted in order to
determine if the holder is indeed qualified for its issuance. As stated earlier, the holder takes the same subject to the outcome of the post-audit. Thus, unless and until there is a final
determination of the holders right to the issuance of the certificate, there exists no obligation on the part of the DOF or the BIR to recognize the rights of then holder or transferee. x x x
xxxx
The validity and propriety of the TCC to effectively constitute payment of taxes to the government are still subject to the outcome of the post-audit. In other words, when the issuing
authority (DOF) finds, as in the case at bar, circumstances which may warrant the cancellation of the certificate, the holder is inevitably bound by the outcome by the virtue of the express
provisions of the TCCs.27
The CTA En Banc is incorrect.
Art.1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. 28 However, Art. 1181 does not
apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the
Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106(c)
of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the
validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition.
The CTA En Bancs holding of the presence of a suspensive condition is untenable as the subject TCCs duly issued by the Center are immediately effective and valid. The suspensive
condition as ratiocinated by the CTA En Banc is one where the transfer contract was duly effected on the day it was executed between the transferee and the transferor but the TCC cannot
be enforced until after the post-audit has been conducted. In short, under the ruling of the CTA En Banc, even if the TCC has been issued, the real and true application of the tax credit
happens only after the post-audit confirms the TCCs validity and not before the confirmation; thus, the TCC can still be canceled even if it has already been ostensibly applied to specific
internal revenue tax liabilities.
We are not convinced.
We cannot subscribe to the CTA En Bancs holding that the suspensive condition suspends the effectivity of the TCCs as payment until after the post-audit. This strains the very nature of a
TCC.

A tax credit is not specifically defined in our Tax Code,29 but Art. 21 of EO 226 defines a tax credit as "any of the credits against taxes and/or duties equal to those actually paid or would
have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board (of Investments), if so delegated by the Secretary of
Finance." Tax credits were granted under EO 226 as incentives to encourage investments in certain businesses. A tax credit generally refers to an amount that may be "subtracted directly
from ones total tax liability."30 It is therefore an "allowance against the tax itself"31 or "a deduction from what is owed"32 by a taxpayer to the government. In RR 5-2000,33 a tax credit is
defined as "the amount due to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due."34
A TCC is
a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed
formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal
revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be
prescribed by the provisions of these Regulations.35
From the above definitions, it is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit
from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on
certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations.
Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines
and Instructions found at the back of each TCC, which provide:
1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and
customs laws, rules and regulations.
xxxx
4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue the corresponding Tax Debit Memo (TDM) to the grantee.
The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit portion at the back of the certificate and affix his
signature on the column provided. (Emphasis supplied.)
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity
of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a
post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called
suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a
TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity.
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC
would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without
prescribed grounds or limits as to the exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance. As such, in the present case, if the
TCCs have already been applied as partial payment for the tax liability of PSPC, a post-audit of the TCCs cannot simply annul them and the tax payment made through said TCCs.
Payment has already been made and is as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs and allow the respondent to declare that utilizing
canceled TCCs results in nonpayment on the part of PSPC. As will be discussed, respondent and the Center expressly recognize the TCCs as valid payment of PSPCs tax liability.
Second, the only conditions the TCCs are subjected to are those found on its face. And these are:
1. Post-audit and subsequent adjustment in the event of computational discrepancy;
2. A reduction for any outstanding account/obligation of herein claimant with the BIR and/or BOC; and
3. Revalidation with the Center in case the TCC is not utilized or applied within one (1) year from date of issuance/date of last utilization.
The above conditions clearly show that the post-audit contemplated in the TCCs does not pertain to their genuineness or validity, but on computational discrepancies that may have
resulted from the transfer and utilization of the TCC.
This is shown by a close reading of the first and second conditions above; the third condition is self explanatory. Since a tax credit partakes of what is owed by the State to a taxpayer, if the
taxpayer has an outstanding liability with the BIR or the BOC, the money value of the tax credit covered by the TCC is primarily applied to such internal revenue liabilities of the holder as
provided under condition number two. Elsewise put, the TCC issued to a claimant is applied first and foremost to any outstanding liability the claimant may have with the government. Thus,
it may happen that upon post-audit, a TCC of a taxpayer may be reduced for whatever liability the taxpayer may have with the BIR which remains unpaid due to inadvertence or
computational errors, and such reduction necessarily affects the balance of the monetary value of the tax credit of the TCC.
For example, Company A has been granted a TCC in the amount of PhP 500,000 through its export transactions, but it has an outstanding excise tax liability of PhP 250,000 which due to
inadvertence was erroneously assessed and paid at PhP 225,000. On post-audit, with the finding of a deficiency of PhP 25,000, the utilization of the TCC is accordingly corrected and the
tax credit remaining in the TCC correspondingly reduced by PhP 25,000. This is a concrete example of a computational discrepancy which comes to light after a post-audit is conducted on
the utilization of the TCC. The same holds true for a transferees use of the TCC in paying its outstanding internal revenue tax liabilities.
Other examples of computational errors would include the utilization of a single TCC to settle several internal revenue tax liabilities of the taxpayer or transferee, where errors committed in
the reduction of the credit tax running balance are discovered in the post-audit resulting in the adjustment of the TCC utilization and remaining tax credit balance.
Third, the post-audit the Center conducted on the transferred TCCs, delving into their issuance and validity on alleged violations by PSPC of the August 29, 1989 MOA between the DOF
and BOI, is completely misplaced. As may be recalled, the Center required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale transactions of PSPC
products to the TCC assignors/transferors purportedly in connection with an ongoing post audit. As correctly protested by PSPC but which was completely ignored by the Center, PSPC is
not required by law to be a capital equipment provider or a supplier of raw material and/or component supplier to the transferors. What the law requires is that the transferee be a BOIregistered company similar to the BOI-registered transferors.
The IRR of EO 226, which incorporated the October 5, 1982 MOA between the MOF and BOI, pertinently provides for the guidelines concerning the transferability of TCCs:
[T]he MOF and the BOI, through their respective representatives, have agreed on the following guidelines to govern the transferability of tax credit certificates:
1) All tax credit certificates issued to BOI-registered enterprises under P.D. 1789 may be transferred under conditions provided herein;
2) The transferee should be a BOI-registered firm;

3) The transferee may apply such tax credit certificates for payment of taxes, duties, charges or fees directly due to the national government for as long as it enjoys incentives
under P.D. 1789. (Emphasis supplied.)
The above requirement has not been amended or repealed during the unfolding of the instant controversy. Thus, it is clear from the above proviso that it is only required that a TCC
transferee be BOI-registered. In requiring PSPC to submit sales documents for its purported post-audit of the TCCs, the Center gravely abused its discretion as these are not required of
the transferee PSPC by law and by the rules.
While the October 5, 1982 MOA appears to have been amended by the August 29, 1989 MOA between the DOF and BOI, such may not operate to prejudice transferees like PSPC. For
one, the August 29, 1989 MOA remains only an internal agreement as it has neither been elevated to the level of nor incorporated as an amendment in the IRR of EO 226. As aptly put by
the CTA Division:
If the 1989 MOA has validly amended the 1982 MOA, it would have been incorporated either expressly or by reference in Rule VII of the Implementing Rules and Regulations (IRRs) of
E.O. 226. To date, said Rule VII has not been repealed, amended or otherwise modified. It is noteworthy that the 1999 edition of the official publication by the BOI of E.O. 226 and its IRRs
(Exhibit R) which is the latest version, as amended, has not mentioned expressly or by reference [sic] 1989 MOA. The MOA mentioned therein is still the 1982 MOA.
The 1982 MOA, although executed as a mere agreement between the DOF and the BOI was elevated to the status of a rule and regulation applicable to the general public by reason of its
having been expressly incorporated in Rule VII of the IRRs. On the other hand, the 1989 MOA which purportedly amended the 1982 MOA, remained a mere agreement between the DOF
and the BOI because, unlike the 1982 MOA, it was never incorporated either expressly or by reference to any amendment or revision of the said IRRs. Thus, it cannot be the basis of any
invalidation of the transfers of TCCs to petitioner nor of any other sanction against petitioner.36
For another, even if the August 29, 1989 MOA has indeed amended the IRR, which it has not, still, it is ineffective and cannot prejudice third parties for lack of publication as mandatorily
required under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987, which pertinently provides:
Section 3. Filing.(1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of
this Code which are not filed within three (3) months from the date shall not thereafter be the basis of any sanction against any party or person.
(2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this section under pain of disciplinary action.
(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public inspection.
Section 4. Effectivity.In addition to other rule-making requirement provided by law not inconsistent with this Book, each rule shall become effective fifteen (15) days from the date of filing
as above provided unless a different date is fixed by law, or specified in the rule in cases of imminent danger to public health, safety and welfare, the existence of which must be expressed
in a statement accompanying the rule. The agency shall take appropriate measures to make emergency rules known to persons who may be affected by them.
Section 5. x x x x
(2) Every rule establishing an offense or defining an act which pursuant to law, is punishable as a crime or subject to a penalty shall in all cases be published in full text.
It is clear that the Center or DOF cannot compel PSPC to submit sales documents for the purported post-audit, as PSPC has duly complied with the requirements of the law and rules to be
a qualified transferee of the subject TCCs.
Fourth, we likewise fail to see the liability clause at the dorsal portion of the TCCs to be a suspensive condition relative to the result of the post-audit. Said liability clause indicates:
LIABILITY CLAUSE
Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of
this TAX CREDIT CERTIFICATE. (Emphasis supplied.)
The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause
that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been
fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law
or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latters responsibility and liability. The transferee in good faith and for value may not
be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh violative of the
constitutional right not to be deprived of ones property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and
for value is utterly confiscatory, more so when surcharges and interests are likewise assessed.
A transferee in good faith and for value of a TCC who has relied on the Centers representation of the genuineness and validity of the TCC transferred to it may not be legally required to
pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities.
Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for
the taxes and for the fraud committed as provided for by law.
In the instant case, a close review of the factual milieu and the records reveals that PSPC is a transferee in good faith and for value. No evidence was adduced that PSPC participated in
any way in the issuance of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It has likewise been shown that PSPC was not involved in the processing for the
approval of the transfers of the subject TCCs from the various BOI-registered transferors.
Respondent, through the Center, made much of the alleged non-payment through non-delivery by PSPC of the IFOs it purportedly sold to the transferors covered by supply agreements
which were allegedly the basis of the Center for the approval of the transfers. Respondent points to the requirement under the August 29, 1989 MOA between the DOF and BOI, specifying
the requirement that "[t]he transferee should be a BOI-registered firm which is a domestic capital equipment supplier, or a raw material and/or component supplier of the transferor." 37
As discussed above, the above amendment to the October 5, 1982 MOA between BOI and MOF cannot prejudice any transferee, like PSPC, as it was neither incorporated nor elevated to
the IRR of EO 226, and for lack of due publication. The pro-forma supply agreements allegedly executed by PSPC and the transferors covering the sale of IFOs to the transferors have
been specifically denied by PSPC. Moreover, the above-quoted requirement is not required under the IRR of EO 226. Therefore, it is incumbent for respondent to present said supply
agreements to prove participation by PSPC in the approval of the transfers of the subject TCCs. Respondent failed to do this.
PSPC claims to be a transferee in good faith of the subject TCCs. It believed that its tax obligations for 1992 and 1994 to 1997 had in fact been paid when it applied the subject TCCs,
considering that all the necessary authorizations and approvals attendant to the transfer and utilization of the TCCs were present. It is undisputed that the transfers of the TCCs from the
original holders to PSPC were duly approved by the Center, which is composed of a number of government agencies, including the BIR. Such approval was annotated on the reverse side
of the TCCs, and the Center even issued TDM which is proof of its approval for PSPC to apply the TCCs as payment for the tax liabilities. The BIR issued its own TDM, also signifying
approval of the TCCs as payment for PSPCs tax liabilities. The BIR also issued ATAPETs covering the aforementioned BIR-issued TDM, further proving its acceptance of the TCCs as valid
tax payments, which formed part of PSPCs total tax payments along with checks duly acknowledged and received by BIRs authorized agent banks.
Several approvals were secured by PSPC before it utilized the transferred TCCs, and it relied on the verification of the various government agencies concerned of the genuineness and
authenticity of the TCCs as well as the validity of their issuances. Furthermore, the parties stipulated in open court that the BIR-issued ATAPETs for the taxes covered by the subject TCCs
confirm the correctness of the amount of excise taxes paid by PSPC during the tax years in question.

Thus, it is clear that PSPC is a transferee in good faith and for value of the subject TCCs and may not be prejudiced with a re-assessment of excise tax liabilities it has already settled when
due with the use of the subject TCCs. Logically, therefore, the excise tax returns filed by PSPC duly covered by the TDM and ATAPETs issued by the BIR confirming the full payment and
satisfaction of the excise tax liabilities of PSPC, have not been fraudulently filed. Consequently, as PSPC is a transferee in good faith and for value, Sec. 222(a) of the NIRC does not apply
in the instant case as PSPC has neither been shown nor proven to have committed any fraudulent act in the transfer and utilization of the subject TCCs. With more reason, therefore, that
the three-year prescriptive period for assessment under Art. 203 of the NIRC has already set in and bars respondent from assessing anew PSPC for the excise taxes already paid in 1992
and 1994 to 1997. Besides, even if the period for assessment has not prescribed, still, there is no valid ground for the assessment as the excise tax liabilities of PSPC have been duly
settled and paid.
Fifth, PSPC cannot be blamed for relying on the Centers approval for the transfers of the subject TCCs and the Centers acceptance of the TCCs for the payment of its excise tax liabilities.
Likewise, PSPC cannot be faulted in relying on the BIRs acceptance of the subject TCCs as payment for its excise tax liabilities. This reliance is supported by the fact that the subject
TCCs have passed through stringent reviews starting from the claims of the transferors, their issuance by the Center, the Centers approval for their transfer to PSPC, the Centers
acceptance of the TCCs to pay PSPCs excise tax liabilities through the issuance of the Centers TDM, and finally the acceptance by the BIR of the subject TCCs as payment through the
issuance of its own TDM and ATAPETs.
Therefore, PSPC cannot be prejudiced by the Centers turnaround in assailing the validity of the subject TCCs which it issued in due course.
Sixth, we are of the view that the subject TCCs cannot be canceled by the Center as these had already been canceled after their application to PSPCs excise tax liabilities. PSPC
contends they are already functus officio, not quite in the sense of being no longer effective, but in the sense that they have been used up. When the subject TCCs were accepted by the
BIR through the latters issuance of TDM and the ATAPETs, the subject TCCs were duly canceled.
The tax credit of a taxpayer evidenced by a TCC is used up or, in accounting parlance, debited when applied to the taxpayers internal revenue tax liability, and the TCC canceled after the
tax credit it represented is fully debited or used up. A credit is a payable or a liability. A tax credit, therefore, is a liability of the government evidenced by a TCC. Thus, the tax credit of a
taxpayer evidenced by a TCC is debited by the BIR through a TDM, not only evidencing the payment of the tax by the taxpayer, but likewise deducting or debiting the existing tax credit with
the amount of the tax paid.
For example, a transferee or the tax claimant has a TCC of PhP 1 million, which was used to pay income tax liability of PhP 500,000, documentary stamp tax liability of PhP 100,000, and
value-added tax liability of PhP 350,000, for an aggregate internal revenue tax liability of PhP 950,000. After the payments through the PhP 1 million TCC have been approved and
accepted by the BIR through the issuance of corresponding TDM, the TCC money value is reduced to only PhP 50,000, that is, a credit balance of PhP 50,000. In this sense, the tax credit
of the TCC has been canceled or used up in the amount of PhP 950,000. Now, let us say the transferee or taxpayer has excise tax liability of PhP 250,000, s/he only has the remaining PhP
50,000 tax credit in the TCC to pay part of said excise tax. When the transferee or taxpayer applies such payment, the TCC is canceled as the money value of the tax credit it represented
has been fully debited or used up. In short, there is no more tax credit available for the taxpayer to settle his/her other tax liabilities.
In the instant case, with due application, approval, and acceptance of the payment by PSPC of the subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the
subject TCCs have been canceled as the money value of the tax credits these represented have been used up. Therefore, the DOF through the Center may not now cancel the subject
TCCs as these have already been canceled and used up after their acceptance as payment for PSPCs excise tax liabilities. What has been used up, debited, and canceled cannot
anymore be declared to be void, ineffective, and canceled anew.
Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC canceled when fully utilized, but the payment is also final subject only to a post-audit on
computational errors. Under RR 5-2000, a TDM is
a certification, duly issued by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that
the taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a Tax Credit Certificate, duly issued and existing in accordance with the
provisions of these Regulations. The Tax Debit Memo shall serve as the official receipt from the BIR evidencing a taxpayers payment or satisfaction of his tax obligation. The
amount shown therein shall be charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate.
Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC with the use of the subject TCCs have been effected and consummated as the
TDMs serve as the official receipts evidencing PSPCs payment or satisfaction of its tax obligation. Moreover, the BIR not only issued the corresponding TDM, but it also issued ATAPETs
which doubly show the payment of the subject excise taxes of PSPC.
Based on the above discussion, we hold that respondent erroneously and without factual and legal basis levied the assessment. Consequently, the CTA En Banc erred in sustaining
respondents assessment.
Second Issue: Cancellation of TCCs
PSPC argues that the CTA En Banc erred in upholding the cancellation by the Center of the subject TCCs it used in paying some of its excise tax liabilities as the subject TCCs were
genuine and authentic, having been subjected to thorough and stringent procedures, and approvals by the Center. Moreover, PSPC posits that both the CTAs Division and En Banc duly
found that PSPC had neither knowledge, involvement, nor participation in the alleged fraudulent issuance of the subject TCCs, and, thus, as a transferee in good faith and for value, it
cannot be held solidarily liable for any fraud attendant to the issuance of the subject TCCs. PSPC further asserts that the Center has no authority to cancel the subject TCCs as such
authority is lodged exclusively with the BOI. Lastly, PSPC said that the Centers Excom Resolution No. 03-05-99 which the Center relied upon as basis for the cancellation is defective,
ineffective, and cannot prejudice third parties for lack of publication.
As we have explained above, the subject TCCs after being fully utilized in the settlement of PSPCs excise tax liabilities have been canceled, and thus cannot be canceled anymore. For
being immediately effective and valid when issued, the subject TCCs have been duly utilized by transferee PSPC which is a transferee in good faith and for value.
On the issue of the fraudulent procurement of the TCCs, it has been asseverated that fraud was committed by the TCC claimants who were the transferors of the subject TCCs. We see no
need to rule on this issue in view of our finding that the real issue in this petition does not dwell on the validity of the TCCs procured by the transferor from the Center but on whether fraud
or breach of law attended the transfer of said TCCs by the transferor to the transferee.
The finding of the CTA En Banc that there was fraud in the procurement of the subject TCCs is, therefore, irrelevant and immaterial to the instant petition. Moreover, there are pending
criminal cases arising from the alleged fraud. We leave the matter to the anti-graft court especially considering the failure of the affiants to the affidavits to appear, making these hearsay
evidence.
We note in passing that PSPC and its officers were not involved in any fraudulent act that may have been undertaken by the transferors of subject TCCs, supported by the finding of the
Ombudsman Special Prosecutor Leonardo P. Tamayo that Pacifico R. Cruz, PSPC General Manager of the Treasury and Taxation Department, who was earlier indicted as accused in
OMB-0-99-2012 to 2034 for violation of Sec. 3(e) and (j) of RA 3019, as amended, otherwise known as the "Anti-Graft and Corrupt Practices Act," for allegedly conspiring with other
accused in defrauding and causing undue injury to the government,38 did not in any way participate in alleged fraudulent activities relative to the transfer and use of the subject TCCs.
In a Memorandum39 addressed to then Ombudsman Aniano A. Desierto, the Special Prosecutor Leonardo P. Tamayo recommended dropping Pacifico Cruz as accused in Criminal Case
Nos. 25940-25962 entitled People of the Philippines v. Antonio P. Belicena, et al., pending before the Sandiganbayan Fifth Division for lack of probable cause. Special
Prosecutor Tamayo found that Cruzs involvement in the transfers of the subject TCCs came after the applications for the transfers had been duly processed and approved; and that Cruz
could not have been part of the conspiracy as he cannot be presumed to have knowledge of the irregularity, because the 1989 MOA, which prescribed the additional requirement that the
transferee of a TCC should be a supplier of the transferor, was not yet published and made known to private parties at the time the subject TCCs were transferred to PSPC. The
Memorandum of Special Prosecutor Tamayo was duly approved by then Ombudsman Desierto. Consequently, on May 31, 2000, the Sandiganbayan Fifth Division, hearing Criminal Case
Nos. 25940-25962, dropped Cruz as accused.40
But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPCs rights as earlier explained since PSPC has not been shown or proven to have
participated in the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs.

On the issue of the authority to cancel duly issued TCCs, we agree with respondent that the Center has concurrent authority with the BIR and BOC to cancel the TCCs it issued. The
Center was created under Administrative Order No. (AO) 266 in relation to EO 226. A scrutiny of said executive issuances clearly shows that the Center was granted the authority to issue
TCCs pursuant to its mandate under AO 266. Sec. 5 of AO 266 provides:
SECTION 5. Issuance of Tax Credit Certificates and/or Duty Drawback.The Secretary of Finance shall designate his representatives who shall, upon the recommendation of the
CENTER, issue tax credit certificates within thirty (30) working days from acceptance of applications for the enjoyment thereof. (Emphasis supplied.)
On the other hand, it is undisputed that the BIR under the NIRC and related statutes has the authority to both issue and cancel TCCs it has issued and even those issued by the Center,
either upon full utilization in the settlement of internal revenue tax liabilities or upon conversion into a tax refund of unutilized TCCs in specific cases under the conditions provided. 41 AO 266
however is silent on whether or not the Center has authority to cancel a TCC it itself issued. Sec. 3 of AO 266 reveals:
SECTION 3. Powers, Duties and Functions.The Center shall have the following powers, duties and functions:
a. To promulgate the necessary rules and regulations and/or guidelines for the effective implementation of this administrative order;
xxxx
g. To enforce compliance with tax credit/duty drawback policy and procedural guidelines;
xxxx
l. To perform such other functions/duties as may be necessary or incidental in the furtherance of the purpose for which it has been established. (Emphasis supplied.)
Sec. 3, letter l. of AO 266, in relation to letters a. and g., does give ample authority to the Center to cancel the TCCs it issued. Evidently, the Center cannot carry out its mandate if it cannot
cancel the TCCs it may have erroneously issued or those that were fraudulently issued. It is axiomatic that when the law and its implementing rules are silent on the matter of cancellation
while granting explicit authority to issue, an inherent and incidental power resides on the issuing authority to cancel that which was issued. A caveat however is required in that while the
Center has authority to do so, it must bear in mind the nature of the TCCs immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has
been fully utilized or canceled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless of course the
claimant or transferee was involved in the perpetration of the fraud in the TCCs issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty party from the
consequences of the fraud committed.
While we agree with respondent that the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the
field of taxation,42 yet this principle cannot be applied to work injustice against an innocent party. In the case at bar, PSPCs rights as an innocent transferee for value must be protected.
Therefore, the remedy for respondent is to go after the claimant companies who allegedly perpetrated the fraud. This is now the subject of a criminal prosecution before the Sandiganbayan
docketed as Criminal Case Nos. 25940-25962 for violation of RA 3019.
On the issue of the publication of the Centers Excom Resolution No. 03-05-99 providing for the "Guidelines and Procedures for the Cancellation, Recall and Recovery of Fraudulently
Issued Tax Credit Certificates," we find that the resolution is invalid and unenforceable. It authorizes the cancellation of TCCs and TDM which are found to have been granted without legal
basis or based on fraudulent documents. The cancellation of the TCCs and TDM is covered by a penal provision of the assailed resolution. Such being the case, it should have been
published and filed with the National Administrative Register of the U.P. Law Center in accordance with Secs. 3, 4, and 5, Chapter 2 of Book VII, EO 292 or the Administrative Code of
1987.
We explained in People v. Que Po Lay43 that a rule which carries a penal sanction will bind the public if the public is officially and specifically informed of the contents and penalties
prescribed for the breach of the rule. Since Excom Resolution No. 03-05-99 was neither registered with the U.P.
Law Center nor published, it is ineffective and unenforceable. Even if the resolution need not be published, the punishment for any alleged fraudulent act in the procurement of the TCCs
must not be visited on PSPC, an innocent transferee for value, which has not been shown to have participated in the fraud. Respondent must go after the perpetrators of the fraud.
Third Issue: Imposition of surcharges and interests
PSPC claims that having no deficiency excise tax liabilities, it may not be liable for the late payment surcharges and annual interests.
This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no
basis for the imposition of a late payment surcharges and for interests, and no need for further discussion on the matter.
Fourth Issue: Non-compliance with statutory and
procedural due process
Finally, PSPC avers that its statutory and procedural right to due process was violated by respondent in the issuance of the assessment. PSPC claims respondent violated RR 12-99 since
no pre-assessment notice was issued to PSPC before the November 15, 1999 assessment. Moreover, PSPC argues that the November 15, 1999 assessment effectively deprived it of its
statutory right to protest the pre-assessment within 30 days from receipt of the disputed assessment letter.
While this has likewise been mooted by our discussion above, it would not be amiss to state that PSPCs rights to substantive and procedural due process have indeed been violated. The
facts show that PSPC was not accorded due process before the assessment was levied on it. The Center required PSPC to submit certain sales documents relative to supposed delivery of
IFOs by PSPC to the TCC transferors. PSPC contends that it could not submit these documents as the transfer of the subject TCCs did not require that it be a supplier of materials and/or
component supplies to the transferors in a letter dated October 29, 1999 which was received by the Center on November 3, 1999. On the same day, the Center informed PSPC of the
cancellation of the subject TCCs and the TDM covering the application of the TCCs to PSPCs excise tax liabilities. The objections of PSPC were brushed aside by the Center and the
assessment was issued by respondent on November 15, 1999, without following the statutory and procedural requirements clearly provided under the NIRC and applicable regulations.
What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the
assessment of national internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by respondent, depriving PSPC
of due process in contesting the formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference 44 and a preliminary
assessment notice, as required.45 PSPCs November 4, 1999 motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even
acted upon.
1wphi1

PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of
demand and assessment notice. For being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void. Paragraph 3.1.4 of Sec. 3, RR 12-99
pertinently provides:
3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is
based, otherwise, the formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. x x x
(Emphasis supplied.)

In short, respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does
not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued. Respondent must be more circumspect in the exercise of
his functions, as this Court aptly held in Roxas v. Court of Tax Appeals:
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 the order to maintain the general publics trust and confidence in the Government
this power must be used justly and not treacherously.46
WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in CTA EB No. 64 is hereby REVERSED and SET ASIDE, and the August 2, 2004 CTA Decision in CTA
Case No. 6003 disallowing the assessment is hereby REINSTATED. The assessment of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive
contained in the April 22, 1998 letter of respondent is canceled and declared without force and effect for lack of legal basis. No pronouncement as to costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

Republic of the Philippines

SUPREME COURT
EN BANC
G.R. No. 132527. July 29, 2005
COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA, PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI),
represented by its Secretary, ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS (FFF), represented by its President, JEREMIAS U. MONTEMAYOR, and BUKLURAN NG
MANGGAGAWANG PILIPINO (BMP), represented by its Chairperson, FELIMON C. LAGMAN, Petitioners,
vs.
HON. RUBEN TORRES, in his capacity as Executive Secretary; BASES CONVERSION AND DEVELOPMENT AUTHORITY, CLARK DEVELOPMENT CORPORATION, SUBIC BAY
METROPOLITAN AUTHORITY, 88 MART DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE SHOPS, INC., DFS SPORTS, ASIA
PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING, SHAMBURGH, SUBIC DFS,
ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC., PX CLUB, CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS UNLIMITED, INC., DUTY FREE FIRST
SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC. (formerly 88 Mart [Clark] Duty Free Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD DUTY FREE, INC., ROYAL
DFS and ZAXXON PHILIPPINES, INC., Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public respondents Ruben Torres in his capacity as Executive Secretary, the
Bases Conversion Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the private respondents
from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare the
following issuances as unconstitutional, illegal, and void:
1. Section 5 of Executive Order No. 80,1 dated April 3, 1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ.
3. Section 4 of BCDA Board Resolution No. 93-05-034,2 dated May 18, 1993, pertaining to the CSEZ.
Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute executive lawmaking, and that they are contrary to Republic Act No. 7227 3 and in violation
of the Constitution, particularly Section 1, Article III (equal protection clause), Section 19, Article XII (prohibition of unfair competition and combinations in restraint of trade), and Section 12,
Article XII (preferential use of Filipino labor, domestic materials and locally produced goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and balanced conversion of the Clark and Subic military reservations and their
extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in
general. Among the salient provisions are as follows:

SECTION 12. Subic Special Economic Zone.

...
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall
be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote
productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuringfree flow or movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other
relevant tax laws of the Philippines;4
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Ecoomic Zone shall be remitted to the National Government, one
percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a
development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of
municipalities outside the City of Olangapo and the Municipality of Subic, and other municipalities contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of the local government units directly affected, the President is hereby authorized to
create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined
by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, located within the territorial jurisdiction of Angeles City, Municipalities of
Mabalacat and Porac, Province of Pampanga and the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein provided insofar as applicable to the Clark military
reservations.
The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with such powers and functions exercised by the Export Processing Zone
Authority pursuant to Presidential Decree No. 66 as amended.
The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the inhabitants of the local government units directly affected which shall
be conducted within six (6) months upon approval of this Act.
Similarly, subject to the concurrence by resolution of the local government units directly affected, the President shall create other Special Economic Zones, in the base areas of Wallace Air
Station in San Fernando, La Union (excluding areas designated for communications, advance warning and radar requirements of the Philippine Air Force to be determined by the
Conversion Authority) and Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan,
Castillejos and San Marcelino.
On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special
Economic and Free Port Zone under Republic Act No. 7227. The pertinent provision assailed therein is as follows:
SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA shall promulgate all necessary policies, rules and regulations governing
the CSEZ, including investment incentives, in consultation with the local government units and pertinent government departments for implementation by the CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited
incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA.
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer
goods imported via Clark for consumption outside the CSEZ. The assailed provisions of said resolution read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O.
No. 226 and R.A. No. 7042 which shall include, but not limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption of goods/articles (duty free shopping) within the CSEZ Main Zone.
5. For individuals, duty-free consumer goods may be brought out of the CSEZ Main Zone into the Philippine Customs territory but not to exceed US$200.00 per month per CDC-registered
person, similar to the limits imposed in the Subic SEZ. This privilege shall be enjoyed only once a month. Any excess shall be levied taxes and duties by the Bureau of Customs.
On June 10, 1993, the President issued Executive Order No. 97, "Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227." Said
issuance in part states, thus:
SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ.
Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine
laws.
Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, "Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone." The
relevant provisions read, as follows:

SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the Subic Special Economic and Free Port Zone:
1.1 The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ. Business enterprises and
individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption
items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ
registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein.
1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured
Area. However, these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$100 per month per
person. Only residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they
can purchase and bring out [of] the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$200 per year per person. Only Filipinos age 15 and over
are entitled to this privilege.
Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area of the
SSEZ and to Filipinos aged 15 and over residing outside the SSEZ.
On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances on the following grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING
AN EXERCISE OF EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR
BEING VIOLATIVE OF THE EQUAL PROTECTION CLAUSE AND THE PROHIBITION AGAINST UNFAIR COMPETITION AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING
VIOLATIVE OF REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT RESTRAINED WILL CONTINUE TO CAUSE PETITIONERS TO SUFFER GRAVE AND
IRREPARABLE INJURY.5
In their Comments, respondents point out procedural issues, alleging lack of petitioners legal standing, the unreasonable delay in the filing of the petition, laches, and the propriety of the
remedy of prohibition.
Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers of the local retailers operating outside the special economic zones, do not stand to
suffer direct injury in the enforcement of the issuances being assailed herein. Assuming this is true, this Court has nevertheless held that in cases of paramount importance where serious
constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of
judicial review.6
In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the exercise of its discretion, brushes aside these
technicalities and takes cognizance of the petition considering the importance to the public of the present case and in keeping with the duty to determine whether the other branches of the
government have kept themselves within the limits of the Constitution. 7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an act of a co-equal and coordinate branch of the Government, it bears emphasis that deeply ingrained in our jurisprudence
is the time-honored principle that a statute is presumed to be valid.8 This presumption is rooted in the doctrine of separation of powers which enjoins upon the three coordinate departments
of the Government a becoming courtesy for each others acts.9 Hence, to doubt is to sustain. The theory is that before the act was done or the law was enacted, earnest studies were made
by Congress, or the President, or both, to insure that the Constitution would not be breached. 10 This Court, however, may declare a law, or portions thereof, unconstitutional where a
petitioner has shown a clear and unequivocal breach of the Constitution, not merely a doubtful or argumentative one. 11 In other words, before a statute or a portion thereof may be declared
unconstitutional, it must be shown that the statute or issuance violates the Constitution clearly, palpably and plainly, and in such a manner as to leave no doubt or hesitation in the mind of
the Court.12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive
legislation, in violation of the rule on separation of powers. Petitioners argue that the Executive Department, by allowing through the questioned issuances the setting up of tax and dutyfree shops and the removal of consumer goods and items from the zones without payment of corresponding duties and taxes, arbitrarily provided additional exemptions to the limitations
imposed by Republic Act No. 7227, which limitations petitioners identify as follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital and equipment.
(2) It provides that any exportation or removal of goods from the territory of the Subic Special Economic Zone to other parts of the Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.
Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227 clearly limits the grant of tax incentives to the importation of raw materials, capital and
equipment only. Hence, they claim that the assailed issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such as those being
sold in the duty-free shops, in violation of the letter and intent of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would show that it does not restrict the duty-free importation only to "raw materials, capital and
equipment." Section 12 of the cited law is partly reproduced, as follows:
SECTION 12. Subic Special Economic Zone.
...

The abovementioned zone shall be subject to the following policies:

...
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment.However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other
relevant tax laws of the Philippines.13
While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and equipment, this does not necessarily mean that the tax and duty-free buying privilege is
limited to these types of articles to the exclusion of consumer goods. It must be remembered that in construing statutes, the proper course is to start out and follow the true intent of the
Legislature and to adopt that sense which harmonizes best with the context and promotes in the fullest manner the policy and objects of the Legislature. 14
In the present case, there appears to be no logic in following the narrow interpretation petitioners urge. To limit the tax-free importation privilege of enterprises located inside the special
economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the "free flow of goods or capital within, into,
and out of the zones" is insured.
The phrase "tax and duty-free importations of raw materials, capital and equipment" was merely cited as an example of incentives that may be given to entities operating within the zone.
Public respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation, does not apply
when words are mentioned by way of example.15 It is obvious from the wording of Republic Act No. 7227, particularly the use of the phrase "such as," that the enumeration only meant to
illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone.
Furthermore, said legal maxim should be applied only as a means of discovering legislative intent which is not otherwise manifest, and should not be permitted to defeat the plainly
indicated purpose of the Legislature.16
The records of the Senate containing the discussion of the concept of "special economic zone" in Section 12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods
entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the concept of a free port, but it is broader. While a free port is necessarily included in the Special
Economic Zone, the reverse is not true that a free port would include a special economic zone.
Special Economic Zone, Mr. President, would include not only the incoming and outgoing of vessels, duty-free and tax-free, but it would involve also tourism, servicing, financing and all the
appurtenances of an investment center. So, that is the concept, Mr. President. It is broader. It includes the free port concept and would cater to the greater needs of Olangapo City, Subic
Bay and the surrounding municipalities.
Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan that was originally a part of the Subic Naval reservation, be entitled to a free port treatment or
just a special economic zone treatment?
Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President, it would have privileges of duty-free and tax-free. But in addition, the Special Economic Zone
could embrace the needs of tourism, could embrace the needs of servicing, could embrace the needs of financing and other investment aspects.
Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we call a special economic zone, will the goods entering to be consumed by the customers or
guests of the hotel be subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will be duty-free, because it is constructed within a free port.
Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone, whether we call it an economic zone or a free port, for as long as we say in this law that all goods entering this particular
territory will be duty-free and tax-free, for as long as they remain there, consumed there or reexported or destroyed in that place, then they are not subject to the duties and taxes in
accordance with the laws of the Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on Bases Conversion on June 26, 1995. Petitioners put emphasis on the reports finding that
the setting up of duty-free stores never figured in the minds of the authors of Republic Act No. 7227 in attracting foreign investors to the former military baselands. They maintain that said
law aimed to attract manufacturing and service enterprises that will employ the dislocated former military base workers, but not investors who would buy consumer goods from duty-free
stores.
The Court is not persuaded. Indeed, it is well-established that opinions expressed in the debates and proceedings of the Legislature, steps taken in the enactment of a law, or the history of
the passage of the law through the Legislature, may be resorted to as aids in the interpretation of a statute with a doubtful meaning. 18 Petitioners posture, however, overlooks the fact that
the 1995 Committee Report they are referring to came into being well after the enactment of Republic Act No. 7227 in 1993. Hence, as pointed out by respondent Executive Secretary
Torres, the aforementioned report cannot be said to form part of Republic Act No. 7227s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall
be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote
productive foreign investments. 19
The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government
Code, the Subic Special Economic and Free Port Zone (SSEFPZ) shall be developed into a self-sustaining industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject, to existing laws has been determined necessary to attract local and foreign visitors to the
zone.

Executive Order No. 97-A provides guidelines to govern the "tax and duty-free privileges within the Secured Area of the Subic Special Economic and Free Port Zone." Paragraph 1.6
thereof states that "(t)he sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly authorized duty-free shops."
The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy
enunciated in Section 12 of Republic Act No. 7227 that ". . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments." (Emphasis supplied.)
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals,
even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides that
"exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the Philippines."
On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,20 this Court resolved an issue, very much like the one herein, concerning the legality of the tax exemption benefits given
to the John Hay Economic Zone under Presidential Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER
CAMP JOHN AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was that the granting of tax exemptions to John Hay was an invalid and illegal exercise by the President of the powers granted only to the
Legislature. Petitioners therein argued that Republic Act No. 7227 expressly granted tax exemption only to Subic and not to the other economic zones yet to be established. Thus, the grant
of tax exemption to John Hay by Presidential Proclamation contravenes the constitutional mandate that "[n]o law granting any tax exemption shall be passed without the concurrence of a
majority of all the members of Congress."21
This Court sustained the argument and ruled that the incentives under Republic Act No. 7227 are exclusive only to the SSEZ. The President, therefore, had no authority to extend their
application to John Hay. To quote from the Decision:
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of a state constitution, that has full power to exempt
any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on
which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably
expressed.
If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227. 22
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones,
including the CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the
statute. Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the questioned
portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute executive legislation for allowing the removal of consumer goods and items from the zones without payment of
corresponding duties and taxes in violation of Republic Act No. 7227 as Section 12 thereof provides for the taxation of goods that are exported or removed from the SSEZ to other parts of
the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping privileges in the SSEZ and the CSEZ "to prevent abuse of duty-free privilege and to protect
local industries from unfair competition." The pertinent provisions of said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year 1998,
in addition to the permanent residents, locators and employees of the fenced-in areas of the Subic Special Economic and Freeport Zone and the Clark Special Economic Zone who are
allowed unlimited duty free purchases, provided these are consumed within said fenced-in areas of the Zones, the residents of the municipalities adjacent to Subic and Clark as
respectively provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall continue to be allowed One Hundred US Dollars (US$100) monthly shopping privilege until 31 December
1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of US$25 for consumable goods which shall be consumed only in the fenced-in area during their
visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by Law. Starting 1 January 1999, only the following persons shall continue to be eligible to shop
in duty free shops/outlets with their corresponding purchase limits:
a. Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s. 1993 One Thousand US Dollars (US$1,000) but not to exceed Ten Thousand US Dollars
(US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November 1989 Two Thousand US Dollars (US$2,000);
c. Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under R.A. 7227 (1992) and E.O. 97-A s. 1993 Unlimited purchase as long as these are for
consumption within these freeports.
The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of domicile or employment, reside on permanent basis within the freeport area. The term excludes
(1) non-residents who have entered into short- or long-term property lease inside the freeport, (2) outsiders engaged in doing business within the freeport, and (3) members of private clubs
(e.g., yacht and golf clubs) based or located within the freeport. In this regard, duty free privileges granted to any of the above individuals (e.g., unlimited shopping privilege, tax-free
importation of cars, etc.) are hereby revoked.23
A perusal of the above provisions indicates that effective January 1, 1999, the grant of duty-free shopping privileges to domestic tourists and to residents living adjacent to SSEZ and the
CSEZ had been revoked. Residents of the fenced-in area of the free port are still allowed unlimited purchase of consumer goods, "as long as these are for consumption within these
freeports." Hence, the only individuals allowed by law to shop in the duty-free outlets and remove consumer goods out of the free ports tax-free are tourists and Filipinos traveling to or
returning from foreign destinations, and Overseas Filipino Workers and Balikbayans as defined under Republic Act No. 6768. 24
Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive Order No. 444. Pursuant to the limited duration of the privileges granted under the
preceding issuance, Section 2 of Executive Order No. 303 declared that "[a]ll special shopping privileges as granted under Section 3 of Executive Order 444, s. 1997, are hereby deemed
terminated. The grant of duty free shopping privileges shall be restricted to qualified individuals as provided by law."
It bears noting at this point that the shopping privileges currently being enjoyed by Overseas Filipino Workers, Balikbayans, and tourists traveling to and from foreign destinations, draw
authority not from the issuances being assailed herein, but from Executive Order No. 4625 and Republic Act No. 6768, both enacted prior to the promulgation of Republic Act No. 7227.

From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of goods from the special economic zones as previously authorized by the questioned
issuances has become moot and academic.
In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that "exportation or removal of goods from the territory of the Subic Special Economic Zone to the
other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines."
Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without payment of said customs duties and taxes is not authorized by the Act. Consequently, the
following italicized provisions found in the second sentences of paragraphs 1.2 and 1.3, Section 1 of Executive Order No. 97-A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, these
residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US $100 per month per person. Only residents age
15 and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they
can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US $200 per year per person. Only Filipinos age 15 and over
are entitled to this privilege.26
A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05-034 is also null and void. Said Resolution applied the incentives given to the SSEZ under
Republic Act No. 7227 to the CSEZ, which, as aforestated, is without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives provided under Republic Act No. 7227, this Court will resolve the remaining arguments only with
regard to the operations of the SSEZ. Thus, the assailed issuance that will be discussed is solely Executive Order No. 97-A, since it is the only one among the three questioned issuances
which pertains to the SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right to equal protection of the laws, as enshrined in Section 1, Article III of the Constitution. To
support this argument, they assert that private respondents operating inside the SSEZ are not different from the retail establishments located outside, the products sold being essentially
the same. The only distinction, they claim, lies in the products variety and source, and the fact that private respondents import their items tax-free, to the prejudice of the retailers and
manufacturers located outside the zone.
Petitioners contention cannot be sustained. It is an established principle of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a
reasonable classification.27Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4)
apply equally to all members of the same class.28
Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the laws. First, contrary to petitioners claim, substantial distinctions lie
between the establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of Appeals,29 the constitutionality of Executive Order No. 97-A was
challenged for being violative of the equal protection clause. In that case, petitioners claimed that Executive Order No. 97-A was discriminatory in confining the application of Republic Act
No. 7227 within a secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial differences between the retailers inside and outside the secured area, thereby justifying a
valid and reasonable classification:
Certainly, there are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called "secured area" and the present business
operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even more important, at this time the business activities outside the "secured area" are not likely to have any impact in achieving
the purpose of the law, which is to turn the former military base to productive use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to extend to them the
benefits and incentives accorded in R.A. 7227. Additionally, as the Court of Appeals pointed out, it will be easier to manage and monitor the activities within the "secured area," which is
already fenced off, to prevent "fraudulent importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long as there are actual and material differences between territories, there is no
violation of the constitutional clause. And of course, anyone, including the petitioners, possessing the requisite investment capital can always avail of the same benefits by channeling his or
her resources or business operations into the fenced-off free port zone.30
The Court in Tiu found real and substantial distinctions between residents within the secured area and those living within the economic zone but outside the fenced-off area. Similarly, real
and substantial differences exist between the establishments herein involved. A significant distinction between the two groups is that enterprises outside the zones maintain their
businesses within Philippine customs territory, while private respondents and the other duly-registered zone enterprises operate within the so-called "separate customs territory." To grant
the same tax incentives given to enterprises within the zones to businesses operating outside the zones, as petitioners insist, would clearly defeat the statutes intent to carve a territory out
of the military reservations in Subic Bay where free flow of goods and capital is maintained.
The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real concern of Republic Act No. 7227 is to convert the lands formerly occupied by the US military
bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to the establishments within the zone to attract and
encourage foreign and local investors. This is the very rationale behind Republic Act No. 7227 and other similar special economic zone laws which grant a complete package of tax
incentives and other benefits.
The classification, moreover, is not limited to the existing conditions when the law was promulgated, but to future conditions as well, inasmuch as the law envisioned the former military
reservation to ultimately develop into a self-sustaining investment center.
And, lastly, the classification applies equally to all retailers found within the "secured area." As ruled in Tiu, the individuals and businesses within the "secured area," being in like
circumstances or contributing directly to the achievement of the end purpose of the law, are not categorized further. They are all similarly treated, both in privileges granted and in
obligations required.
With all the four requisites for a reasonable classification present, there is no ground to invalidate Executive Order No. 97-A for being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the SSEZ,
thereby creating unfair competition in violation of the constitutional prohibition against unfair competition and practices in restraint of trade.
The argument is without merit. Just how the assailed issuance is violative of the prohibition against unfair competition and practices in restraint of trade is not clearly explained in the
petition. Republic Act No. 7227, and consequently Executive Order No. 97-A, cannot be said to be distinctively arbitrary against the welfare of businesses outside the zones. The mere fact
that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. Said constitutional
prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its policies.

Suffice it to say that Congress had justifiable reasons in granting incentives to the private respondents, in accordance with Republic Act No. 7227s policy of developing the SSEZ into a
self-sustaining entity that will generate employment and attract foreign and local investment. If petitioners had wanted to avoid any alleged unfavorable consequences on their profits, they
should upgrade their standards of quality so as to effectively compete in the market. In the alternative, if petitioners really wanted the preferential treatment accorded to the private
respondents, they could have opted to register with SSEZ in order to operate within the special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated the State policy of promoting the preferential use of Filipino labor, domestic materials and
locally produced goods and adopting measures to help make them competitive.
Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their sweeping conclusion that the issuance has violated the State policy of giving preference to
Filipino goods and labor. The mere fact that said issuance authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v. GSIS31 which, however, does not apply. That case dealt with the policy enunciated under the second paragraph of Section 10, Article XII of the
Constitution,32 applicable to the grant of rights, privileges, and concessions "covering the national economy and patrimony," which is different from the policy invoked in this petition,
specifically that of giving preference to Filipino materials and labor found under Section 12 of the same Article of the Constitution. (Emphasis supplied).
In Taada v. Angara,33 this Court elaborated on the meaning of Section 12, Article XII of the Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of
the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the
Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution
does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality
and reciprocity, frowning only on foreign competition that is unfair.34
This Court notes that the Executive Department, with its subsequent issuance of Executive Order Nos. 444 and 303, has provided certain measures to prevent unfair competition. In
particular, Executive Order Nos. 444 and 303 have restricted the special shopping privileges to certain individuals. 35 Executive Order No. 303 has limited the range of items that may be sold
in the duty-free outlets,36 and imposed sanctions to curb abuses of duty-free privileges.37 With these measures, this Court finds no reason to strike down Executive Order No. 97-A for
allegedly being prejudicial to Filipino labor, domestic materials and locally produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and
are accordingly declared of no legal force and effect. Respondents are hereby enjoined from implementing the aforesaid void provisions. All portions of Executive Order No. 97-A are valid
and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are hereby declared INVALID.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Carpio-Morales, Callejo, Sr., Tinga, Chico-Nazario, and Garcia, JJ., concur.
Carpio, J., no part.
Corona, J., on official leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-43082

June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga
against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the
deceased, and for the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The
defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of
First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june 14,
1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate.
Said will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the same be
handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland,
and that he be directed that the same be used only for the education of my brother's children and their descendants.
6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous.
xxx

xxx

xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under the will, were to pass to
Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted
as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued
at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the
penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74.
On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the
trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest,
notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to
refund the said amount hausted, plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that from the
time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value
thereof at the expiration of the period of ten years after which, according to the testator's will, the property could be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the
"trustees" and paid to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April
10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax
be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper
to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has
there been deliquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental
importance, raised by the parties in their briefs, will be touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by
virtue of inheritance, devise, bequest, giftmortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a
will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from
the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See
also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil.,
489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs.

Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no
distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission
thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect
transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed the
transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually
receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en
posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que
debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as
of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is
clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to
the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest
due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in
translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after
the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's
death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This amount added to the value of the personal
property left by the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about
P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right
of the estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of
any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S.,
41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the
value at that time of such property as passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until
the estate vests in possession or the contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania
and Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its
anterior system, we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value
and the payment forthwith of the tax on its out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769;
Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1
Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until
March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28
(Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order to determine the
net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . .
. ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation
due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in
determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it does not appear that the testator
intended that the duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp.,
455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten
years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said:
". . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within
the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the
benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to support the contention that
such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by
section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was
section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The
taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes
under retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute
should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20
Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language
of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department
of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid,
Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions
are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606
instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031,
and (2) the taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In
common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation,
and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the
means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co.
vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.)
Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, "the mere failure to pay
one's tax does not render one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment without being subjected to the
payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's property to the trustee. Stated otherwise, the defendant
contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the
testator as expressed in his will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to
create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the
question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from
the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or subject matter thereof. Stated
otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain
object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into
effect the provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the
deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should
have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of
the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57
Law. ed., 1086). When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C.
J., p. 528) and, his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a
trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after
the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against
petuities. The collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the
very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71;
19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed.,
773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the
state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas
vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280 U. S.,
124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs.
Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle
Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs.
Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer,
becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec.
1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment
adherence to this policy of the law. It held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their
internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time
prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any
delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the
public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the
defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenuen or this court may
remit or decrease such interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be
added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communiction dated October 16,
1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax
and interest due were not paid on that date, the estate became liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley inaccordance with the conclusions we have reached.
At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed at the rate of one per centum upon the first ten thousand pesos and two
per centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two per

centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of
P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. First should be added P1,465.31 which stands for interest
at the rate of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a period covering 8 years, 6 months
and 5 days. To the tax and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also P10, the
compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate. This last sum is P390.42 more than the amount demanded by the
defendant in his counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount stated in the
counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered.
Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 167274-75

September 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FORTUNE TOBACCO CORPORATION, Respondent.
x-----------------------x
G.R. No. 192576
FORTUNE TOBACCO CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
VELASCO, JR., J.:
Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576,1 assails and seeks the reversal of the Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010, as
effectively reiterated in a Resolution of June 11, 2010, both rendered in C.T.A. EB No. 530 entitled Fortune Tobacco Corporation v. Commissioner of Internal Revenue. The assailed
issuances affirmed the Resolution of the CTA First Division dated June 4, 2009, denying the Motion for Issuance of Additional Writ of Execution filed by herein petitioner in CTA Case Nos.
6365, 6383 & 6612, and the Resolution dated August 10, 2009 which denied its Motion for Reconsideration.
The present appellate proceedings traces its origin from and finds context in the July 21, 2008 Decision2 of the Court in G.R. Nos. 167274-75, an appeal thereto interposed by the
Commissioner of Internal Revenue (BIR Commissioner) from the consolidated Decision and Resolution issued by the Court of Appeals on September 28, 2004 and March 1, 2005,
respectively, in CA-G.R. SP Nos. 80675 and 83165. The decretal part of the July 21, 2008 Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.3 (Emphasis supplied.)
The antecedent facts, as summarized by the CTA in its adverted March 12, 2010 Decision, are as follows:
FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing or producing cigarette brands with tax rate classification based on net retail price prescribed as follows:

Brand

Tax Rate

Champion M 100

P1.00

Salem M 100

P1.00

Salem M King

P1.00

Camel F King

P1.00

Camel Lights Box 20s

P1.00

Camel Filters Box 20s

P1.00

Winston F King

P5.00

Winston Lights

P5.00

Prior to January 1, 1997, the aforesaid cigarette brands were subject to ad-valorem tax under Section 142 of the 1977 Tax Code, as amended. However, upon the effectivity of Republic Act
(R.A.) No. 8240on January 1, 1997, a shift from ad valorem tax system to the specific tax system was adopted imposing excise taxes on cigarette brands under Section 142 thereof, now
renumbered as Section 145 of the 1997 Tax Code, stating the following pertinent provision:
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1,
1996. x x x The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
Upon the Commissioners recommendation, the Secretary of Finance, issued Revenue Regulations (RR) No. 17-99 dated December 16,1999 for the purpose of implementing the provision
for a 12% increase of excise tax on, among others, cigars and cigarettes packed by machines by January 1, 2000. RR No. 17-99 provides that the new specific tax rate for any existing
brand of cigars, cigarettes packed by machine x x x shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.

FTC paid excise taxes on all its cigarettes manufactured and removed from its place of production for the following period:

PERIOD

PAYMENT

January 1, 2000 to
January 31, 2000

P585,705,250.00

February 1, 2000 to
December 31, 2001

P19,366,783,535.00

January 1, 2002 to
December 31, 2002

P11,359,578,560.00

FTC subsequently sought administrative redress for refund before the Commissioner on the following dates:

PERIOD

ADMINISTRATIVE
FILING OF CLAIM

AMOUNT
CLAIMED

January 1, 2000 to
January 31, 2000

February 7, 2000

P35,651,410.00

February 1, 2000
to December 31,
2001

Various claims filed from

March 21, 2000
January 28, 2002

P644,735,615.00

January 1, 2002 to
December 31, 2002

February 3, 2003

P355,385,920.00

(CTA En Banc Decision,

Annex "A," Petition, pp. 2-4)
2. Since the claim for refund was not acted upon, petitioner filed on December 11, 2001 and January 30, 2002, respectively, Petitions for Review before the Court of Tax
Appeals (CTA) docketed as CTA Case Nos. 6365 and 6383 questioning the validity of Revenue Regulations No.17-99 with claims for refund in the amounts P35,651,410.00
and P644,735,615.00, respectively.
These amounts represented overpaid excise taxes for the periods from January 1, 2000 to January 31, 2000 and February 1, 2000 to December 31, 2001, respectively (Ibid.,
pp. 4-5).
3. In separate Decision dated October 21, 2002, the CTA in Division ordered the Commissioner of Internal Revenue (respondent herein) to refund to petitioner the erroneously
paid excise taxes in the amounts ofP35,651,410.00 for the period covering January 1, 2000 to January 31, 2000 (CTA Case No. 6365) andP644,735,615.00 for the period
February 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.).
4. Respondent filed a motion for reconsideration of the Decision dated October 21, 2002 covering CTA Case Nos. 6365 and 6383which was granted in the Resolution dated
July 15, 2003.
5. Subsequently, petitioner filed another petition docketed as CTA Case No. 6612 questioning the validity of Revenue Regulations No.17-99 with a prayer for the refund of
overpaid excise tax amounting toP355,385,920.00, covering the period from January 1, 2002 to December 31, 2002 (Ibid., p. 5).
6. Petitioner thereafter filed a consolidated Motion for Reconsideration of the Resolution dated July 15, 2003 (Ibid., pp. 5-6).
7. The CTA in Division issued Resolution dated November 4,2003 which reversed the Resolution dated July 15, 2003 and ordered respondent to refund to petitioner the
amounts of 35,651,410.00 for the period covering January 1 to January 31, 2000 and P644,735,615.00 for the period covering February 1, 2000 to December 31, 2001, or in
the aggregate amount of P680,387,025.00, representing erroneously paid excise taxes (Ibid., p. 6).
8. In its Decision dated December 4, 2003, the CTA in Division in Case No. 6612 declared RR No. 17-99 invalid and contrary to Section 145 of the 1997 National Internal
Revenue Code (NIRC). The Court ordered respondent to refund to petitioner the amount of P355,385,920.00 representing overpaid excise taxes for the period covering
January 1, 2002 to December 21, 2002 (Ibid.)
9. Respondent filed a motion for reconsideration of the Decision dated December 4, 2003 but this was denied in the Resolution dated March 17, 2004 (Ibid.)
10. On December 10, 2003, respondent Commissioner filed a Petition for Review with the Court of Appeals (CA) questioning the CTA Resolution dated November 4, 2003
which was issued in CTA Case Nos. 6365 and 6383. The case was docketed as CA-G.R. SP No.80675 (Ibid.).
11. On April 28, 2004, respondent Commissioner filed another appeal before the CA questioning the CTA Decision dated December 4, 2003 issued in CTA Case No. 6612. The
case was docketed as CA-G.R. SP No. 83165 (Ibid., p. 7).
12. Thereafter, petitioner filed a Consolidated Motion for Execution Pending Appeal before the CTA for CTA Case Nos. 6365 and 6383 and an Amended Motion for Execution
Pending Appeal for CTA Case No. 6612 (Ibid.).
13. The motions were denied in the CTA Resolutions dated August 2, 2004 and August 3, 2004, respectively. The CTA in Division pointed out that Section 12, Rule 43 of
the1997 Rules of Civil Procedure should be interpreted with Section 18 of R.A. 1125 which provides that CTA rulings become final and conclusive only where there is no
perfected appeal. Considering that respondent filed an appeal with the CA, the CTA in Divisions rulings granting the amounts of P355,385,920.00 and P680,387,025.00 were
not yet final and executory (Ibid.).
14. In the consolidated CA Decision dated September 28,2004 issued in CA-G.R. SP Nos. 80675 (CTA Case Nos. 6365 and6383) and 83165 (CTA Case No. 6612), the
appellate court denied respondents petitions and affirmed petitioners refund claims in the amounts of P680,387,025.00 (CTA Case Nos. 6365 and 6383) andP355,385,920.00
(CTA Case No. 6612), respectively (Ibid., p. 8).
15. Respondent filed a motion for reconsideration of the CA Decision dated September 28, 2004 but this was denied in the CAs Resolution dated March 1, 2005 (Ibid.).
16. Respondent, filed a Petition for Review on Certiorari docketed as G.R. Nos. 167274-75 on May 4, 2005 before the Honorable Court. On June 22, 2005, a Supplemental
Petition for Review was filed and the petitions were consolidated (Ibid.).
17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the Honorable Court affirmed the findings of the CA granting petitioners claim for refund. The dispositive
portion of said Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Commissioner of Internal
Revenue vs. Fortune Tobacco

Corporation, 559 SCRA 160

(2008)
18. On January 23, 2009, petitioner filed a motion for execution praying for the issuance of a writ of execution of the Decision of the Honorable Court in G.R. Nos. 167274-75 dated July 21,
2008 which was recorded in the Book of Entries of Judgments on November 6, 2008(Ibid., p. 10).
Petitioners prayer was for the CTA to order the BIR to pay/refund the amounts adjudged by the CTA, as follows:
a) CTA Case No. 6612 under the Decision 04 December 2003 the amount of Three Hundred Fifty Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty
Pesos (P355,385,920.00).
b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October 2002 and Resolution dated 04 November 2003 the amount of Six Hundred Eighty Million Three
Hundred Eighty Seven Thousand Twenty Five Pesos (P680,387,025.00).
(Petition, p. 11)
19. On April 14, 2009, the CTA issued a Writ of Execution, which reads:
You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE TOBACCO CORPORATION, pursuant to the Supreme Court Decision in the above-entitled case (SC G.R.
167274-75),dated July 21, 2008, which has become final and executory on November 6, 2008, by virtue of the Entry of Judgment by the Supreme Court on said dated, which reads as
follows:
xxxx
the amounts of P35,651,410.00 (C.T.A Case No. 6365) and P644,735,615.00 (C.T.A Case No. 6383) or a total ofP680,387,025.00 representing petitioners erroneously paid excise taxes
for the periods January 1-31, 2000 and February 1, 2000 to December 31, 2001,respectively under CA G.R. SP No. 80675 (C.T.A. Case No. 6365 and C.T.A. Case No. 6383).
(CTA 1st Division
Resolution dated June 04,
2009, pp. 2-3)
20. On April 21, 2009, petitioner filed a motion for the issuance of an additional writ of execution praying that the CTA order the Commissioner of Internal Revenue to pay
petitioner the amount of Three Hundred Fifty-Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (P355,385,920.00) representing the amount of tax
to be refunded in C.T.A. Case No. 6612 under its Decision dated December 4, 2003 and affirmed by the Honorable Court in its Decision dated July 21, 2008 (Petition, p. 12,
CTA Decision dated March 12, 2010, supra, p. 10).
21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioners Motion for the Issuance of Additional Writ of Execution (Ibid., p. 11).
22. Petitioner filed a motion for reconsideration of the Resolution dated June 4, 2009, but this was denied in the CTA Resolution dated August 10, 2009 (Ibid.).
The dispositive portion of the Resolution reads:
WHEREFORE, premises considered, the instant" Motion for Reconsideration" is hereby DENIED for lack of merit.
23. Aggrieved by the Decision, petitioner filed a petition for review before the CTA En Banc docketed as CTA EB Case No. 530,raising the following arguments, to wit:
The Honorable Court of Tax Appeals seriously erred contrary to law and jurisprudence when it held in the assailed decision and resolution that petitioner Fortune Tobacco
Corporation is not entitled to the writ of execution covering the decision in CTA Case No. 6612.
The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 has become final and executory.
The Decision of the Honorable Supreme Court in GR Nos. 167274-75 covers both CA GR SP No. 80675 and 83165.
24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed said petition for review. The dispositive portion of said Decision reads:
WHEREFORE, premises considered, the Petition for Review is DISMISSED. The Resolutions dated June 4,2009 and August 10, 2009 are AFFIRMED.
SO ORDERED.
(Annex "A," Petition, p. 16)
25. Petitioner filed a Motion for Leave to file Motion for Reconsideration with attached Motion for Reconsideration but this was denied in the CTA En Bancs Resolution dated
June 11, 2010. The dispositive portion of said Resolution reads:
WHEREFORE, premises considered, petitioners Motion for Leave to file attached Motion for Reconsideration and its Motion for Reconsideration are hereby DENIED for lack of merit.
SO ORDERED.4 (Emphasis supplied.)
Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via a petition for review, the recourse docketed as G.R. 192576,thereat praying in essence that an order issue
(a) directing the CTA to issue an additional writ of execution directing the Bureau of Internal Revenue(BIR) to pay FTC the amount of tax refund (P355,385,920.00) as adjudged in CTA
Case No. 6612 and (b) clarifying that the Courts Decision in G.R. Nos. 167274-75 applies to the affirmatory ruling of the CA in CA G.R. SP80675 and CA G.R. SP No. 83165. FTC
predicates its instant petition on two (2) stated grounds, viz.:
I
The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75, which has become final and executory, affirmed the Decision of the Court of Tax Appeals in CTA Case Nos.
6365, 6383 and 6612 and to the Decision of the Court of Appeals in CA G.R. SP No. 80675 and CAG.R. SP No. 83165.
II
The writ of execution prayed for and pertaining to CTA Case No.6612 and CA G.R. SP No. 83165 is consistent with the decision of the Supreme Court in GR Nos. 167274-75.
The petition is meritorious. But before delving on the merits of this recourse, certain undisputed predicates have to be laid and basic premises restated to explain the consolidation of G.R.
Nos. 167274-75 and G.R. No.192576, thus:
1. As may be recalled, FTC filed before the CTA three (3) separate petitions for refund covering three different periods involving varying amounts as hereunder indicated:

a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for P35,651,410.00;
b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for P644,735,615.00; and
c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92
In three (3) separate decisions/resolutions, the CTA found the claims for refund for the amounts aforestated valid and thus ordered the payment thereof.
2. From the adverse ruling of the CTA in the three (3) cases, the BIR Commissioner went to the CA on a petition for review assailing in CA-G.R.SP No. 80675 the CTA
decision/resolution pertaining to consolidated CTA Case Nos. 6365 & 6383. A similar petition, docketed as CA G.R. SP No.83165, was subsequently filed assailing the CTA
decision/resolution on CTA Case No. 6612.
3. Eventually, the CA, by Decision dated September 4, 2004, denied the Commissioners consolidated petition for review. The appellate Court also denied the Commissioners
motion for reconsideration on March 1,2005.
4. It is upon the foregoing state of things that the Commissioner came to this Court in G.R. Nos. 167274-75 to defeat FTCs claim for refund thus granted initially by the CTA
and then by the CA in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165.
By Decision dated July 21, 2008, the Court found against the Commissioner, disposing as follows:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.5 (Emphasis supplied.)
From the foregoing narration, two critical facts are at once apparent. First , the BIR Commissioner came to this Court on a petition for review in G.R. Nos. 167274-75 to set aside the
consolidated decision of the CA in CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165. Second, while the Courts Decision dated July 21, 2008 in G.R. Nos. 167274-75 denied the
Commissioners petition for review, necessarily implying that the CAs appealed consolidated decision is affirmed in toto, the fallo of that decidendi makes no mention or even alludes to the
appealed CA decision in CA-G.R. No. 83165, albeit the main decisions recital of facts made particular reference to that appealed CA decision. In fine, there exists an apparent in
consistency between the dispositive portion and the body of the main decision, which ideally should have been addressed before the finality of the said decision.
Owing to the foregoing aberration, but cognizant of the fact that the process of clarifying the dispositive portion in G.R. Nos. 167274-75 should be acted upon in the main case, the Court,
by Resolution6 dated February 25,2013 ordered the consolidation of this petition (G.R. No. 192576) with G.R. Nos. 167274-75, to be assigned to any of the members of the Division who
participated in the rendition of the decision.
Now to the crux of the controversy.
Petitioner FTC posits that the CTA should have issued the desired additional writ of execution in CTA Case No. 6612 since the body of the Decision of this Court in G.R. Nos. 167274-75
encompasses both CA G.R. Case No. 80675 which covers CTA Case Nos. 6365 and 6383 and CA G.R. Case No. 83165 which embraces CTA Case No. 6612. While the fallo of the
Decision dated July 21, 2008 in G.R. Case Nos. 167274-75 did not indeed specifically mention CA G.R. SP No. 83165, petitioner FTC would nonetheless maintain that such a slip is but an
inadvertent omission in the fallo. For the text of the July 21, 2008 Decision, FTC adds, clearly reveals that said CA case was intended to be included in the disposition of the case.
Respondent Commissioner, on the other hand, argues that per the CTA, no reversible error may be attributed to the tax court in rejecting, without more, the prayer for the additional writ of
execution pertaining to CTA Case No. 6612, subject of CA G.R. SP No. 83165. For the purpose, the Commissioner cited a catena of cases on the limits of a writ of execution. It is pointed
out that such writ must conform to the judgment to be executed; its enforcement may not vary the terms of the judgment it seeks to enforce, nor go beyond its terms. As further
asseverated, "whatever may be found in the body of the decision can only be considered as part of the reasons or conclusions of the court and while they may serve as guide or
enlightenment to determine the ratio decidendi, what is controlling is what appears in the dispositive part of the decision." 7
Respondent Commissioners posture on the tenability of the CTAs assailed denial action is correct. As it were, CTA did no more than simply apply established jurisprudence that a writ of
execution issued by the court of origin tasked to implement the final decision in the case handled by it cannot go beyond the contents of the dispositive portion of the decision sought to be
implemented. The execution of a judgment is purely a ministerial phase of adjudication. The executing court is without power its own, to tinker let alone vary the explicit wordings of the
dispositive portion, as couched.
But the state of things under the premises ought not to remain uncorrected. And the BIR cannot plausibly raise a valid objection for such approach. That bureau knew where it was coming
from when it appealed, first before the CA then to this Court, the award of refund to FTC and the rationale underpinning the award. It cannot plausibly, in all good faith, seek refuge on the
basis of slip on the formulation of the fallo of a decision to evade a duty. On the other hand, FTC has discharged its burden of establishing its entitlement to the tax refund in the total
amount indicated in its underlying petitions for refund filed with the CTA. The successive favorable rulings of the tax court, the appellate court and finally this Court in G.R. Nos. 167274-75
say as much. Accordingly, the Court, in the higher interest of justice and orderly proceedings should make the corresponding clarification on the fallo of its July 21, 2008 Decision in G.R.
Case Nos.162274-75. It is an established rule that when the dispositive portion of a judgment, which has meanwhile become final and executory, contains a clerical error or an ambiguity
arising from a inadvertent omission, such error or ambiguity may be clarified by reference to the body of the decision itself.
After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds it necessary to render a judgment nunc pro tunc and address an error in the fallo of said decision. The
office of a judgment nunc pro tunc is to record some act of the court done at a former time which was not then carried into the record, and the power of a court to make such entries is
restricted to placing upon the record evidence of judicial action which has actually been taken. 9 The object of a judgment nunc pro tunc is not the rendering of a new judgment and the
ascertainment and determination of new rights, but is one placing in proper form on the record, that has been previously rendered, to make it speak the truth, so as to make it show what
the judicial action really was, not to correct judicial errors, such as to render a judgment which the court ought to have rendered, in place of the one it did erroneously render, not to supply
non-action by the court, however erroneous the judgment may have been.10 The Court would thus have the record reflect the deliberations and discussions had on the issue. In this
particular case it is a correction of a clerical, not a judicial error. The body of the decision in question is clear proof that the fallo must be corrected, to properly convey the ruling of this
Court.
We thus declare that the dispositive portion of said decision should be clarified to include CA G.R. SP No. 83165 which affirmed the December 4,2003 Decision of the Court of Tax Appeals
in CTA Case No. 6612, for the following reasons, heretofore summarized:
1. The petition for review on certiorari in G.R. Nos. 167274-75filed by respondent CIR sought the reversal of the September 28, 2004Decision of the Court of Appeals rendered
in the consolidated cases of CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165, thus:Hence, this petition for review on certiorari under Rule 45 of the Rules of Court which
seeks the nullification of the Court of Appeals (1)Decision promulgated on September 28, 2004 in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165, both entitled
"Commissioner of Internal Revenue vs. Fortune Tobacco Corporation," denying the CIRs petition and affirming the assailed decisions and resolutions of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated March 1, 2005 denying petitioners motion for reconsideration of the said decision." 11
Earlier on, it was made clear that respondent CIR questioned the Decision of the CTA dated October 21, 2002 in CTA Case Nos. 6365 and 6383 in CA G.R. SP No. 80675
before the Court of Appeals. In CA G.R. SP No. 83165, the Commissioner also assailed the Decision of the CTA dated December 4, 2003 in CTA Case No. 66l2 also before the
same appellate court. The two CA cases were later consolidated. Since the appellate court rendered its September 28, 2004 Decision in the consolidated cases of CAG.R. SP
Nos. 80675 and 83165, what reached and was challenged before this Court in G.R. Nos. 167274-75 is the ruling of the Court of Appeals in both cases. When this Court
rendered its July 21, 2008 Decision, the ruling necessarily embraced both CA G.R. SP Case Nos. 80675 and 83165 and adjudicated the respective rights of the parties. Clearly
then, there was indeed an inadvertence in not specifying in the fallo of our July 21, 2008Decision that the September 28, 2004 CA Decision included not only CAG.R. SP No.
80675 but also CA G.R. SP No. 83165 since the two cases were merged prior to the issuance of the September 28, 2004 Decision.
Given the above perspective, the inclusion of CA G.R. SP Case No.83165 in the fallo of the Decision dated July 21, 2008 is very much in order and is in keeping with the
imperatives of fairness.
2. The very contents of the body of the Decision dated July 21,2008 rendered by this Court in G.R. Nos. 167274-75 undoubtedly reveal that both CA G.R. SP No. 80675 and
CA G.R. SP No. 83165 were the subject matter of the petition therein. And as FTC would point out at every turn, the Courts Decision passed upon and decided the merits of
the September 28,2004 Decision of the Court of Appeals in the consolidated cases of CA G.R.SP Case Nos. 80675 and 83165 and necessarily CA G.R. SP No. 83165 was
included in our disposition of G.R. Nos. 167274-75. We quote the pertinent portions of the said decision:

The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed Decision dated 28 September 2004:
CAG.R. SP No. 80675
xxxx
Petitioner FTC is the manufacturer/producer of, among others, the following cigarette brands, with tax rate classification based on net retail price prescribed by Annex "D" to
R.A. No. 4280, to wit:

Brand
Champion M 100
Salem M 100
Salem M King
Camel F King
Camel Lights Box 20s
Camel Filters Box 20s
Winston F Kings
Winston Lights

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax pursuant to then Section142 of the Tax Code of 1977, as amended. However,
on January 1, 1997,R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT)system to the specific tax system was made and subjecting the aforesaid cigarette brands to
specific tax under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus:
xxxx
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000. (Emphasis supplied.)
xxxx
To implement the provisions for a twelve percent (12%) increase of excise tax on, among others, cigars and cigarettes packed by machines by January 1, 2000, the Secretary of Finance,
xxx issued Revenue Regulations [RR] No. 17-99, dated December 16, 1999, which provides the increase on the applicable tax rates on cigar and cigarettes x x x.
[tax rates deleted]
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000."
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondents Appellate Division a claim for refund or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount
of P35,651,410.00.
On June 21, 2001, petitioner filed with respondents Legal Service a letter dated June 20, 2001 reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on various
dates, including the present claim for the month of January 2000 in the amount of P35,651,410.00.
As there was no action on the part of the respondent, petitioner filed the instant petition for review with this Court on December 11, 2001,in order to comply with the two-year period for filing
a claim for refund.
xxxx
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said case questions the CTAs December 4, 2003 decision in CTA Case No.6612 granting respondents claim for refund of the
amount of P355,385,920.00 representing erroneously or illegally collected specific taxes covering the period January 1, 2002 to December 31, 2002, as well as its March 17, 2004
Resolution denying a reconsideration thereof.
xxxx
However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this
time with a semblance of finality, that the respondent is entitled to the refund claimed. Hence, in are solution dated November 4, 2003, the tax court reinstated its December 21, 2002
Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby REINSTATED. Accordingly, respondent is hereby ORDERED to REFUND petitioner the total amount
of P680,387,025.00 representing erroneously paid excise taxes for the period January 1, 2000 to January 31, 2000 and February 1,2000 to December 31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No. 6612 granting the prayer for the refund of the amount of P355,385,920.00 representing overpaid excise
tax for the period covering January 1, 2002 to December 31, 2002. The tax court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing
overpaid excise tax for the period covering January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated March 17, 2004. (Emphasis supplied; citations omitted.)
1wphi1

The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant of refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675,
whereas that assailing the grant of refund in the amount of P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were consolidated and eventually denied by the CA.
The appellate court also denied reconsideration in its Resolution dated 1 March 2005.
In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner, the Office of the Solicitor General (OSG) seeks to convince the Court that the literal interpretation given
by the CTA and the CA of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period. Instead

of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the Tax Code, the appellate courts ruling would result in a significant decrease in the tax rate by
as much as 66%.
xxxx
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must, therefore, be construed strictly against the taxpayer, such as Fortune Tobacco. In its Memorandum
dated 10 November 2006, Fortune Tobacco argues that the CTA and the CA merely followed the letter of the law when they ruled that the basis for the 12% increase in the tax rate should
be the net retail price of the cigarettes in the market as outlined in paragraph C, sub par. (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone beyond his delegated
rule-making power when he promulgated, enforced and implemented RR No. 17-99,which effectively created a separate classification for cigarettes based on the excise tax "actually being
paid prior to January 1, 2000."
xxxx
This entire controversy revolves around the interplay between Section 145 of the Tax Code and RR 17-99. The main issue is an inquiry into whether the revenue regulation has exceeded
the allowable limits of legislative delegation.
xxxx
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules and regulations for the effective implementation of the
Tax Code, interprets the above-quoted provision and reflects the 12% increase in excise taxes in the following manner:
[table on tax rates deleted]
This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4).
However, RR No.17-99 went further and added that "The new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor
shall not be lower than the excise tax that is actually being paid prior to January 1, 2000."
Parenthetically, Section 145 states that during the transition period ,i.e., within the next three (3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall
not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and unmistakably, Section 145mandates a new rate of excise tax for cigarettes packed by machine due
to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1January 2000, RR No. 17-99 effectively imposes
a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as
increased by 12%a situation not supported by the plain wording of Section 145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes, respondent was not informed in writing of the law and the facts on which the assessment of estate taxes was made pursuant to Section 228
of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely notified of the findings by the Commissioner, who had simply relied upon the old provisions of the law
and RR No. 12-85 which was based on the old provision of the law. The Court held that in case of discrepancy between the law as amended and the implementing regulation based on the
old law, the former necessarily prevails. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure.
xxxx
In the case at bar, the OSGs argument that by 1 January 2000, the excise tax on cigarettes should be the higher tax imposed under the specific tax system and the tax imposed under the
ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to justify what is clearly an impermissible incursion into the
limits of administrative legislation. Such an interpretation is not supported by the clear language of the law and is obviously only meant to validate the OSGs thesis that Section 145 of the
Tax Code is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8,
Section 145of the Tax Code simply states that, "The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex D, shall
remain in force until revised by Congress." This declaration certainly does not lend itself to the interpretation given to it by the OSG. As plainly worded, the average net retail prices of the
listed brands under Annex "D," which classify cigarettes according to their net retail price into low, medium or high, obviously remain the bases for the application of the increase in excise
tax rates effective on 1 January 2000.
The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax
Code is to generate additional revenues for the government. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by the
legislative record, the shift from the ad valorem system to the specific tax system is likewise meant to promote fair competition among the players in the industries concerned, to ensure an
equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes x x x into high, medium and low- priced based on their net retail price and accordingly
graduating tax rates.
xxxx
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.12
The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the following facts and proceedings:
1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No. 83165 as the subject matter of the decision on p. 2 and p. 7,respectively.
2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the CTA peremptorily resolved the twin refund suits to the appeal of the decisions thereat to the Court of
Appeals via a petition docketed as CA-G.R. SP No. 80675 and eventually to this Court in G.R. Nos. 167274-75. It likewise narrated the events connected with CTA Case No.
6612 to the time the decision in said case was appealed to the Court of Appeals in CA-G.R.SP No. 83165, consolidated with CA G.R. SP No. 80675 and later decided by the
appellate court. It cited the appeal from the CA decision by the BIR Commissioner to this Court in G.R. Nos. 167274-75.
3. It resolved in the negative the main issue presented in both CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165 as to whether or not the last paragraph of Section 1 of
Revenue Regulation No. 17-99 is in accordance with the pertinent provisions of Republic Act No. 8240, now incorporated in Section 145 of the Tax Code of 1997.
4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the petition is denied" and that the "Decision of the Court of Appeals x x x dated 28 September 2004 and
its Resolution dated 1 March 2005 are affirmed" reflects an intention that CA G.R. SP No. 83165 should have been stated therein, being one of the cases subject of the
September 28, 2004 CA Decision.
The legality of Revenue Regulation No. 17-99 is the only determinative issue resolved by the July 21, 2008 Decision which was the very same issue resolved by the CA in the consolidated
CA-G.R. SP Nos.80675 and 83165 and exactly the same issue in CTA Nos. 6365, 6383 and 6612.
From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165 should be included in the fallo of the July 21, 2008 decision.

1wphi1

It is established jurisprudence that "the only portion of the decision which becomes the subject of execution and determines what is ordained is the dispositive part, the body of the decision
being considered as the reasons or conclusions of the Court, rather than its adjudication." 13
In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs Import and Export Corporation, the Court noted two (2)exceptions to the rule that the fallo prevails over
the body of the opinion, viz:
(a) where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment because the dispositive part of a decision must
find support from the decisions ratio decidendi;
(b) where extensive and explicit discussion and settlement of the issue is found in the body of the decision.14
Both exceptions obtain in the present case. We find that there is an ambiguity in the fallo of Our July 21, 2008 Decision in G.R. Nos. 167274-75 considering that the propriety of the CA
holding in CA-G.R. SP No.83165 formed part of the core issues raised in G.R. Case Nos. 167274-75, but unfortunately was left out in the all-important decretal portion of the judgment. The
fallo of Our July 21, 2008 Decision should, therefore, be correspondingly corrected.
For sure, the CTA cannot, as the Commissioner argues, be faulted for denying petitioner FTCs Motion for Additional Writ of Execution filed in CTA Case Nos. 6365, 6383 and 6612 and for
denying petitioners Motion for Reconsideration for it has no power nor authority to deviate from the wording of the dispositive portion of Our July 21, 2008 Decision in G.R. Nos. 16727475. To reiterate, the CTA simply followed the all too familiar doctrine that "when there is a conflict between the dispositive portion of the decision and the body thereof, the dispositive portion
controls irrespective what appears in the body of the decision." 15 Veering away from the fallo might even be viewed as irregular and may give rise to a charge of breach of the Code of
Judicial Conduct. Nevertheless, it behooves this Court for reasons articulated earlier to grant relief to petitioner FTC by way of clarifying Our July 21, 2008 Decision. This corrective step
constitutes, in the final analysis, a continuation of the proceedings in G.R. Case Nos. 167274-75. And it is the right thing to do under the premises. If the BIR, or other government taxing
agencies for that matter, expects taxpayers to observe fairness, honesty, transparency and accountability in paying their taxes, it must, to borrow from BPI Family Savings Bank, Inc. v
Court of Appeals16 hold itself against the same standard in refunding excess payments or illegal exactions. As a necessary corollary, when the taxpayers entitlement to are fund stands
undisputed, the State should not misuse technicalities and legalisms, however exalted, to keep money not belonging to it. 17 As we stressed in G.R. Nos. 167274-75, the government is not
exempt from the application of solutio indebiti, a basic postulate proscribing one, including the State, from enriching himself or herself at the expense of another.18 So it must be here.
WHEREFORE, the petition is GRANTED. The dispositive portion of the Courts July 21, 2008 Decision in G.R. Nos. 167274-75 is corrected to reflect the inclusion of CA G.R. SP No. 83165
therein. As amended, the fallo of the aforesaid decision shall read:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in the consolidated cases of CA- G.R. SP No. 80675 and 83165 dated 28 September 2004, and its Resolution,
dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.
The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010 and the Resolution dated June 11, 2010 in CTA EB No. 530 entitled "Fortune Tobacco Corporation vs.
Commissioner of Internal Revenue" as well as the Resolutions dated June 4, 2009 and August 10, 2009which denied the Motion for Issuance of Additional Writ of Execution of the CTA
First Division in CTA Cases Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is ORDERED to issue a writ of execution directing the respondent CIR to pay petitioner Fortune Tobacco
Corporation the amount of tax refund of P355,385,920.00 as adjudged in CTA Case No. 6612.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

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.:

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).
This is a petition erroneously brought under Rule 44 of the Rules of Court 1

any decision, order or ruling of the Constitutional Commissions 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.
Pursuant to the 1987 Constitution, 2

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

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.
pending resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction"

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8
reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree
arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include
the following:
i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the
landed cost of oil inventories in the possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that
unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted
to P335,037,649.00 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00, broken down as follows:
1986 P233,190,916.00
1987 335,065,650.00
1988 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since June
1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and government-owned
or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to
forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of the
sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash position.

10

The proposal

reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and reimbursements will be administered by the
ERB/Finance Dept./OEA, as agencies designated by law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same
amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be conducted expeditiously.
(4) The review of current claims (1989) will be conducted expeditiously to preclude further accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing years. 11

Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation, and Mr. Francis Ablan, President and Managing Director,
Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the former
directing immediate remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987,
and the latter reiterating the same directive but further advising the firms to desist from offsetting collections against their claims with the notice that "this
Commission will hold in abeyance the audit of all . . . claims for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the aforenamed oil companies were allowed to offset the amounts due
to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending with the then Ministry of
Energy, the government entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting of
all types of reimbursements from the OPSF against all categories of remittances, advised these oil companies that such offsetting was bereft of legal basis.
Aggrieved thereby, these companies now seek reconsideration and in support thereof clearly manifest their intent to make arrangements for the remittance to the
Office of Energy Affairs of the amount of collections equivalent to what has been previously offset, provided that this Commission authorizes the Office of Energy
Affairs to prepare the corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation of such an arrangement, whereby
the remittance of collections due to the OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from each
other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no further objectionable feature in the proposed arrangement,
provided that 15% of whatever amount is due from the Fund is retained by the Office of Energy Affairs, the same to be answerable for suspensions or
disallowances, errors or discrepancies which may be noted in the course of audit and surcharges for late remittances without prejudice to similar future retentions

to answer for any deficiency in such surcharges, and provided further that no offsetting of remittances and reimbursements for the current and ensuing years shall
be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs:

12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of documents submitted to us by your Office in
support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price Stabilization Fund
(OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted claims). In addition, the Commission hereby
authorize (sic) the Office of Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which
are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235 representing those claims disallowed by OEA,
details of which is (sic) shown in Schedule 1 as summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558

P257,263,300
Disallowances of OEA 130,420,235

Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for
which the OPSF may be utilized. Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for such claims is provided in DOF
Circular 1-87.
b. Product Sales Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that
(sic) oil companies should pay OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to international vessels/airlines should not be
included as part of its domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB
Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to international vessels/airlines and claim the
corresponding reimbursements from OPSF during the period. It is our opinion that the effectivity of the said resolution should be February 7, 1987.
c. Inventory losses Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are not tax paid inventories
of Caltex subject to reimbursements but those of the borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987 amounting to
P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether
direct or indirect due and payable by the copper mining companies in distress to the national and local governments." It is our opinion that LOI 1416 which
implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein authorized shall be subject to availability of funds of OPSF as of
May 31, 1989 and applicable auditing rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party has 30 days within
which to appeal the decision of the Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds:

13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF
FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration.

14

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

15

Decision

No. 1171 reads as follows:

Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to recover financing charges from the OPSF on the basis of
Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies to "recover cost of financing working capital associated with
crude oil shipments," and provided a schedule of reimbursement in terms of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of these financing charges and justifying their reimbursement as follows:
As part of your program to promote economic recovery, . . . oil companies (were authorized) to refinance their imports of crude oil and
petroleum products from the normal trade credit of 30 days up to 360 days from date of loading . . . Conformably . . ., the oil companies
deferred their foreign exchange remittances for purchases by refinancing their import bills from the normal 30-day payment term up to the
desired 360 days. This refinancing of importations carried additional costs (financing charges) which then became, due to government
mandate, an inherent part of the cost of the purchases of our country's oil requirement.
We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule of reimbursement rate in peso per barrel
(Exhibit 1) used to support alleged increase (sic) were not validated in our independent inquiry. As manifested in Exhibit 2, using the same formula which the DOF
used in arriving at the reimbursement rate but using comparable percentages instead of pesos, the ineluctable conclusion is that the oil companies are actually
gaining rather than losing from the extension of credit because such extension enables them to invest the collections in marketable securities which have much
higher rates than those they incur due to the extension. The Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our
records.
With respect to product sales or those arising from sales to international vessels or airlines, . . ., it is believed that export sales (product sales) are entitled to claim
refund from the OPSF.
As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view of this Commission that the OPSF is not liable to refund such
surtax on inventory losses because these are paid to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July
17, 1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF
impost because LOI 1416 dated July 17, 1984, which exempts distressed mining companies from "all taxes, duties, import fees and other charges" was issued
when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was not
created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the following errors:

16

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 landed cost of oil
inventories in the possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for "in essence, financing charges constitute
unrecovered cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989 Memorandum to the President of the Department of Finance; they "directly
translate to cost underrecovery in cases where the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the
presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following guidelines on the utilization of the Oil
Price Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk premium and recovery of financing charges will be implemented:
1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6) months and 1/32 of one percent
per month thereafter up to a maximum period of one year, to be applied on crude oil' shipments from January 1, 1987. Shipments with
outstanding financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing.
2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover financing charges directly from the
OPSF per barrel of crude oil based on the following schedule:
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.)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to review every sixty days. 24
Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed the recovery of financing charges directly
from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost differential for a particular shipment and
duly certified supporting documents provided for under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said
certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not
utilized, subject to availability of funds. 25

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

26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive agencies. The determination by the Department of

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.
Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and consideration.

27

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 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.

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

30

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, are no longer controlling as the

33

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

and Administrative Code of 1987. 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, 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:
general jurisdiction in Section 26 of the Government Auditing Code of the Philippines

34

35

36

37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General could not correct "irregular, unnecessary,
excessive or extravagant" expenditures of public funds but could only "bring [the matter] to the attention of the proper administrative officer," under the 1987
Constitution, as also under the 1973 Constitution, the Commission on Audit can "promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties."
Hence, since the Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these
regulations can be a ground for disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more extensive powers, they did not intend merely to
make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government.
The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the
OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which may result in cost underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not included in "cost underrecovery" and, therefore, cannot be considered as one of
the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of
the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.
These "other factors" can include only those which are of the same class or nature as the two specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that
they are in the nature of government mandated price reductions. Hence, any other factor which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery, must
be of the same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be

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.
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

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that such were incurred as a result of the inability to fully offset financing expenses
from yields in money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as amended, because the same did not result from the reduction of the
domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is not to
legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the behest of the Government that petitioner
refinanced its oil import payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended period for payment,
the financial institution which refinanced said payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would appear then that equity
considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any, which may have been sustained because it accommodated the request of the
Government. Although under Section 29 of the National Internal Revenue Code such losses may be deducted from gross income, the effect of that loss would be merely to reduce its
taxable income, but not to actually wipe out such losses. The Government then may consider some positive measures to help petitioner and others similarly situated to obtain substantial
relief. An amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or define "other factors" is to uphold an undue delegation
of legislative power, it clearly appearing that the subject provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power
may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the exercise of the
delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed
to disprove COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim
for reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The respondents themselves admit in their Comment that underrecovery arising from

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.
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

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

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." 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."
LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42

43

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues for the
following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137,
amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the government's effort to prevent the collapse of the copper industry.
P.D No. 1956, as amended, was issued for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in
world market prices of crude oil and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining
companies in distress to the Notional and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil
companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI 1416 was never published in the Official Gazette

45

as required by

Article 2 of the Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of 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

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.
liberally in favor of the taxing authority. 48

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

Respondents, on the other hand, contend that said amount was

already disallowed by the OEA for failure to substantiate it. In fact, when OEA submitted the claims of petitioner for preaudit, the abovementioned amount was already excluded.
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49

50

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

Petitioner also mentions communications from the Board of

Energy and the Department of Finance that supposedly authorize compensation.
provides for "Retention of Money for Satisfaction of Indebtedness to Government." 52

contend that there can be no offsetting of taxes against the claims that a
taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer,
but are imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply the government indebtedness to the
satisfaction of the obligation of the person to the government, like authority or right to make compensation is not given to
the private person." The reason for this, as stated in Commissioner of Internal Revenue vs.Algue, Inc., 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.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53

54

55

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

and that the OPSF contributions do not go to the general fund of the state and are not used for
public purpose, i.e., not for the support of the government, the administration of law, or the payment of public expenses.
This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in
the Francia case is inapplicable.
instead established a special fund . . .," 56

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

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.
threatened industry which is affected with public interest as to be within the police power of the state.

57

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.

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

58

59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in
reality, passed unto the end-users the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes
collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect,
therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be
mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their
claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding
obligations with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except that portion thereof disallowing petitioner's
claim for reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby allowed. With costs against petitioner. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the
Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective, 1

posited grounds, viz.:

prohibitive and coercive remedies provided by Rule 65 of the Rules of Court, upon the following
2

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as
amended, "said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, for "being an undue and invalid delegation of legislative power . . to the

Energy Regulatory Board;" 5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, 6

because it contravenes 8, paragraph 2 (2) of

P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund
(OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases
in the world market prices of crude oil.

and ordered released from the National Treasury to the

Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with
the earnings from such placements accruing to the fund.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for
possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of
Finance.

that to abate the worsening

deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877 billion; 8

at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar Orbos,
in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of
Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept, process and pay claims not authorized under P.D. 1956." 9
The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. If the purpose for which a
special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special
tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another

Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing
power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for
which it was created."
government objective." 10

11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that is, the law must not only
specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of
the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax
undoubtedly because a portion thereof is taken from collections of ad valoremtaxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the
taxation power of the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be
expended for a special purpose."

13

The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its holding inValmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the nature and functions of the OPSF. The OPSF is a "Trust Account" which was
established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude

Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27
February 1987, this Trust Account may be funded from any of the following sources:
oil and imported petroleum products." 15

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso 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.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude oil
and petroleum products from sources of supply to the Philippines may also vary from time to time. The exchange rate of the pesovis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices of oil and petroleum products with sympathetic frequency. But domestic prices
which vary from day to day or even only from week to week would result in a chaotic market with unpredictable effects upon the country's economy in general. The
OPSF was established precisely to protect local consumers from the adverse consequences that such frequent oil price adjustments may have upon the
economy.Thus, the OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid by consumers as well as
some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for increases
in, as well as underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often, and oil companies are allowed to recover those portions of their costs which they would not
otherwise recover given the level of domestic prices existing at any given time. To the extent that some tax revenues are also put into it, the OPSF is in effect a
device through which the domestic prices of petroleum products are subsidized in part. It appears to the Court that the establishment and maintenance of the
OPSF is well within that pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival and well-being of
the community, that comprehensive sovereign authority we designate as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil clearly critical in importance considering, among other things, the continuing high level of dependence of the country on
imported crude oil are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not far different from the OPSF. In Gaston v. Republic Planters Bank, 16

this Court

upheld the legality of the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta,
98 Phil. 148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of
the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence v. American Surety
Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a
special fund, to be, in the language of the statute, "administered in trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance
if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted
from the 1935 Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds
are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may
be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3),
lifted from the 1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund
is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the
practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum
products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing
domestic pump rates, 8(c) of P.D. 1956 18

expressly authorizes the ERB to impose additional amounts to augment the resources of the

Fund.
The Court is cited to this requirement by
the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the
case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax."

19

overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are
embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price of oil and petroleum products, and the frequently shifting need to either augment or
exhaust the Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by the petitioner. To do so would render the ERB unable to respond effectively
so as to mitigate or avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices to guide the delegate in the exercise of the delegated power,
taking account of the circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it
must fix a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be carried out. Thereafter, the executive or administrative office designated may
in pursuance of the above guidelines promulgate supplemental rules and regulations. The standard may either be express or implied. If the former, the nondelegation objection is easily met. The standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act
considered as a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition, inasmuch as the challenged law sets forth a
determinable standard which guides the exercise of the power granted to the ERB. By the same token, the proper exercise of the delegated power may be tested with ease. It seems
obvious that what the law intended was to permit the additional imposts for as long as there exists a need to protect the general public and the petroleum industry from the adverse
consequences of pump rate fluctuations. "Where the standards set up for the guidance of an administrative officer and the action taken are in fact recorded in the orders of such officer, so
that Congress, the courts and the public are assured that the orders in the judgment of such officer conform to the legislative standard, there is no failure in the performance of the
legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express purpose for which the imposts are permitted and the general objectives and purposes of
the fund are readily discernible, and they constitute a sufficient standard upon which the delegation of power may be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8,
paragraph 2 (2) of P.D. 1956, amended 23

the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation,
etc.) because not authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the

and since these items are reimbursements for which the OPSF should not have
responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." It is argued "that under the
principle of ejusdem generis . . . the term 'other factors' (as used in 8 of P.D. 1956) . . can only include such 'other
factors' which necessarily result in the reduction of domestic prices of petroleum products."
reduction of domestic prices of petroleum products,'" 24

25

26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27

passed upon the application of ejusdem generis to paragraph 2

of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here 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

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
the cost underrecovery only if such were incurred as a result of the reduction of domestic prices of
petroleum products.
mentioned." 28

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8 of P.D. 1956, for the reason that they were not incurred as a result of the
reduction of domestic prices of petroleum products. Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a result of domestic price
reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other

and which have been pointed to by the Solicitor General. At any rate, doubts about the propriety
of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the Petroleum Price Standby
Fund, 2 of which specifically authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil sales to
the National Power Corporation."
laws and regulations as held inCaltex 29

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken
any effort to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of overpayment refunds, has at all bothered to discuss the arguments for or against
the legality of the so-called overpayment refunds. To be sure, the absence of any argument for or against the validity of the refund cannot result in its disallowance by the Court. Unless the
impropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis upon which to nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered moot and academic. As of date hereof, the pump rates of gasoline have been reduced
to levels below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo, Campos, Jr., and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 158540

July 8, 2004

SOUTHERN CROSS CEMENT CORPORATION, petitioner,

vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF
FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

DECISION

TINGA, J.:
"Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New England detachment. The Frost ethos has been heeded by nations adjusting to the effects
of the liberalized global market.1 The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of
anti-dumping duties) and, finally, Rep. Act No. 8800, also known as the Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement on Tariff and Trade (GATT) and the
World Trade Organization (WTO) Agreement.3
The SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs, to protect domestic industries and producers from increased imports which
inflict or could inflict serious injury on them.4 The wisdom of the policies behind the SMA, however, is not put into question by the petition at bar. The questions submitted to the Court relate
to the means and the procedures ordained in the law to ensure that the determination of the imposition or non-imposition of a safeguard measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation engaged in the business of cement manufacturing, production, importation and exportation. Its
principal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest cement manufacturers in Japan. 5
Private respondent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an association of domestic cement manufacturers. It has eighteen (18) members,7 per Record. While
Philcemcor heralds itself to be an association of domestic cement manufacturers, it appears that considerable equity holdings, if not controlling interests in at least twelve (12) of its
member-corporations, were acquired by the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of
Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).8
On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application from Philcemcor, alleging that the importation of gray Portland cement 9 in increased
quantities has caused declines in domestic production, capacity utilization, market share, sales and employment; as well as caused depressed local prices. Accordingly, Philcemcor sought
the imposition at first of provisional, then later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the application in behalf of twelve (12) of its
member-companies.10
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical circumstances existed justifying the imposition of provisional measures. 11 On 7 November
2001, the DTI issued an Order,imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60) per forty (40) kilogram bag on all importations of gray Portland
cement for a period not exceeding two hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the implementing Customs Memorandum Order.12 The
corresponding Customs Memorandum Order was issued on 10 December 2001, to take effect that same day and to remain in force for two hundred (200) days. 13
In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a formal investigation to determine whether or not to impose a definitive safeguard
measure on imports of gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A notice of commencement of formal investigation was
published in the newspapers on 21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor, various importers and exporters, the Embassies of
Indonesia, Japan and Taiwan, contractors/builders associations, industry associations, cement workers' groups, consumer groups, non-government organizations and concerned
government agencies.14 A preliminary conference was held on 27 November 2001, attended by several concerned parties, including Southern Cross. 15 Subsequently, the Tariff Commission
received several position papers both in support and against Philcemcor's application. 16 The Tariff Commission also visited the corporate offices and manufacturing facilities of each of the
applicant companies, as well as that of Southern Cross and two other cement importers.17
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the factors studied by the Tariff Commission in its Report were the market share of the
domestic industry,18 production and sales,19 capacity utilization,20 financial performance and profitability,21 and return on sales.22 The Tariff Commission arrived at the following conclusions:

1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the product under consideration (gray Portland cement) is not the subject of any
Philippine obligation or tariff concession under the WTO Agreement. Nonetheless, such inquiry is governed by the national legislation (R.A. 8800) and the terms and conditions
of the Agreement on Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the total domestic production of gray Portland cement and blended Portland
cement.
3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absolute terms and relative to domestic production, starting in 2000. The
increase in volume of imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of gray Portland cement.
7. Causation has become moot and academic in view of the negative determination of the elements of serious injury and imminent threat of serious injury.23
Accordingly, the Tariff Commission made the following recommendation, to wit:
The elements of serious injury and imminent threat of serious injury not having been established, it is hereby recommended that no definitive general safeguard measure be
imposed on the importation of gray Portland cement.24
The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff Commission
that there was no serious injury to the local cement industry caused by the surge of imports. 25 In view of this disagreement, the DTI requested an opinion from the Department of Justice
("DOJ") on the DTI Secretary's scope of options in acting on the Commission's recommendations. Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that
Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff Commission's negative finding, or finding that a definitive safeguard measure should not be imposed. 26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff Commission, the DTI Secretary noted the DTI's disagreement with the conclusions.
However, he also cited the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commission's recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:
"In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall
immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or
the remainder thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10) days from the date a final
decision has been made; Provided, that the government shall not be liable for any interest on the amount to be returned. The Secretary shall not
accept for consideration another petition from the same industry, with respect to the same imports of the product under consideration within one (1)
year after the date of rendering such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray Portland cement filed by PHILCEMCOR (Case No. 02-2001) is hereby denied. 27 (Emphasis in the
original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus28 seeking to set aside
the DTI Decision, as well as the Tariff Commission's Report. Philcemcor likewise applied for a Temporary Restraining Order/Injunction to enjoin the DTI and the BOC from implementing the
questioned Decision and Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment independently of the Report. Philcemcor
argued that the DTI Secretary, vested as he is under the law with the power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the Report is void, as
it is predicated on a flawed framework, inconsistent inferences and erroneous methodology.29
On 10 June 2002, Southern Cross filed its Comment.30 It argued that the Court of Appeals had no jurisdiction over Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the
SMA conferred jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard measure. It likewise argued that Philcemcor's resort to the special civil action
of certiorari is improper, considering that what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or grave abuse of discretion, and that a petition for review
with the CTA was available as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a review by the DTI Secretary
of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction, the Court of Appeals' Twelfth Division 31 granted the writ sought in its Resolution dated 21
June 2002.32 Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the provisional measure expired. Despite the lapse of the period, the BOC
continued to impose the provisional measure on all importations of Portland cement made by Southern Cross. The uninterrupted assessment of the tariff, according to Southern Cross,
worked to its detriment to the point that the continued imposition would eventually lead to its closure.33
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002. Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise
sought a clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier imposition of the provisional measure beyond the two hundred (200)-day limit
imposed by law. The appeals' court failed to take immediate action on Southern Cross's motion despite the four (4) motions for early resolution the latter filed between September of 2002
and February of 2003. After six (6) months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on Southern Cross's Motion for Reconsideration.34 After Philcemcor
filed its Opposition35 on 13 March 2003, Southern Cross filed another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for Reconsideration. Instead, on 5 June 2003, it rendered a Decision,36 granting in part
Philcemcor's petition. The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. It refused to annul the findings of the Tariff
Commission, citing the rule that factual findings of administrative agencies are binding upon the courts and its corollary, that courts should not interfere in matters addressed to the sound
discretion and coming under the special technical knowledge and training of such agencies.37 Nevertheless, it held that the DTI Secretary is not bound by the factual findings of the Tariff
Commission since such findings are merely recommendatory and they fall within the ambit of the Secretary's discretionary review. It determined that the legislative intent is to grant the DTI
Secretary the power to make a final decision on the Tariff Commission's recommendation. 38 The dispositive portion of the Decision reads:
WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the Tariff Commission in its assailed Report dated March 13, 2002
is DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET ASIDE. Consequently, the case
is REMANDED to the public respondent Secretary of Department of Trade and Industry for a final decision in accordance with RA 8800 and its Implementing Rules and
Regulations.
SO ORDERED.39
On 23 June 2003, Southern Cross filed the present petition, assailing the appellate court's Decision for departing from the accepted and usual course of judicial proceedings, and not
deciding the substantial questions in accordance with law and jurisprudence. The petition argues in the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the
proper remedy being a petition for review with the CTA conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or non-existence conditions
warranting the imposition of general safeguard measures are binding upon the DTI Secretary.
The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of AppealsDecision from becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a
new Decision, ruling this time that that in light of the appellate court's Decision there was no longer any legal impediment to his deciding Philcemcor's application for definitive safeguard
measures.41 He made a determination that, contrary to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a result of the import
surges.42 Accordingly, he imposed a definitive safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag
for three years on imported gray Portland Cement.43

On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to
enjoin the DTI Secretary from enforcing hisDecision of 25 June 2003 in view of the pending petition before this Court. Philcemcor filed an opposition, claiming, among others, that it is not
this Court but the CTA that has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretary's 25 June 2003 Decision which imposed the definite safeguard measure.
Prescinding from this action, Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Cross's petition, alleging that it deliberately and willfully resorted to
forum-shopping. It points out that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's second decision, while its Petition before the CTA prays for the annulment of the
same decision.44
Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues that the CTA, being a special court of limited jurisdiction, could only review the ruling of the DTI
Secretary when a safeguard measure is imposed, and that the factual findings of the Tariff Commission are not binding on the DTI Secretary.45
After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18 February 2004.46 At the oral argument, attended by the counsel for Philcemcor and
Southern Cross and the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the DTI Secretary is appealable to the CTA or the Court of
Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether itsDecision is in accordance with law; and, (iii) whether a Temporary Restraining Order is warranted.47
During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the general safeguard measures, Southern Cross was forced to cease operations in the
Philippines in November of 2003.48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It sought to enjoin the DTI Secretary from enforcing the definitive safeguard
measure he imposed in his 25 June 2003Decision. The Court did not grant the provisional relief for it would be tantamount to enjoining the collection of taxes, a peremptory judicial act
which is traditionally frowned upon,49 unless there is a clear statutory basis for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits any court from granting an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed by the internal revenue code. 51A similar philosophy is expressed by Section 29 of the SMA, which states
that the filing of a petition for review before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate
safeguard measures.52 This evinces a clear legislative intent that the imposition of safeguard measures, despite the availability of judicial review, should not be enjoined notwithstanding any
timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or that sanction should befall upon Southern Cross and its counsel. The standard by
Section 5, Rule 7 of the 1997 Rules of Civil Procedure in order that sanction may be had is that "the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping."53 The standard implies a malicious intent to subvert procedural rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over Philcemcor'sPetition, discussed the issue of whether or not the DTI Secretary is bound
to adopt the negative recommendation of the Tariff Commission on the application for safeguard measure. The Court of Appeals maintained that it had jurisdiction over the petition, as it
alleged grave abuse of discretion on the part of the DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI Secretary in rendering the assailed April 5, 2002 Decision wherein it was
ruled that he had no alternative but to abide by the findings of the Commission on the matter of safeguard measures for the local cement industry. Abuse of discretion is
admittedly within the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI
Secretary gravely abused his discretion in wantonly evading to discharge his duty to render an independent determination or decision in imposing a definitive safeguard
measure.54
We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion on the part of an officer exercising judicial or quasi-judicial functions. 55 However,
the special civil action of certiorari is available only when there is no plain, speedy and adequate remedy in the ordinary course of law.56 Southern Cross relies on this limitation, stressing
that Section 29 of the SMA is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail of. The Section reads:
Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the Secretary in connection with the imposition of a safeguard
measure may file with the CTA, a petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of such petition for review shall
not in any way stop, suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures, as the case
may be.
The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in
connection with adverse rulings on tax matters to the Court of Appeals.57 (Emphasis supplied)
It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review the ruling of the DTI Secretary in connection with the imposition of a safeguard
measure. The Court has long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized
court.58 By the very nature of its function, the CTA is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject. 59
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere
implication.60 Concededly, Rep. Act No. 1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI Secretary in connection with the imposition of
safeguard measures.61 Of course, at that time which was before the advent of trade liberalization the notion of safeguard measures or safety nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of the DTI Secretary in connection with the imposition of safeguard measures.
However, Philcemcor and the public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary imposing a safeguard measure, but not when his ruling
is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to
impose said duties."62 Had Rep. Act No. 9282 already been in force at the beginning of the incidents subject of this case, there would have been no need to make any deeper inquiry as to
the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to the present case, the question of whether such jurisdiction extends to a decision not to
impose a safeguard measure will have to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated therein: (i) there must be a ruling by the DTI
Secretary; (ii) the petition must be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be in connection with the imposition of a safeguard measure. The
first two requisites are clearly present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary decides not to impose a safeguard measure, it is the CTA which has jurisdiction to
review his decision. The reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two different courts, depending on whether or not it imposes a safeguard measure, and
in either case the court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the imposition of a safeguard measure it is the CTA which has
appellate jurisdiction; otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially, respondents advocate that Section 29 of the
SMA has established split appellate jurisdiction over rulings of the DTI Secretary on the imposition of safeguard measure.

This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction. 63 The power of the DTI Secretary to adopt or withhold a safeguard measure
emanates from the same statutory source, and it boggles the mind why the appeal modality would be such that one appellate court is qualified if what is to be reviewed is a positive
determination, and it is not if what is appealed is a negative determination. In deciding whether or not to impose a safeguard measure, provisional or general, the DTI Secretary would be
evaluating only one body of facts and applying them to one set of laws. The reviewing tribunal will be called upon to examine the same facts and the same laws, whether or not the
determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of jurisdiction over basically the same subject matterprecisely the split-jurisdiction
situation which is anathema to the orderly administration of justice.64 The Court cannot accept that such was the legislative motive especially considering that the law expressly confers on
the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review without mention of any other court that may exercise corollary or ancillary
jurisdiction in relation to the SMA. The provision refers to the Court of Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of Appeals. 65
The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar:
The Court agrees with the observation of the [that] when an administrative agency or body is conferred quasi-judicial functions, all controversies relating to the subject
matter pertaining to its specialization are deemed to be included within the jurisdiction of said administrative agency or body. Split jurisdiction is not favored.67
Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from reviewing a negative determination by the DTI Secretary nor conferred on the Court of
Appeals such review authority. Respondents note, on the other hand, that neither did the law expressly grant to the CTA the power to review a negative determination. However, under the
clear text of the law, the CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in connection with the imposition of a safeguard measure." Had the law been couched
instead to incorporate the phrase "the ruling imposing a safeguard measure," then respondent's claim would have indisputable merit. Undoubtedly, the phrase "in connection with" not only
qualifies but clarifies the succeeding phrase "imposition of a safeguard measure." As expounded later, the phrase also encompasses the opposite or converse ruling which is the nonimposition of a safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a key provision of the Employee Retirement Security Act of 1974, construed the
phrase "relates to" in its normal sense which is the same as "if it has connection with or reference to."69 There is no serious dispute that the phrase "in connection with" is synonymous to
"relates to" or "reference to," and that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the acquired connotative meaning of "in connection
with" in common parlance. Consequently, with the use of the phrase "in connection with," Section 29 allows the CTA to review not only the ruling imposing a safeguard measure, but all
other rulings related or have reference to the application for such measure.
Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the
US Supreme Court in New York State Blue Cross Plans v. Travelers Ins.70 conceded that the phrases "relate to" or "in connection with" may be extended to the farthest stretch of
indeterminacy for, universally, relations or connections are infinite and stop nowhere.71 Thus, in the case the US High Court, examining the same phrase of the same provision of law
involved in Shaw, resorted to looking at the statute and its objectives as the alternative to an "uncritical literalism."72 A similar inquiry into the other provisions of the SMA is in order to
determine the scope of review accorded therein to the CTA.73
The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-agricultural products, and in the Secretary of the Department of Agriculture in the case
of agricultural products.74 Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture Secretary may be reviewed by the CTA. 75 Thus, the acts of other bodies
that were granted some powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within thirty (30) days from receipt of a petition seeking the imposition of a safeguard
measure, or from the date he mademotu proprio initiation, the Secretary shall make a preliminary determination on whether the increased imports of the product under consideration
substantially cause or threaten to cause serious injury to the domestic industry.76Such ruling is crucial since only upon the Secretary's positive preliminary determination that a threat to the
domestic industry exists shall the matter be referred to the Tariff Commission for formal investigation, this time, to determine whether the general safeguard measure should be imposed or
not.77 Pursuant to a positive preliminary determination, the Secretary may also decide that the imposition of a provisional safeguard measure would be warranted under Section 8 of the
SMA.78 The Secretary is also authorized to decide, after receipt of the report of the Tariff Commission, whether or not to impose the general safeguard measure, and if in the affirmative,
what general safeguard measures should be applied.79 Even after the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard measure,80 or terminate,
reduce or modify his previous rulings on the general safeguard measure. 81
With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, it follows that he is empowered to rule on several issues. These are the issues
which arise in connection with, or in relation to, the imposition of a safeguard measure. They may arise at different stages the preliminary investigation stage, the post-formal investigation
stage, or the post-safeguard measure stage yet all these issues do become ripe for resolution because an initiatory action has been taken seeking the imposition of a safeguard measure.
It is the initiatory action for the imposition of a safeguard measure that sets the wheels in motion, allowing the Secretary to make successive rulings, beginning with the preliminary
determination.
Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain to all rulings of the DTI Secretary or Agriculture Secretary which arise from the
time an application or motu proprioinitiation for the imposition of a safeguard measure is taken. Indeed, the incidents which require resolution come to the fore only because there is an
initial application or action seeking the imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense and practicality to lump up the questions related to the
initiatory application or action for safeguard measure and to assign only one court and; that is the CTA to initially review all the rulings related to such initiatory application or action. Both
directions Congress put in place by employing the phrase "in connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not doubt that a negative ruling refusing to impose a safeguard measure falls within
the scope of its jurisdiction. On a literal level, such negative ruling is "a ruling of the Secretary in connection with the imposition of a safeguard measure," as it is one of the possible
outcomes that may result from the initial application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in connection with a safeguard measure,
however diverse the outcome may be, arise from the same grant of jurisdiction on the DTI Secretary by the SMA. 82 The refusal by the DTI Secretary to grant a safeguard measure involves
the same grant of authority, the same statutory prescriptions, and the same degree of discretion as the imposition by the DTI Secretary of a safeguard measure.
The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law. Moreover, a fundamentalist approach to Section 29 is not warranted, considering the
absurdity of the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a negative ruling of the DTI Secretary, the Court is precluded from favoring an
interpretation that would cause inconvenience and absurdity.85 Adopting the respondents' position favoring the CTA's minimal jurisdiction would unnecessarily lead to illogical and onerous
results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing a safeguard measure but not to those declining to impose the measure.
Respondents might argue that the right to relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling through a special civil action for certiorari
under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are of differing natures and gravamen. While an appeal may be predicated on
errors of fact or errors of law, a special civil action for certiorari is grounded on grave abuse of discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil
action for certiorari to succeed, it is not enough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine the case. There is excess of jurisdiction where, being clothed with the
power to determine the case, the tribunal, board or officer oversteps its/his authority as determined by law. And there is grave abuse of discretion where the tribunal, board or
officer acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is often
resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment, appeal is the remedy.86
It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence, may either make a negative preliminary determination as he is so empowered
under Section 7 of the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the same law. Adopting the respondents' theory, this negative ruling is susceptible to
reversal only through a special civil action for certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the rudimentary grounds of errors in fact or in law.
Instead, and despite whatever indications that the DTI Secretary acted with measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a gymnastic
exercise, contorting the straight and narrow in an effort to discombobulate the courts into believing that what was within was actually beyond and what was studied and deliberate actually
whimsical and capricious. What then would be the remedy of the party aggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot be the special
civil action for certiorari, for as the Court held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its character. It is not a general utility tool in the legal
workshop."87

Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a way that it places under the CTA's judicial review all rulings of the DTI Secretary,
which are connected with the imposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the CTA over tax matters. In the same way that a
question of whether to tax or not to tax is properly a tax matter, so is the question of whether to impose or not to impose a definitive safeguard measure.
On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of the DTI Secretary over safeguard measures should first be reviewed by the CTA
and not the Court of Appeals. It reads:
The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in
connection with adverse rulings on tax matters to the Court of Appeals.
This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of Congress is that the petition conform to the requirements and procedure under Rule
43 of the Rules of Civil Procedure. Since Congress mandated that the form and procedure adopted be analogous to a review of a CTA ruling by the Court of Appeals, the legislative
contemplation could not have been that the appeal be directly taken to the Court of Appeals.
Issue of Binding Effect of Tariff
Commission's Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by the Tariff Commission under the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether
the DTI Secretary may impose general safeguard measures in the absence of a positive final determination by the Tariff Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff Commission do not necessarily constitute a final decision. Section 13 details the procedure for
the adoption of a safeguard measure, as well as the steps to be taken in case there is a negative final determination. The implication of the Court of Appeals' holding is that the DTI
Secretary may adopt a definitive safeguard measure, notwithstanding a negative determination made by the Tariff Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measures may be imposed. However, the most fundamental restriction on the DTI
Secretary's power in that respect is contained in Section 5 of the SMAthat there should first be a positive final determination of the Tariff Commissionwhich the Court of
Appeals curiously all but ignored. Section 5 reads:
Sec. 5. Conditions for the Application of General Safeguard Measures. The Secretary shall apply a general safeguard measure upon a positive final determination of
the [Tariff] Commission that a product is being imported into the country in increased quantities, whether absolute or relative to the domestic production, as to be a
substantial cause of serious injury or threat thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first establish that the
application of such safeguard measures will be in the public interest. (emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power lodged in the Tariff Commission, must be
distinguished from the power to impose the general safeguard measure which is properly vested on the DTI Secretary.88
All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose a general safeguard measure on grey Portland cement. First, there must be a
positive final determination by the Tariff Commission that a product is being imported into the country in increased quantities (whether absolute or relative to domestic production), as to be
a substantial cause of serious injury or threat to the domestic industry. Second, in the case of non-agricultural products the Secretary must establish that the application of such safeguard
measures is in the public interest.89 As Southern Cross argues, Section 5 is quite clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of
statutory construction. There is no safer nor better settled canon of interpretation that when language is clear and unambiguous it must be held to mean what it plainly expresses: 90 In the
quotable words of an illustrious member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The verba legis or plain meaning rule rests
on the valid presumption that the words employed by the legislature in a statute correctly express its intent or will and preclude the court from construing it differently. The
legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the
statute.91
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of the law, likewise requires a positive final determination on the part of the Tariff
Commission before the application of the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has
the power to make a "positive final determination." This power, which belongs to the Tariff Commission, must be distinguished from the power to impose general safeguard measure
properly vested on the DTI Secretary. The distinction is vital, as a "positive final determination" clearly antecedes, as a condition precedent, the imposition of a general safeguard measure.
At the same time, a positive final determination does not necessarily result in the imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final
determination of the Tariff Commission, the DTI Secretary is tasked to decide whether or not that the application of the safeguard measures is in the public interest.
It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the Tariff Commission does not entail a mere gathering of statistical data. In order to arrive
at such determination, it has to establish causal linkages from the statistics that it compiles and evaluates: after finding there is an importation in increased quantities of the product in
question, that such importation is a substantial cause of serious threat or injury to the domestic industry.
The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff
Commission do not bind the DTI Secretary.93 Yet as explained earlier, the plain meaning of Section 5 emphasizes that only if the Tariff Commission renders a positive determination could
the DTI Secretary impose a safeguard measure. Resort to the congressional records to ascertain legislative intent is not warranted if a statute is clear, plain and free from ambiguity. The
legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the statute. 94
Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as legislative debates and proceedings are powerless to vary the terms of the statute
when the meaning is clear.95 Our holding in Civil Liberties Union v. Executive Secretary96 on the resort to deliberations of the constitutional convention to interpret the Constitution is likewise
appropriate in ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to arrive at the reason and purpose of the resulting
Constitution, resort thereto may be had only when other guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is clear. Debates
in the constitutional convention "are of value as showing the views of the individual members, and as indicating the reasons for their votes, but they give us no light as to the
views of the large majority who did not talk xxx. We think it safer to construe the constitution from what appears upon its face." 97
Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert a misleading interpretation. The effect can be dangerous. Minority or solitary
views, anecdotal ruminations, or even the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole virtue of their publication in the authoritative
congressional record. Hence, resort to legislative deliberations is allowable when the statute is crafted in such a manner as to leave room for doubt on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general safeguard measure by preconditioning such imposition on a positive determination by
the Tariff Commission. Such legislative intent should be given full force and effect, as the executive power to impose definitive safeguard measures is but a delegated powerthe power of
taxation, by nature and by command of the fundamental law, being a preserve of the legislature. 98 Section 28(2), Article VI of the 1987 Constitution confirms the delegation of legislative
power, yet ensures that the prerogative of Congress to impose limitations and restrictions on the executive exercise of this power:
The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.99
The safeguard measures which the DTI Secretary may impose under the SMA may take the following variations, to wit: (a) an increase in, or imposition of any duty on the imported product;
(b) a decrease in or the imposition of a tariff-rate quota on the product; (c) a modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d)
one or more appropriate adjustment measures, including the provision of trade adjustment assistance; and (e) any combination of the above-described actions. Except for the provision of
trade adjustment assistance, the measures enumerated by the SMA are essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI of the 1987
Constitution.100

This delegation of the taxation power by the legislative to the executive is authorized by the Constitution itself.101At the same time, the Constitution also grants the delegating authority
(Congress) the right to impose restrictions and limitations on the taxation power delegated to the President. 102 The restrictions and limitations imposed by Congress take on the mantle of a
constitutional command, which the executive branch is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive general safeguard measures, which basically are tariff imposts of the type spoken of in the
Constitution. However, the law did not grant him full, uninhibited discretion to impose such measures. The DTI Secretary authority is derived from the SMA; it does not flow from any
inherent executive power. Thus, the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional fiat. 104
Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI Secretary, having the final decision on the safeguard measure, has the power to evaluate the findings of the
Tariff Commission and make an independent judgment thereon. Given the constitutional and statutory limitations governing the present case, the citation is misplaced. Lamb pertained to
the discretion of the Insular Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States require[d] xxx to exercise his judgment upon the legality xxx
[of] provisions of law and resolutions of Congress providing for the payment of money, the means of procuring testimony upon which he may act." 106
Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on the Insular Auditor, it also recognized that such latitude flowed from, and is
consequently limited by, statutory grant. However, in this case, the provision of the Constitution in point expressly recognizes the authority of Congress to prescribe limitations in the case of
tariffs, export/import quotas and other such safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands cannot be analogous to the discretion of
the DTI Secretary which is circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human Rights,107 likewise cited by Philcemcor, is also inapplicable owing to the different statutory regimes prevailing over that case and the
present petition. In Cario, the Court ruled that the constitutional power of the Commission on Human Rights (CHR) to investigate human rights' violations did not extend to adjudicating
claims on the merits.108 Philcemcor claims that the functions of the Tariff Commission being "only investigatory," it could neither decide nor adjudicate. 109
The applicable law governing the issue in Cario is Section 18, Article XIII of the Constitution, which delineates the powers and functions of the CHR. The provision does not vest on the
CHR the power to adjudicate cases, but only to investigate all forms of human rights violations.110 Yet, without modifying the thorough disquisition of the Court in Cario on the general
limitations on the investigatory power, the precedent is inapplicable because of the difference in the involved statutory frameworks. The Constitution does not repose binding effect on the
results of the CHR's investigation.111 On the other hand, through Section 5 of the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did intend to bind the
DTI Secretary to the determination made by the Tariff Commission. 112 It is of no consequence that such determination results from the exercise of investigatory powers by the Tariff
Commission since Congress is well within its constitutional mandate to limit the authority of the DTI Secretary to impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA's Implementing Rules in support of the view that the DTI Secretary may decide
independently of the determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language of Section 13 and Rule 13. But reliance should not be placed on
the textual imprecisions. Rather, Section 13 and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5. 113
Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive determination, the Commission shall recommend to the Secretary an appropriate definitive measure, in the form
of:
(a) An increase in, or imposition of, any duty on the imported product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;
(c) A modification or imposition of any quantitative restriction on the importation of the product into the Philippines;
(d) One or more appropriate adjustment measures, including the provision of trade adjustment assistance;
(e) Any combination of actions described in subparagraphs (a) to (d).
The Commission may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the
product, to alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition.
The general safeguard measure shall be limited to the extent of redressing or preventing the injury and to facilitate adjustment by the domestic industry from the adverse
effects directly attributed to the increased imports: Provided, however, That when quantitative import restrictions are used, such measures shall not reduce the quantity of
imports below the average imports for the three (3) preceding representative years, unless clear justification is given that a different level is necessary to prevent or remedy a
serious injury.
A general safeguard measure shall not be applied to a product originating from a developing country if its share of total imports of the product is less than three percent
(3%): Provided, however, That developing countries with less than three percent (3%) share collectively account for not more than nine percent (9%) of the total imports.
The decision imposing a general safeguard measure, the duration of which is more than one (1) year, shall be reviewed at regular intervals for purposes of liberalizing or
reducing its intensity. The industry benefiting from the application of a general safeguard measure shall be required to show positive adjustment within the allowable period. A
general safeguard measure shall be terminated where the benefiting industry fails to show any improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned government agencies to implement the appropriate general safeguard measure as determined by
the Secretary within fifteen (15) days from receipt of the report.
In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall immediately issue, through the
Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may be, previously
collected as provisional general safeguard measure within ten (10) days from the date a final decision has been made: Provided, That the government shall not be liable for
any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the same industry, with respect to the same imports of the
product under consideration within one (1) year after the date of rendering such a decision.
When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be subject or limited to the maximum levels of tariff as set forth in Section
401(a) of the Tariff and Customs Code of the Philippines.
To better comprehend Section 13, note must be taken of the distinction between the investigatory and recommendatory functions of the Tariff Commission under the SMA.
The word "determination," as used in the SMA, pertains to the factual findings on whether there are increased imports into the country of the product under consideration, and on whether
such increased imports are a substantial cause of serious injury or threaten to substantially cause serious injury to the domestic industry.114The SMA explicitly authorizes the DTI Secretary
to make a preliminary determination,115 and the Tariff Commission to make the final determination.116 The distinction is fundamental, as these functions are not interchangeable. The Tariff
Commission makes its determination only after a formal investigation process, with such investigation initiated only if there is a positive preliminary determination by the DTI Secretary
under Section 7 of the SMA.117 On the other hand, the DTI Secretary may impose definitive safeguard measure only if there is a positive final determination made by the Tariff
Commission.118
In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission under Section 13 after making a positive final determination in accordance with
Section 5. The Tariff Commission is not empowered to make a recommendation absent a positive final determination on its part.119 Under Section 13, the Tariff Commission is required to
recommend to the [DTI] Secretary an "appropriate definitive measure."120 The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to
address the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import
competition."121
The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the
recommendations made by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such safeguard measures is in the public interest,
notwithstanding the Tariff Commission's recommendation on the appropriate safeguard measure based on its positive final determination. 122 The non-binding force of the Tariff
Commission's recommendations is congruent with the command of Section 28(2), Article VI of the 1987 Constitution that only the President may be empowered by the Congress to impose

appropriate tariff rates, import/export quotas and other similar measures.123 It is the DTI Secretary, as alter ego of the President, who under the SMA may impose such safeguard measures
subject to the limitations imposed therein. A contrary conclusion would in essence unduly arrogate to the Tariff Commission the executive power to impose the appropriate tariff measures.
That is why the SMA empowers the DTI Secretary to adopt safeguard measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTI Secretary. Only on the basis of a positive final determination made by the Tariff
Commission under Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is bound by thedetermination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined" in a different context, as it contemplates "the appropriate general safeguard
measure as determined by the Secretary within fifteen (15) days from receipt of the report." Quite plainly, the word "determined" in this context pertains to the DTI Secretary's power of
choice of the appropriate safeguard measure, as opposed to the Tariff Commission's power to determine the existence of conditions necessary for the imposition of any safeguard
measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to establish that the application of safeguard measures is in the public interest, also within
the fifteen (15) day period. Nothing in Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the general safeguard measures only if there is a
positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by the Secretary." The assailed Decision and Philcemcor latch on this phraseology to
imply that the factual determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTI Secretary. Of course, implementing rules should conform,
not clash, with the law that they seek to implement, for a regulation which operates to create a rule out of harmony with the statute is a nullity.125 Yet imperfect draftsmanship aside, nothing
in Rule 13.2 implies that the DTI Secretary can set aside the determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining the specific
provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the Secretary shall make a decision, taking into consideration the
measures recommended by the Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days after making his decision, a written instruction to the heads
of the concerned government agencies to immediately implement the appropriate general safeguard measure as determined by him. Provided, however, that in
the case of non-agricultural products, the Secretary shall first establish that the imposition of the safeguard measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its publication in two (2) newspapers of general circulation. He
shall also furnish a copy of his Order to the petitioner and other interested parties, whether affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it is not subordinate to the Department of Trade and Industry ("DTI"). It falls under
the supervision, not of the DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross), 126 but of the National Economic Development Authority, an independent
planning agency of the government of co-equal rank as the DTI. 127 As the supervision and control of a Department Secretary is limited to the bureaus, offices, and agencies under
him,128 the DTI Secretary generally cannot exercise review authority over actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter, amend or
modify in any way the determination made by the Tariff Commission. The most that the DTI Secretary could do to express displeasure over the Tariff Commission's actions is to ignore its
recommendation, but not its determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word as employed in the SMA, which in the latter case is undeviatingly in reference to
the determination made by the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is explicable as the Rule textually pertains to the power of the
DTI Secretary to review the recommendations of the Tariff Commission, not the latter's determination. Indeed, an examination of the specific provisions show that there is no real conflict to
reconcile. Rule 13.2 respects the logical order imposed by the SMA. The Rule does not remove the essential requirement under Section 5 that a positive final determination be made by the
Tariff Commission before a definitive safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and points to the DTI Secretary as the authority who renders the final decision. 129 At
the same time, Philcemcor asserts that the Tariff Commission's functions are merely investigatory, and as such do not include the power to decide or adjudicate. These contentions, viewed
in the context of the fundamental requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that a positive final determination made by the Tariff
Commission should first be obtained before the definitive safeguard measures may be laid down.
Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of
course, this Court does not inquire into the wisdom of the legislature but only charts the boundaries of powers and functions set in its enactments. But then, it is not difficult to see the
internal logic of this statutory framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of check and balance involving two different governmental agencies with disparate specializations. The matter of
safeguard measures is of such national importance that a decision either to impose or not to impose then could have ruinous effects on companies doing business in the Philippines. Thus,
it is ideal to put in place a system which affords all due deliberation and calls to fore various governmental agencies exercising their particular specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure, it is because such safeguard measure is the exception, rather than the rule. The
Philippines is obliged to observe its obligations under the GATT, under whose framework trade liberalization, not protectionism, is laid down. Verily, the GATT actually prescribes conditions
before a member-country may impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if that member has determined, pursuant to the provisions set out below, that such product is being
imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to
the domestic industry that produces like or directly competitive products.130
3. (a) A Member may apply a safeguard measure only following an investigation by the competent authorities of that Member pursuant to procedures previously established
and made public in consonance with Article X of the GATT 1994. This investigation shall include reasonable public notice to all interested parties and public hearings or other
appropriate means in which importers, exporters and other interested parties could present evidence and their views, including the opportunity to respond to the presentations
of other parties and to submit their views, inter alia, as to whether or not the application of a safeguard measure would be in the public interest. The competent authorities shall
publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.131
The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down in Section 5 for a positive final determination are the same conditions provided under
the GATT Agreement on Safeguards for the application of safeguard measures by a member country. Moreover, the investigatory procedure laid down by the SMA conforms to the
procedure required by the GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such investigation. Southern Cross stresses
that applying the provision of the GATT Agreement on Safeguards, the Tariff Commission is clearly empowered to arrive at binding conclusions. 132 We agree: binding on the DTI Secretary is
the Tariff Commission's determinations on whether a product is imported in increased quantities, absolute or relative to domestic production and whether any such increase is a substantial
cause of serious injury or threat thereof to the domestic industry.133
Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws in the reasoning of the Court of Appeals and in the arguments of the
respondents become apparent. To better understand the dynamics of the procedure set up by the law leading to the imposition of definitive safeguard measures, a brief step-by-step
recount thereof is in order.
1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes a preliminary determination whether the increased imports of the product under
consideration substantially cause or threaten to substantially cause serious injury to the domestic industry,135 and whether the imposition of a provisional measure is warranted under
Section 8 of the SMA.136 If the preliminary determination is negative, it is implied that no further action will be taken on the application.
2. When his preliminary determination is positive, the Secretary immediately transmits the records covering the application to the Tariff Commission for immediate formal investigation. 137
3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In the process, it holds public hearings, providing interested parties the opportunity
to present evidence or otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff Commission is tasked to determine: (a) whether a product is being imported into the country in
increased quantities, irrespective of whether the product is absolute or relative to the domestic production; and (b) whether the importation in increased quantities is such that it causes
serious injury or threat to the domestic industry.139 The findings of the Tariff Commission as to these matters constitute the final determination, which may be either positive or negative.

4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff Commission "recommends to the [DTI] Secretary an appropriate definitive measure."
The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to
alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition." 140
5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, within fifteen (15) days from receipt of the report, as to what appropriate safeguard
measures should he impose.
6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot impose any definitive safeguard measure. Under Section 13, he is instructed instead to
return whatever cash bond was paid by the applicant upon the initiation of the action for safeguard measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the DTI Secretary may impose a general safeguard measure even if there is no
positive final determination from the Tariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over Philcemcor's petition for certiorari in the first place, as
Section 29 of the SMA properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretary imposing the general safeguard measure? We have recognized that any initial
judicial review of a DTI ruling in connection with the imposition of a safeguard measure belongs to the CTA. At the same time, the Court also recognizes the fundamental principle that a null
and void judgment cannot produce any legal effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from the assailed Court of
Appeals Decision, even if the latter had not yet become final. Conversely, it can be concluded that it was because of the putative imprimatur of the Court of Appeals' Decision that the DTI
Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the void Decision of the Court of Appeals, this ruling of the DTI
Secretary is consequently void. The spring cannot rise higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decision for in his own 5 June 2003 Decision, he declared:
From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision. Thus, there is no legal impediment for the Secretary to decide on the
application.141
The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals to justify his rendering a second Decision. He explicitly invoked the Court of
Appeals' Decision as basis for rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not have the authority to revoke his previous ruling and
render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being an attempt to carry out such null judgment. There is therefore no choice but to
declare it void as well, lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the disposition of the 25 June 2003 Decision was, its nullity
would be warranted even if the DTI Secretary chose to uphold his earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which is not yet final and actually pending review on appeal. Had it been a judge who
attempted to enforce a decision that is not yet final and executory, he or she would have readily been subjected to sanction by this Court. The DTI Secretary may be beyond the ambit of
administrative review by this Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty to the legal order, especially from the instrumentalities
and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June
2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 152675

April 28, 2004

BATANGAS POWER CORPORATION, petitioner,

vs.
BATANGAS CITY and NATIONAL POWER CORPORATION, respondents.
x--------------------x
G.R. No. 152771 April 28, 2004
NATIONAL POWER CORPORATION, petitioner,
vs.
HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City; BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as
Chief Legal Officer, Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, Batangas City, respondents.
DECISION
PUNO, J.:
Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its February 27,
2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990s, the country suffered from a crippling power crisis. Power outages lasted 8-12 hours daily and power generation was badly needed. Addressing the
problem, the government, through the National Power Corporation (NPC), sought to attract investors in power plant operations by providing them with incentives, one of which was through
the NPCs assumption of payment of their taxes in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and transfer
its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement provided that NPC shall be responsible for the payment of all taxes that may be imposed on the
power station, except income taxes and permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner Batangas Power Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of registration 1 to BPC as a
pioneer enterprise entitled to a tax holiday for a period of six (6) years. The construction of the power station in respondent Batangas City was then completed. BPC operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and penalties, commencing
from the year 1994 as provided under Ordinance XI or the 1992 Batangas City Tax Code. 2 BPC refused to pay, citing its tax-exempt status as a pioneer enterprise for six (6) years under
Section 133 (g) of the Local Government Code (LGC).3
On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax claim 4 and demanded payment of business taxes from BPC only for the years 1998-1999. He acknowledged that
BPC enjoyed a 6-year tax holiday as a pioneer industry but its tax exemption period expired on September 22, 1998, six (6) years after its registration with the BOI on September 23, 1992.
The city treasurer held that thereafter BPC became liable to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the date of its commercial operation on July 16, 1993, not from the date of its BOI registration in
September 1992.5 It furnished the city with a BOI letter6 wherein BOI designated July 16, 1993 as the start of BPCs income tax holiday as BPC was not able to immediately operate due
to force majeure. BPC claimed that the local tax holiday is concurrent with the income tax holiday. In the alternative, BPC asserted that the city should collect the tax from the NPC as the
latter assumed responsibility for its payment under their BOT Agreement.

The matter was not put to rest. The city legal officer insisted 7 that BPCs tax holiday has already expired, while the city argued that it directed its tax claim to BPC as it is the entity doing
business in the city and hence liable to pay the taxes. The city alleged that it was not privy to NPCs assumption of BPCs tax payment under their BOT Agreement as the only parties
thereto were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its position.8 The city was likewise unyielding on its stand.9 On August 26, 1999, the NPC intervened.10 While admitting
assumption of BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs business tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt
corporation under its Charter.11
In view of the deadlock, BPC filed a petition for declaratory relief 12 with the Makati Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it was not bound to
pay the business taxes imposed on it by the city. It alleged that under the BOT Agreement, NPC is responsible for the payment of such taxes but as NPC is exempt from taxes, both the
BPC and NPC are not liable for its payment. NPC and Batangas City filed their respective answers.
On February 23, 2000, while the case was still pending, the city refused to issue a permit to BPC for the operation of its business unless it paid the assessed business taxes amounting to
close to P29M.
In view of this supervening event, BPC, whose principal office is in Makati City, filed a supplemental petition 13 with the Makati RTC to convert its original petition into an action for injunction
to enjoin the city from withholding the issuance of its business permit and closing its power plant. The city opposed on the grounds of lack of jurisdiction and lack of cause of action. 14 The
Supplemental Petition was nonetheless admitted by the Makati RTC.
On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was withdrawn with the
passage of R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday granted to pioneer business enterprises starts on the date of registration with the BOI as provided
in Section 133 (g) of R.A. No. 7160, and not on the date of its actual business operations.15
BPC and NPC filed with this Court a petition for review on certiorari16 assailing the Makati RTC decision. The petitions were consolidated as they impugn the same decision, involve the
same parties and raise related issues.17
In G.R. No. 152771, the NPC contends:
I
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
RULED THAT PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH
PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND THAT
SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION 534 OF R.A. 7160, AMONG OTHERS.
II
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
OMITTED THE CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS "NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES"
FROM THE IMPOSITION OF "TAXES, FEES OR CHARGES OF ANY KIND."
III
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY
ADMITTED BPCs SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS)
SOUGHT TO BE ENJOINED.
In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for payment of business taxes even if it is undisputed that NPC has already assumed payment
thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced on the date of its registration with the BOI as a pioneer enterprise.
The issues for resolution are:
1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a pioneer enterprise or on the date of its actual commercial operation as certified by the
BOI;
2. whether the trial court had jurisdiction over the petition for injunction against Batangas City; and,
3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of the Local Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that contrary to the impugned decision, BPCs 6-year tax holiday should commence on the date of its actual commercial operations
as certified to by the BOI, not on the date of its BOI registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of
registration, applies specifically to taxes imposed by the local government, like the business tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the
provision of Executive Order No. 226,18 specifically Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms. Clearly, it is the provision of the Local Government Code that
should apply to the tax claim of Batangas City against the BPC. The 6-year tax exemption of BPC should thus commence from the date of BPCs registration with the BOI on July 16, 1993
and end on July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did not oppose BPCs conversion of the petition for declaratory relief to a petition for injunction or raise the issue of the
alleged lack of jurisdiction of the Makati RTC over the petition for injunction before said court. Hence, NPC is estopped from raising said issue before us. The fundamental rule is that a
party cannot be allowed to participate in a judicial proceeding, submit the case for decision, accept the judgment only if it is favorable to him but attack the jurisdiction of the court when it is
adverse.19
Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under its Charter had not been repealed by the LGC. They argue that NPCs Charter is a special law which
cannot be impliedly repealed by a general and later legislation like the LGC. They likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC which exempts government
instrumentalities, such as the NPC, from taxes imposed by local government units (LGUs), citing in support thereof the case of Basco v. PAGCOR.20
We find no merit in these contentions. The effect of the LGC on the tax exemption privileges of the NPC has already been extensively discussed and settled in the recent case of National
Power Corporation v. City of Cabanatuan.21 In said case, this Court recognized the removal of the blanket exclusion of government instrumentalities from local taxation as one of
the most significant provisions of the 1991 LGC.Specifically, we stressed that Section 193 of the LGC,22 an express and general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter. We explained the rationale for this provision, thus:

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz:
Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments.
This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance.
For a long time, the countrys highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has
also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders. The only way to shatter
this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose.
To achieve this goal, x x x the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers x x x."
To recall, prior to the enactment of the x x x Local Government Code x x x, various measures have been enacted to promote local autonomy. x x x Despite these initiatives, however, the
shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the
national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include
taxes which were prohibited by previous laws x x x.
Neither can the NPC successfully rely on the Basco case23 as this was decided prior to the effectivity of the LGC, when there was still no law empowering local government units to tax
instrumentalities of the national government.
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPCs tax exemption privileges had already been in effect for
six (6) months. Thus, while BPC remains to be the entity doing business in said city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT
Agreement and the 1991 Local Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the Philippines

SUPREME COURT
THIRD DIVISION
G.R. No. 159647 April 15, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.
DECISION
PANGANIBAN, J.:
The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax deduction from the gross income or gross sale of the establishment concerned.
A tax credit is used by a private establishment only after the tax has been computed; a tax deduction, before the tax is computed. RA 7432 unconditionally grants a tax credit to all covered
entities. Thus, the provisions of the revenue regulation that withdraw or modify such grant are void. Basic is the rule that administrative regulations cannot amend or revoke the law.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court of Appeals
(CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:
"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The CA narrated the antecedent facts as follows:
"Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and
style Mercury Drug.

"From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.]
7432 and its Implementing Rules and Regulations. For the said period, the amount allegedly representing the 20% sales discount granted by respondent to qualified senior citizens
totaled P904,769.00.
"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that it incurred net losses from its operations.
"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of P904,769.00 allegedly arising from the 20% sales discount granted by respondent to
qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax
Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondents Petition for lack of merit. In said decision, the [CTA] justified its ruling with the following ratiocination:
x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether
the recovery of the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must be first established that there was an actual collection and receipt by the
government of the tax sought to be recovered. x x x.
x x x x x x x x x
Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of tax liability on the part of taxpayer. In other words, if there is no tax liability, tax
credit is not available.
"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution, 6 granted respondents motion for reconsideration and ordered herein petitioner to issue a Tax Credit
Certificate in favor of respondent citing the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of
Internal Revenue promulgated on May 31, 2001, to wit:
However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or credited by petitioner was not erroneously paid or illegally collected. We take
exception to the CTAs sweeping but unfounded statement that both tax refund and tax credit are modes of recovering taxes which are either erroneously or illegally paid to the
government. Tax refunds or credits do not exclusively pertain to illegally collected or erroneously paid taxes as they may be other circumstances where a refund is warranted. The tax
refund provided under Section 229 deals exclusively with illegally collected or erroneously paid taxes but there are other possible situations, such as the refund of excess estimated
corporate quarterly income tax paid, or that of excess input tax paid by a VAT-registered person, or that of excise tax paid on goods locally produced or manufactured but actually exported.
The standards and mechanics for the grant of a refund or credit under these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit
and it does not in any way refer to illegally collected or erroneously paid taxes, x x x."7
Ruling of the Court of Appeals
The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax credit certificate in favor of respondent in the reduced amount of P903,038.39. It
reasoned that Republic Act No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not
tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private property for public use.
Hence this Petition.8
The Issues
Petitioner raises the following issues for our consideration:
"Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a tax credit instead of as a deduction from gross income or gross sales.
"Whether the Court of Appeals erred in holding that respondent is entitled to a refund." 9
These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still claim the 20 percent sales discount as a tax credit.
The Courts Ruling
The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent discount on their purchase of medicine from any private establishment in the country.11 The latter
may then claim the cost of the discount as a tax credit.12 But can such credit be claimed, even though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,13 tax credit generally refers to an amount that is "subtracted directly from ones total tax liability." 14 It is an "allowance against
the tax itself"15 or "a deduction from what is owed"16 by a taxpayer to the government. Examples of tax credits are withheld taxes, payments of estimated tax, and investment tax credits.17
Tax credit should be understood in relation to other tax concepts. One of these is tax deduction -- defined as a subtraction "from income for tax purposes,"18 or an amount that is "allowed by
law to reduce income prior to [the] application of the tax rate to compute the amount of tax which is due." 19 An example of a tax deduction is any of the allowable deductions enumerated in
Section 3420 of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including -- whenever applicable -- the income tax that is determined after applying the
corresponding tax rates to taxable income.21 Atax deduction, on the other, reduces the income that is subject to tax22 in order to arrive at taxable income.23 To think of the former as the latter
is to avoid, if not entirely confuse, the issue. A tax credit is used only after the tax has been computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax creditcan be applied. Without that liability, any tax credit application will be
useless. There will be no reason for deducting the latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly, the existence of a tax
credit or its grant by law is not the same as the availment or use of such credit. While the grant is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability against which any tax credit can be applied.24 For the
establishment to choose the immediate availment of a tax credit will be premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted
without conditions a tax credit benefit to all covered establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick yet
callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be deducted from a future, not a present, tax
liability, without which it does not have any use. In the meantime, it need not move. But it breathes.
Prior Tax Payments Not
Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor
a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a
similar provision for donors taxes -- again when paid to a foreign country -- in computing for the donors tax due. The tax credits in both instances allude to the prior payment of taxes, even
if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable portion of
any input tax not directly attributable to either activity. This input tax may either be the VAT on the purchase or importation of goods or services that is merely due from -- not necessarily
paid by -- such VAT-registered person in the course of trade or business; or the transitional input tax determined in accordance with Section 111(A). The latter type may in fact be an
amount equivalent to only eight percent of the value of a VAT-registered persons beginning inventory of goods, materials and supplies, when such amount -- as computed -- is higher than
the actual VAT paid on the said items.25 Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by mere comparison with the VAT actually paid
-- then later prorated. No tax is actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the purchase of primary agricultural products used as inputs -- either in the processing
of sardines, mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public work contracts entered into with the government, again, no prior
tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section 112(A), apply for the issuance of a tax credit certificate for the amount of
creditable input taxes merely due -- again not necessarily paid to -- the government and attributable to such sales, to the extent that the input taxes have not been applied against output
taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of creditable input taxes due that are not directly and entirely attributable to any one
of these transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision -- as well as the one earlier
mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even though no prior tax payments are not required. Specifically, in this provision,
the imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident foreign corporation from a domestic corporation is subjected to the condition that a
foreign tax credit will be given by the domiciliary country in an amount equivalent to taxes that are merely deemed paid.27 Although true, this provision actually refers to the tax credit as
a condition only for the imposition of a lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against
the income tax payable to the latter by the foreign corporation, the tax to be foregone or spared. 28
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax imposable under Title II, the amount of income taxes merely incurred
-- not necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax
credit may be allowed, subject to the condition precedent that the taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may be
required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant or allow tax credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is taxed in the state of source is also taxable in the state of residence, but the tax
paid in the former is merely allowed as a credit against the tax levied in the latter.29 Apparently, payment is made to the state of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as
amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned, or five or ten percent of the net local content of exports.30 In order
to avail of such credits under the said law and still achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of atax credit. Thus, the CA correctly held that the availment under RA 7432 did
not require prior tax payments by private establishments concerned. 31 However, we do not agree with its finding32 that the carry-over of tax creditsunder the said special law to succeeding
taxable periods, and even their application against internal revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence or grant, of a tax credit. Regarding this matter, a private establishment reporting
a net loss in its financial statements is no different from another that presents a net income. Both are entitled to the tax credit provided for under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing establishment to immediately apply such credit, where no tax is due, will be an improvident usance.
Sections 2.i and 4 of Revenue
Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant.33 In turn, the Implementing Rules and Regulations, issued pursuant thereto,
provide the procedures for its availment.34 To deny such credit, despite the plain mandate of the law and the regulations carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20 percent discount that "shall be deducted by the said establishments from
their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes."35 In ordinary business language, the tax credit represents the
amount of such discount. However, the manner by which the discount shall be credited against taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or value of anything."36 To be more precise, it is in business parlance "a deduction or
lowering of an amount of money;"37 or "a reduction from the full amount or value of something, especially a price."38 In business there are many kinds of discount, the most common of which
is that affecting the income statement39 or financial report upon which theincome tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers for their prompt payment.40 It is a "reduction in price offered to the purchaser if payment is
made within a shorter period of time than the maximum time specified." 41 Also referred to as a sales discount on the part of the seller and a purchase discount on the part of the buyer, it
may be expressed in such
terms as "5/10, n/30."42
A quantity discount, however, is a "reduction in price allowed for purchases made in large quantities, justified by savings in packaging, shipping, and handling." 43 It is also called
a volume or bulk discount.44

A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers to retailers" 45 is known as a trade discount. No entry for it need be made in the
manual or computerized books of accounts, since the purchase or sale is already valued at the net price actually charged the buyer.46 The purpose for the discount is to encourage trading
or increase sales, and the prices at which the purchased goods may be resold are also suggested. 47 Even a chain discount -- a series of discounts from one list price -- is recorded at net.48
Finally, akin to a trade discount is a functional discount. It is "a suppliers price discount given to a purchaser based on the [latters] role in the [formers] distribution system." 49 This role
usually involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally accepted accounting principles (GAAP) in the country, this type of discount is reflected in
the income statement50 as a line item deducted -- along with returns, allowances, rebates and other similar expenses -- from gross sales to arrive at net sales.51 This type of presentation is
resorted to, because the accounts receivable and sales figures that arise from sales discounts, -- as well as from quantity, volume or bulk discounts -- are recorded in the manual and
computerized books of accounts and reflected in the financial statements at the gross amounts of the invoices.52This manner of recording credit sales -- known as the gross method -- is
most widely used, because it is simple, more convenient to apply than the net method, and produces no material errors over time.53
However, under the net method used in recording trade, chain or functional discounts, only the net amounts of the invoices -- after the discounts have been deducted -- are recorded in
the books of accounts54 and reflected in the financial statements. A separate line item cannot be shown,55 because the transactions themselves involving both accounts
receivable and sales have already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts whose sum -- along with sales returns, allowances and cost of goods sold56 -- is
deducted from gross sales to come up with the gross income, profit or margin57 derived from business.58 In another provision therein, sales discountsthat are granted and indicated in the
invoices at the time of sale -- and that do not depend upon the happening of any future event -- may be excluded from the gross sales within the same quarter they were given.59 While
determinative only of the VAT, the latter provision also appears as a suitable reference point for income tax purposes already embraced in the former. After all, these two provisions affirm
that sales discounts are amounts that are always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright deduction of the discount from the invoice price of the medicine sold to the senior
citizen.60 It is, therefore, expected that for each retail sale made under this law, the discount period lasts no more than a day, because such discount is given -- and the net amount thereof
collected -- immediately upon perfection of the sale.61 Although prompt payment is made for an arms-length transaction by the senior citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of the above discounts in particular. Prompt payment is not the reason for (although a
necessary consequence of) such grant. To be sure, the privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit enjoyed by the private establishment granting the
discount. Yet, under the revenue regulations promulgated by our tax authorities, this benefit has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales discount. However, to a private establishment, the effect is different from a simple
reduction in price that results from such discount. In other words, the tax credit benefit is not the same as a sales discount. To repeat from our earlier discourse, this benefit cannot and
should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an establishment covered by RA 7432 is different from that resulting from the availment or use of
its tax credit benefit. While the former is a deduction before, the latter is a deduction after, the income tax is computed. As mentioned earlier, a discount is not necessarily a sales discount,
and a tax credit for a simple discount privilege should not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from gross income for income tax purposes, or from gross sales for VAT or
other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition is improper, considering that the latter has to be
deducted from gross sales in order to compute the gross income in theincome statement and cannot be deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount -- when claimed -- shall be treated as a reduction from any tax liability, plain and
simple. The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales discount -- which is not even identical to the discount
privilege that is granted by law -- does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to create a rule out of harmony with
the statute is a mere nullity";62 it cannot prevail.
It is a cardinal rule that courts "will and should respect the contemporaneous construction placed upon a statute by the executive officers whose duty it is to enforce it x x x." 63 In the scheme
of judicial tax administration, the need for certainty and predictability in the implementation of tax laws is crucial. 64 Our tax authorities fill in the details that "Congress may not have the
opportunity or competence to provide."65 The regulations these authorities issue are relied upon by taxpayers, who are certain that these will be followed by the courts. 66 Courts, however,
will not uphold these authorities interpretations when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their interpretation has
muddled up the intent of Congress in granting a mere discount privilege, not a sales discount. The administrative agency issuing these regulations may not enlarge, alter or restrict the
provisions of the law it administers; it cannot engraft additional requirements not contemplated by the legislature. 67
In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is law."69 Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has
neither the force nor the effect of law.70
Availment of Tax
Credit Voluntary

Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the tax
credit remedy whenever it chooses; "neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and
discretion of the taxpayer."73 For the tax authorities to compel respondent to deduct the 20 percent discount from either its gross income or its gross sales74 is, therefore, not only to make an
imposition without basis in law, but also to blatantly contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative. Respondent is given two options -- either to claim or not to claim the cost of the
discounts as a tax credit. In fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an expression of its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit can easily be applied. If there is none, the credit cannot be used and will just have to
be carried over and revalidated75accordingly. If, however, the business continues to operate at a loss and no other taxes are due, thus compelling it to close shop, the credit can never be
applied and will be lost altogether.
In other words, it is the existence or the lack of a tax liability that determines whether the cost of the discounts can be used as a tax credit. RA 7432 does not give respondent the unfettered
right to avail itself of the credit whenever it pleases. Neither does it allow our tax administrators to expand or contract the legislative mandate. "The plain meaning rule or verba legis in
statutory construction is thus applicable x x x. Where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation."76

Tax Credit Benefit

Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not come directly from
the State, but rather from the private establishments concerned. Accordingly, the tax credit benefit granted to these establishments can be deemed as their just compensation for private
property taken by the State for public use.77
The concept of public use is no longer confined to the traditional notion of use by the public, but held synonymous with public interest, public benefit, public welfare, and public
convenience.78 The discount privilege to which our senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens belong. The discounts given would
have entered the coffers and formed part of the gross sales of the private establishments concerned, were it not for RA 7432. The permanent reduction in their total revenues is a forced
subsidy corresponding to the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just compensation. This term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to the promptness in its release. Equivalent to the payment of property taken by the State, such issuance -- when not done
within a reasonable time from the grant of the discounts -- cannot be considered asjust compensation. In effect, respondent is made to suffer the consequences of being immediately
deprived of its revenues while awaiting actual receipt, through the certificate, of the equivalent amount it needs to cope with the reduction in its revenues. 79
Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. 80 Tax measures are but "enforced contributions exacted on pain of penal
sanctions"81 and "clearly imposed for a public purpose."82 In recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked to trample on the rights of property owners who under our Constitution and laws are also
entitled to protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights from a person and give them to another who is not entitled thereto." 84 For this
reason, a just compensation for income that is taken away from respondent becomes necessary. It is in the tax credit that our legislators find support to realize social justice, and no
administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even 85 -- without the discounts yet -- will surely start to incur losses because of such discounts. The same effect is expected if
its mark-up is less than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside from the observation we have already raised earlier, it will also be grossly unfair
to an establishment if the discounts will be treated merely as deductions from either its gross income or its gross sales. Operating at a loss through no fault of its own, it will realize that
thetax credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will be put in a better position if they avail themselves of tax credits denied those that
are losing, because no taxes are due from the latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community as a whole and to establish a program beneficial to them. 86 These objectives are
consonant with the constitutional policy of making "health x x x services available to all the people at affordable cost" 87 and of giving "priority for the needs of the x x x elderly." 88 Sections 2.i
and 4 of RR 2-94, however, contradict these constitutional policies and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a deduction. In fact, no cash outlay is required from the government for the availment or use of such
credit. The deliberations on February 5, 1992 of the Bicameral Conference Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent of our legislators to treat
the sales discounts as a tax credit, rather than as a deduction from gross income. We quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable income. I think we incorporated there a provision na - on the responsibility of the private
hospitals and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the deductions from taxable income of that private hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and public institutions, so, puwede na po nating hindi isama yung mga less deductions ng taxable
income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin?
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that, the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible) income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?
SEN. ANGARA. Restaurant lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to Section 4 ha?
REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all establishments et cetera, et cetera, provided that said establishments - provided that private
establishments may claim the cost as a tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. "x x x [T]he rule is that on a specific matter the special law shall prevail over the general law,
which shall
be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there are two statutes, the earlier special and the later general -- the terms of the general broad enough to
include the matter provided for in the special -- the fact that one is special and the other is general creates a presumption that the special is to be considered as remaining an exception to
the general,91 one as a general law of the land, the other as the law of a particular case."92 "It is a canon of statutory construction that a later statute, general in its terms and not expressly
repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute."93
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a later law. When the former states that a tax credit may be claimed, then the
requirement of prior tax payments under certain provisions of the latter, as discussed above, cannot be made to apply. Neither can the instances of or references to a tax deduction under
the Tax Code94 be made to restrict RA 7432. No provision of any revenue regulation can supplant or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160193

March 3, 2008

M.E. HOLDING CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
VELASCO, JR., J.:
This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for
Other Purposes,passed onApril 23, 1992. It granted, among others, a 20% sales discount on purchases of medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens.
M.E. treated the discount as deductions from its gross income purportedly in accordance with Revenue Regulation No. (RR) 2-94, Section 2(i) of the Bureau of Internal Revenue (BIR)
issued on August 23, 1993. Sec. 2(i) states:
Section 2. DEFINITIONS. For purposes of these regulations:
xxxx
i. Tax Credit refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of
culture, leisure and amusement, which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to PhP 603,424. However, it filed the return under protest, arguing that the discount to senior citizens should be treated as tax credit under Sec.
4(a) of RA 7432, and not as mere deductions from M.E.'s gross income as provided under RR 2-94.
Sec. 4(a) of RA 7432 states:

SECTION 4. Privileges for the Senior Citizens.The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishments, restaurants
and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit; (Emphasis supplied.)
Subsequently, on December 27, 1996, M.E. sent BIR a letter-claim dated December 6, 1996, 1 stating that it overpaid its income tax owing to the BIR's erroneous interpretation of Sec. 4(a)
of RA 7432.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive period in filing a claim for refund, M.E. filed an appeal before the Court of Tax Appeals (CTA), reiterating its
position that the sales discount should be treated as tax credit, and that RR 2-94, particularly Section 2(i), was without effect for being inconsistent with RA 7432.
On April 25, 2000, the CTA rendered a Decision2 in favor of M.E., the fallo of which reads:
WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby partially GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the
amount of P122,195.74, representing overpaid income tax [for] the year 1995.
SO ORDERED.
The CTA ruled that the 20% sales discount granted to qualified senior citizens should be treated as tax credit and not as item deduction from the gross income or sales, pointing out that
Sec. 4(a) of RA 7432 was unequivocal on this point. The CTA held that Sec. 2(i) of RR 2-94 contravenes the clear proviso of RA 7432 prescribing that the 20% sales discount should be
claimed as tax credit. Further, it ruled that RA 7432 is a law that necessarily prevails over an administrative issuance such as RR 2-94.
Unfortunately, what appears to be the victory of M.E. before the CTA was watered down by the tax court's declaration that, while the independent auditor M.E. hired found the amount PhP
603,923.46 as having been granted as sales discount to qualified senior citizens, M.E. failed to properly support the claimed discount with corresponding cash slips. Thus, the CTA reduced
M.E.'s claim for PhP 603,923.46 sales discount to PhP 362,574.57 after the CTA disallowed PhP 241,348.89 unsupported claims, and consequently lowered the refundable amount to PhP
122,195.74.
On May 24, 2000, M.E. filed a Motion for Reconsideration, therein attributing its failure to submit and offer certain documents, specifically the cash slips, to the inadvertence of its
independent auditor who failed to transmit the documents to M.E.'s counsel. It also argued that the tax credit should be based on the actual discount and not on the acquisition cost of the
medicines.
On July 11, 2000, the CTA denied M.E.'s motion for reconsideration which contained a prayer to present additional evidence consisting of duplicate copies of the cash slips allegedly not
submitted to M.E. by its independent auditor.3 In refuting M.E.'s contention that the tax credit should be based on the actual discount and not on the acquisition cost of the medicines, the
CTA applied the Court of Appeals (CA) ruling in CIR v. Elmas Drug Corporation,4 where the term "cost of the discount" was interpreted to mean only the direct acquisition cost, excluding
administrative and other incremental costs.
Aggrieved, M.E. went to the CA on a petition for review docketed as CA-G.R. SP No. 60134. On July 1, 2003, the CA rendered its Decision,5 dismissing the petition.
Even as it laid the entire blame on M.E. for its failure to present its additional evidence, the CA pointed out that forgotten evidence is not newly discovered evidence which can be presented
to the appellate tax court, even after it had already rendered its decision. Likewise, the CA interpreted, as did the CTA, the term "cost" to mean only the direct acquisition cost, adding that to
interpret the word "cost" to include "all administrative and incremental costs to sales to senior citizens" would open the floodgates for drugstores to pad the costs of the sales with such
broad, undefined, and varied administrative and incremental costs such that the government would ultimately bear the escalated costs of the sales. And citing Commissioner of Internal
Revenue v. Tokyo Shipping Co., Ltd., the CA held that claims for refund, being in the nature of a claim for exemption, should be construed in strictissimi juris against the taxpayer.6
The CA denied petitioner's Motion for Reconsideration on September 24, 2003. 7
Hence, the instant petition for review, anchored essentially on the same issues raised before the CA, as follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS DEVIATED FROM APPLICABLE LAWS AND JURISPRUDENCE IN NOT
APPRECIATING OTHER COMPETENT EVIDENCE PROVING THE AMOUNT OF DISCOUNTS GRANTED TO SENIOR CITIZENS AND MERELY RELYING SOLELY ON
THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN
EXCESS OF JURISDICTION IN AFFIRMING THE COURT OF TAX APPEALS' DENIAL OF PETITIONER'S MOTION TO ORDER AND SUBMIT AS DOCUMENTARY
[EVIDENCE] THE CASH SLIPS WHICH THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT INADVERTENTLY DID NOT TURN OVER TO THE PETITIONER'S
COUNSEL.
III.
WHETHER OR NOT THE TERM "COST" UNDER PARAGRAPH (A) SECTION 4 OF REPUBLIC ACT 7432 IS EQUIVALENT ONLY TO ACQUISITION COST.8
Our Ruling
The petition is partly meritorious.
The 20% sales discount to senior citizens may be claimed by an establishment owner as tax credit. RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-94 that
considers such discount as mere deductions to the taxpayer's gross income or gross sales clearly clashes with the clear language of RA 7432, the law sought to be implemented. We need
not delve on the nullity of the implementing rule all over again as we have already put this issue at rest in a string of cases. 9
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on the cash slips as basis for determining the total 20% sales discount given to senior citizens. To M.E., there are other competent
pieces of evidence available to prove the same point, such as the Special Record Book required by the Bureau of Food and Drugs 10 and the Special Record Book required under RR 2-94.
According to M.E., these special record books containing, as it were, the same information embodied in the cash slips were submitted to the CTA during M.E.'s formal offer of evidence.
Moreover, M.E. avers that the CA ought to have considered the special record books since their authenticity and the veracity of their contents were corroborated by the store supervisor,
Amelita Gonzales, and Rene Amby Reyes, its independent auditor.
M.E. fails to persuade. The determination of the exact amount M.E. claims as the 20% sales discount it granted to the senior citizens calls for an evaluation of factual matters. The
unyielding rule is that the findings of fact of the trial court, particularly when affirmed by the CA, are binding upon this Court, 11 save when the lower courts had overlooked, misunderstood, or
misinterpreted certain facts or circumstances of weight, which, if properly considered, would affect the result of the case and warrant a reversal of the decision. The instant case does not
fall under the exception; hence, we do not find any justification to review all over again the evidence presented before the CTA, and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application in quasi-judicial proceedings. Be this as it may, the CTA was correct in disallowing and not considering the belatedlysubmitted cash slips to be part of the 20% sales discount for M.E.'s taxable year 1995. This is as it should be in the light of Sec. 34 of Rule 132 prescribing that no evidence shall be
considered unless formally offered with a statement of the purpose why it is being offered. In addition, the rule is that the best evidence under the circumstance must be adduced to prove
the allegations in a complaint, petition, or protest. Only when the best evidence cannot be submitted may secondary evidence be considered. But, in the instant case, the disallowed cash
slips, the best evidence at that time, were not part of M.E.'s offer of evidence. While it may be true that the authenticated special record books yield the same data found in the cash slips,

they cannot plausibly be considered by the courts a quo and made to corroborate pieces of evidence that have, in the first place, been disallowed. Recall also that M.E. offered the
disallowed cash slips as evidence only after the CTA had rendered its assailed decision. Thus, we cannot accept the excuse of inadvertence of the independent auditor as excusable
negligence. As aptly put by the CA, the belatedly-submitted cash slips do not constitute newly-found evidence that may be submitted as basis for a new trial or reconsideration of the
decision.
We reiterate at this juncture that claims for tax refund/credit, as in the instant case, are in the nature of claims for exemption. Accordingly, the law relied upon is not only construed
in strictissimi juris against the taxpayer, but also the proofs presented entitling a taxpayer to an exemption are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA gravely abused its discretion in denying M.E. the opportunity to submit the disallowed cash slips despite the independent auditor's
admission, via an Affidavit,12 of guilt for inadvertence. M.E.'s counsel explains that he relied on the independent auditor's representation that all the cash slips were turned over. Besides,
M.E. asserts that the independent auditor, being an officer of the court, having been commissioned by the CTA, is presumed to have done his duty in a regular manner, and, therefore, his
negligence should not be taken against M.E.
We do not agree with M.E. Grave abuse of discretion connotes capricious, whimsical, arbitrary, or despotic exercise of jurisdiction. The CA surely cannot be guilty of gravely abusing its
discretion when it refused to consider, in lieu of the unsubmitted additional cash slips, the special record books which are only secondary evidence. The cash slips were the best evidence.
Also, the CA noted that the belatedly-offered cash slips were presented only after the CTA had rendered its decision. All these factors argue against the notion that the CA had, in sustaining
the CTA, whimsically and capriciously exercised its discretion.
On the third and last issue, M.E. contends that it is entitled, as a matter of law, to claim as tax credit the full amount of the sales discount granted to senior citizens.
M.E.'s contention is correct. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue, we interpreted the term "cost" found in Sec. 4(a) of RA
7432 as referring to the amount of the 20% discount extended by a private establishment to senior citizens in their purchase of medicines.13 There we categorically said that it is the
Government that should fully shoulder the cost of the sales discount granted to senior citizens. Thus, we reversed and set aside the CA's Decision in CA-G.R. SP No. 49946, which
construed the same word "cost" to mean the theoretical acquisition cost of the medicines purchased by qualified senior citizens. Accordingly, M.E. is entitled to a tax credit equivalent to the
actual 20% sales discount it granted to qualified senior citizens.
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP 362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly
allowed by the CTA and fully appreciated as tax credit, the amount due as tax credit in favor of M.E. is PhP 151,201.71, computed as follows:

Net Sales

PhP 94,724,284.00

Add: 20% Discount to Senior Citizens

(Per Petitioner's Summary)

603,923.46

Gross Sales

Less: Cost of Sales

Merchandise Inventory, beg.

Add Purchases

Total Goods available for Sale

Less: Merchandise Inventory, End

Gross Income

Less: Operating Expenses

Net Operating Income /(Loss)

Add: Miscellaneous Income

Net Income

Less: Interest Income Subject to Final

Tax

PhP 95,328,207.46

PhP 9,519,210.00

87,288,988.00

PhP 96,808,198.00

PhP 9,469.349.00

PhP 87,338,849.00

PhP 7,989,358.46

17,006,032.00

(PhP 9,016,673.54)

43,489,663.00

PhP 34,472,989.46

22,242,227.00

Net Taxable Income

Tax Due (PhP 12,230,762.46 x 35%)

PhP 12,230,762.46

PhP 4,280,766.86

Less: 1) Tax Credit (20% Discount with supporting

documents)

2) Income Tax Payment for the Year

Total

AMOUNT OF TAX CREDIT

PhP 362,574.57

4,069,394.00

PhP 4,431,968.57

PhP 151,201.71

Parenthetically, we note that M.E. originally prayed for a tax refund for its tax overpayment for CY 1995. The CTA and the CA granted the desired refund, albeit at a lower amount due to
their interpretation, erroneous as it turned out to be, of the term "cost." However, we cannot agree with the courts a quo on what M.E. is entitled to. RA 7432 expressly provides that the
sales discount may be claimed as tax credit, not as tax refund.
It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity
on March 21, 2004, a new tax treatment for sales discount purchases of qualified senior citizens of medicines. Sec. 4(a) of RA 9257 provides:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, x x x;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further,That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to
the provisions of the National Internal Revenue Code, as amended. (Emphasis supplied.)
Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to qualified senior citizens is to be treated as tax deduction, no longer as tax credit. 14
IN VIEW OF THE FOREGOING, this petition is PARTLY GRANTED. The CA's Decision dated July 1, 2003 and its Resolution of September 24, 2003 in CA-G.R. SP No. 60134, affirming
the Decision of the CTA dated April 25, 2000 in CTA Case No. 5604, are AFFIRMED with MODIFICATIONS insofar as the amount and mode of payment of M.E.'s claim are concerned. As
modified, the fallo of the April 25, 2000 Decision of the CTA shall read:
WHEREFORE, in view of the foregoing, petitioner M.E.'s claim for refund is hereby PARTIALLY GRANTED in the form of a tax credit. Respondent Commissioner of Internal
Revenue is ORDERED to issue a tax credit certificate in favor of M.E. in the amount of PhP 151,201.71.
No pronouncement as to costs.
SO ORDERED.
Quisumbing*,Chairperson,Carpio, Azcuna**, Carpio-Morales, Tinga, JJ., concur.