Tax 1 Cases

LASCONA LAND CO., INC., vs.
COMMISSIONER OF
INTERNAL REVENUE
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on Certiorari under Rule

45 of the Rules of Court seeking the reversal of the
Decision[1] dated October 25, 2005 and Resolution[2]dated January
20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 58061
which set aside the Decision[3] dated January 4, 2000 and
Resolution[4] dated March 3, 2000 of the Court of Tax Appeals
(CTA) in C.T.A. Case No. 5777 and declared Assessment Notice No.
0000047-93-407 dated March 27, 1998 to be final, executory and
demandable.
The facts, as culled from the records, are as follows:
On March 27, 1998, the Commissioner of Internal Revenue (CIR)

issued Assessment Notice No. 0000047-93-407[5] against Lascona
Land Co., Inc. (Lascona) informing the latter of its alleged
deficiency income tax for the year 1993 in the amount
of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but

was denied by Norberto R. Odulio, Officer-in-Charge (OIC),
Regional Director, Bureau of Internal Revenue, Revenue Region
No. 8, Makati City, in his Letter[6] dated March 3, 1999, which
reads, thus:
xxxx
Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax
Madam,
Anent the 1993 tax case of subject taxpayer, please be
informed that while we agree with the arguments advanced
in your letter protest, we regret, however, that we cannot
give due course to your request to cancel or set aside
the assessment notice issued to your client for the
reason that the case was not elevated to the Court of
Tax Appeals as mandated by the provisions of the
last paragraph of Section 228 of the Tax Code. By
virtue thereof, the said assessment notice has become
final, executory and demandable.
In view of the foregoing, please advise your client to pay

its 1993 deficiency income tax liability in the amount
of P753,266.56.
x x x x (Emphasis ours)
On April 12, 1999, Lascona appealed the decision before the CTA
and was docketed as C.T.A. Case No. 5777. Lascona alleged that
the Regional Director erred in ruling that the failure to appeal to
the CTA within thirty (30) days from the lapse of the 180-day
period rendered the assessment final and executory.
The CIR, however, maintained that Lascona's failure to timely file

an appeal with the CTA after the lapse of the 180-day reglementary
period provided under Section 228 of the National Internal
Revenue Code (NIRC) resulted to the finality of the assessment.
On January 4, 2000, the CTA, in its Decision,[7] nullified the subject

assessment. It held that in cases of inaction by the CIR on the
protested assessment, Section 228 of the NIRC provided two
options for the taxpayer: (1) appeal to the CTA within thirty (30)
days from the lapse of the one hundred eighty (180)-day period,
or (2) wait until the Commissioner decides on his protest before he
elevates the case.
The CIR moved for reconsideration. It argued that in declaring the
subject assessment as final, executory and demandable, it did so
pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99
dated September 6, 1999 which reads, thus:
If the Commissioner or his duly authorized representative

fails to act on the taxpayer's protest within one hundred
eighty (180) days from date of submission, by the
taxpayer, of the required documents in support of his
protest, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from the lapse of the said
180-day period; otherwise, the assessment shall become
final, executory and demandable.
On March 3, 2000, the CTA denied the CIR's motion for

reconsideration for lack of merit.[8] The CTA held that Revenue
Regulations No. 12-99 must conform to Section 228 of the NIRC. It
pointed out that the former spoke of an assessment becoming
final, executory and demandable by reason of the inaction by the
Commissioner, while the latter referred to decisions becoming
final, executory and demandable should the taxpayer adversely
affected by the decision fail to appeal before the CTA within the
prescribed period.Finally, it emphasized that in cases of
discrepancy, Section 228 of the NIRC must prevail over the
revenue regulations.
Dissatisfied, the CIR filed an appeal before the CA.[9]
In the disputed Decision dated October 25, 2005, the Court of

Appeals granted the CIR's petition and set aside the Decision
dated January 4, 2000 of the CTA and its Resolution dated March
3, 2000. It further declared that the subject Assessment Notice No.
0000047-93-407 dated March 27, 1998 as final, executory and
demandable.
Lascona moved for reconsideration, but was denied for lack of
merit.
Thus, the instant petition, raising the following issues:
I
THE HONORABLE COURT HAS, IN THE REVISED RULES OF
COURT OF TAX APPEALS WHICH IT RECENTLY
PROMULGATED, RULED THAT AN APPEAL FROM THE
INACTION OF RESPONDENT COMMISSIONER IS NOT
MANDATORY.
II
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT
HELD THAT THE ASSESSMENT HAS BECOME FINAL AND
DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD
DECISION IN THE LAST PARAGRAPH OF SECTION 228
CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY
TO THE DECISION PER SE OF THE COMMISSIONER, BUT
SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN
ASSESSMENT WHICH HAS BEEN PROTESTED, BUT THE
PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE
COMMISSIONER.[10]
In a nutshell, the core issue to be resolved is: Whether the subject

assessment has become final, executory and demandable due to
the failure of petitioner to file an appeal before the CTA within thirty
(30) days from the lapse of the One Hundred Eighty (180)-day
period pursuant to Section 228 of the NIRC.
Petitioner Lascona, invoking Section 3,[11] Rule 4 of the

Revised Rules of the Court of Tax Appeals, maintains that in case
of inaction by the CIR on the protested assessment, it has the
option to either: (1) appeal to the CTA within 30 days from the
lapse of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment even beyond the 180-
day period in which case, the taxpayer may appeal such final
decision within 30 days from the receipt of the said decision.
Corollarily, petitioner posits that when the Commissioner failed to
act on its protest within the 180-day period, it had the option to
await for the final decision of the Commissioner on the protest,
which it did.
The petition is meritorious.
Section 228 of the NIRC is instructional as to the remedies of a

taxpayer in case of the inaction of the Commissioner on the
protested assessment, to wit:
SEC. 228. Protesting of Assessment. x x x
xxxx
Within a period to be prescribed by implementing

rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall
issue an assessment based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and
regulations.
Within sixty (60) days from filing of the protest, all

relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not

acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within (30) days from receipt of
the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise the decision shall
become final, executory and demandable. (Emphasis
supplied).
Respondent, however, insists that in case of the inaction by the

Commissioner on the protested assessment within the 180-day
reglementary period, petitioner should have appealed the inaction
to the CTA. Respondent maintains that due to Lascona's failure to
file an appeal with the CTA after the lapse of the 180-day period,
the assessment became final and executory.
We do not agree.
In RCBC v. CIR,[12] the Court has held that in case the

Commissioner failed to act on the disputed assessment within the
180-day period from date of submission of documents, a taxpayer
can either: (1) file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the 180-day period;
or (2) await the final decision of the Commissioner on the disputed
assessments and appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of such decision.[13]
This is consistent with Section 3 A (2), Rule 4 of the Revised Rules

of the Court of Tax Appeals,[14] to wit:
SEC. 3. Cases within the jurisdiction of the Court in

Divisions. The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to

review by appeal the following:
(1) Decisions of the Commissioner of Internal

Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue;
(2) Inaction by the Commissioner of Internal

Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue, where the National Internal Revenue
Code or other applicable law provides a specific
period for action: Provided, that in case of
disputed assessments, the inaction of the
Commissioner of Internal Revenue within
the one hundred eighty day-period under
Section 228 of the National Internal
revenue Code shall be deemed a denial for
purposes of allowing the taxpayer to
appeal his case to the Court and does not
necessarily constitute a formal decision of
the Commissioner of Internal Revenue on
the tax case; Provided, further, that should
the taxpayer opt to await the final decision
of the Commissioner of Internal Revenue
on the disputed assessments beyond the
one hundred eighty day-period
abovementioned, the taxpayer may appeal
such final decision to the Court
under Section 3(a), Rule 8 of these Rules; and
Provided, still further, that in the case of claims
for refund of taxes erroneously or illegally
collected, the taxpayer must file a petition for
review with the Court prior to the expiration of
the two-year period under Section 229 of the
National Internal Revenue Code;
(Emphasis ours)
In arguing that the assessment became final and executory by the
sole reason that petitioner failed to appeal the inaction of the
Commissioner within 30 days after the 180-day reglementary
period, respondent, in effect, limited the remedy of Lascona, as a
taxpayer, under Section 228 of the NIRC to just one, that is - to
appeal the inaction of the Commissioner on its protested
assessment after the lapse of the 180-day period. This is incorrect.
As early as the case of CIR v. Villa,[15] it was already established

that the word "decisions" in paragraph 1, Section 7 of Republic Act
No. 1125, quoted above, has been interpreted to mean
the decisions of the Commissioner of Internal Revenue on
the protest of the taxpayer against the assessments. Definitely,
said word does not signify the assessment itself. We quote what
this Court said aptly in a previous case:
In the first place, we believe the respondent court

erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it,
and that consequently, the period of thirty days prescribed
by section 11 of Republic Act No. 1125 within which
petitioner should have appealed to the respondent court
must be counted from its receipt of said
assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or
cancel the same because he (the taxpayer) believes
he is not liable therefor, the assessment becomes a
"disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the Court of
Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment, . . . [16]
Therefore, as in Section 228, when the law provided for the remedy
to appeal the inaction of the CIR, it did not intend to limit it to a
single remedy of filing of an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an
assessment, he naturally expects the CIR to decide either
positively or negatively. A taxpayer cannot be prejudiced if he
chooses to wait for the final decision of the CIR on the protested
assessment. More so, because the law and jurisprudence have
always contemplated a scenario where the CIR will decide on the
protested assessment.
It must be emphasized, however, that in case of the inaction of the

CIR on the protested assessment, while we reiterate the
taxpayer has two options, either: (1) file a petition for review with
the CTA within 30 days after the expiration of the 180-day period;
or (2) await the final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA within 30
days after the receipt of a copy of such decision, these options
are mutually exclusive and resort to one bars the
application of the other.
Accordingly, considering that Lascona opted to await the final

decision of the Commissioner on the protested assessment, it then
has the right to appeal such final decision to the Court by filing a
petition for review within thirty days after receipt of a copy of such
decision or ruling, even after the expiration of the 180-day period
fixed by law for the Commissioner of Internal Revenue to act on
the disputed assessments.[17] Thus, Lascona, when it filed an
appeal on April 12, 1999 before the CTA, after its receipt of the
Letter[18] dated March 3, 1999 on March 12, 1999, the appeal was
timely made as it was filed within 30 days after receipt of the copy
of the decision.
Finally, the CIR should be reminded that taxpayers cannot be left

in quandary by its inaction on the protested assessment. It is
imperative that the taxpayers are informed of its action in order
that the taxpayer should then at least be able to take recourse to
the tax court at the opportune time. As correctly pointed out by
the tax court:
x x x to adopt the interpretation of the respondent will not

only sanction inefficiency, but will likewise condone the
Bureau's inaction. This is especially true in the instant case
when despite the fact that respondent found petitioner's
arguments to be in order, the assessment will become
final, executory and demandable for petitioner's failure to
appeal before us within the thirty (30) day period.[19]
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.[20] Thus, 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.[21]
WHEREFORE, the petition is GRANTED. The Decision

dated October 25, 2005 and the Resolution dated January 20,
2006 of the Court of Appeals in CA-G.R. SP No. 58061
are REVERSED and SET ASIDE. Accordingly, the Decision
dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case
No. 5777 and its Resolution dated March 3, 2000
are REINSTATED.
SO ORDERED.
RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE and THE COMMISSIONER
OF INTERNAL REVENUE
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value-

added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol

(petitioners) filed this petition for declaratory relief[1] assailing the
validity of the impending imposition of value-added tax (VAT) by
the Bureau of Internal Revenue (BIR) on the collections of tollway
operators.
Petitioners claim that, since the VAT would result in increased

toll fees, they have an interest as regular users of tollways in
stopping the BIR action. Additionally, Diaz claims that he
sponsored the approval of Republic Act 7716 (the 1994 Expanded
VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National
Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served
as Assistant Secretary of the Department of Trade and Industry
and consultant of the Toll Regulatory Board (TRB) in the past
administration.
Petitioners allege that the BIR attempted during the

administration of President Gloria Macapagal-Arroyo to impose VAT
on toll fees. The imposition was deferred, however, in view of the
consistent opposition of Diaz and other sectors to such move. But,
upon President Benigno C. Aquino IIIs assumption of office in 2010,
the BIR revived the idea and would impose the challenged tax on
toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it

enacted the NIRC, intend to include toll fees within the meaning of
sale of services that are subject to VAT; that a toll fee is a users
tax, not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never
factored into the formula for computing toll fees, its imposition
would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining

order (TRO), enjoining the implementation of the VAT. The Court
required the government, represented by respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S.
Jacinto-Henares, Commissioner of Internal Revenue, to comment
on the petition within 10 days from notice.[2] Later, the Court
issued another resolution treating the petition as one for
prohibition.[3]
On August 23, 2010 the Office of the Solicitor General filed the
governments comment.[4] The government avers that the NIRC
imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides
otherwise; that the Court should seek the meaning and intent of
the law from the words used in the statute; and that the imposition
of VAT on tollway operations has been the subject as early as 2003
of several BIR rulings and circulars.[5]
The government also argues that petitioners have no right to

invoke the non-impairment of contracts clause since they clearly
have no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators. At any
rate, the non-impairment clause cannot limit the States sovereign
taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in
the parametric formula for computing toll rates cannot exempt
tollway operators from VAT. In any event, it cannot be claimed that
the rights of tollway operators to a reasonable rate of return will
be impaired by the VAT since this is imposed on top of the toll
rate. Further, the imposition of VAT on toll fees would have very
minimal effect on motorists using the tollways.
In their reply[6] to the governments comment, petitioners

point out that tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold legislative
franchises. Further, the BIR intends to collect the VAT by rounding
off the toll rate and putting any excess collection in an escrow
account. But this would be illegal since only the Congress can
modify VAT rates and authorize its disbursement. Finally, BIR
Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010),
which directs toll companies to record an accumulated input VAT
of zero balance in their books as of August 16, 2010, contravenes
Section 111 of the NIRC which grants entities that first become
liable to VAT a transitional input tax credit of 2% on beginning
inventory. For this reason, the VAT on toll fees cannot be
implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for

declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal

standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding

VAT coverage by including tollway operators and tollway operations
in the terms franchise grantees and sale of services under Section
108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators

a) amounts to a tax on tax and not a tax on services; b) will impair
the tollway operators right to a reasonable return of investment
under their TOAs; and c) is not administratively feasible and cannot
be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating

the petition as one for prohibition rather than one for declaratory
relief, the characterization that petitioners Diaz and Timbol gave
their action. The government has sought reconsideration of the
Courts resolution,[7] however, arguing that petitioners allegations
clearly made out a case for declaratory relief, an action over which
the Court has no original jurisdiction. The government adds,
moreover, that the petition does not meet the requirements of Rule
65 for actions for prohibition since the BIR did not exercise judicial,
quasi-judicial, or ministerial functions when it sought to impose
VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain,
speedy, and adequate remedy in the ordinary course of law against
the BIR action in the form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory

relief as one for prohibition if the case has far-reaching implications
and raises questions that need to be resolved for the public
good.[8] The Court has also held that a petition for prohibition is a
proper remedy to prohibit or nullify acts of executive officials that
amount to usurpation of legislative authority.[9]
Here, the imposition of VAT on toll fees has far-reaching

implications. Its imposition would impact, not only on the more
than half a million motorists who use the tollways everyday, but
more so on the governments effort to raise revenue for funding
various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the
challenged VAT has been imposed, could cause more mischief both
to the tax-paying public and the government. A belated declaration
of nullity of the BIR action would make any attempt to refund to
the motorists what they paid an administrative nightmare with no
solution.Consequently, it is not only the right, but the duty of the
Court to take cognizance of and resolve the issues that the petition
raises.
Although the petition does not strictly comply with the

requirements of Rule 65, the Court has ample power to waive such
technical requirements when the legal questions to be resolved are
of great importance to the public. The same may be said of the
requirement of locus standi which is a mere procedural
requisite.[10]
B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC,
as amended. VAT is levied, assessed, and collected, according to
Section 108, on the gross receipts derived from the sale or
exchange of services as well as from the use or lease of properties.
The third paragraph of Section 108 defines sale or exchange of
services as follows:
The phrase sale or exchange of services means

the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration, including those performed or
rendered by construction and service contractors;
stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or
distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators
or keepers of hotels, motels, resthouses, pension
houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers
in securities; lending investors; transportation
contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes
for hire and other domestic common carriers by land
relative to their transport of goods or cargoes;
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines; sales of electricity by generation
companies, transmission, and distribution
companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and
television broadcasting and all other franchise
grantees except those under Section 119 of this
Code and non-life insurance companies (except their
crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar
services regardless of whether or not the
performance thereof calls for the exercise or use of
the physical or mental faculties. (Underscoring
supplied)
It is plain from the above that the law imposes VAT on all
kinds of services rendered in the Philippines for a fee, including
those specified in the list. The enumeration of affected services is
not exclusive.[11] By qualifying services with the words all kinds,
Congress has given the term services an all-encompassing
meaning. The listing of specific services are intended to illustrate
how pervasive and broad is the VATs reach rather than establish
concrete limits to its application. Thus, every activity that can be
imagined as a form of service rendered for a fee should be deemed
included unless some provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential

Decree (P.D.) 1112 or the Toll Operation Decree establishes the
legal basis for the services that tollway operators
render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public highways
that meander through populated areas and branch out to local
roads. Traffic in the regular public highways is for this reason slow-
moving. In consideration for constructing tollways at their
expense, the operators are allowed to collect government-
approved fees from motorists using the tollways until such
operators could fully recover their expenses and earn reasonable
returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is
in effect for the latters use of the tollway facilities over which the
operator enjoys private proprietary rights[12]that its contract and
the law recognize. In this sense, the tollway operator is no different
from the following service providers under Section 108 who allow
others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;

2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of
goods or cargoes, including persons who transport goods
or cargoes for hire and other domestic common carriers
by land relative to their transport of goods or cargoes;
and
7. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in
thePhilippines.
It does not help petitioners cause that Section 108 subjects

to VAT all kinds of services rendered for a fee regardless of whether
or not the performance thereof calls for the exercise or use of the
physical or mental faculties. This means that services to be subject
to VAT need not fall under the traditional concept of services, the
personal or professional kinds that require the use of human
knowledge and skills.
And not only do tollway operators come under the broad term all
kinds of services, they also come under the specific class described
in Section 108 as all other franchise grantees who are subject to
VAT, except those under Section 119 of this Code.
Tollway operators are franchise grantees and they do not

belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less
than P10 million and gas and water utilities) that Section
119[13] spares from the payment of VAT. The word franchise
broadly covers government grants of a special right to do an act or
series of acts of public concern.[14]
Petitioners of course contend that tollway operators cannot be

considered franchise grantees under Section 108 since they do not
hold legislative franchises. But nothing in Section 108 indicates
that the franchise grantees it speaks of are those who hold
legislative franchises. Petitioners give no reason, and the Court
cannot surmise any, for making a distinction between franchises
granted by Congress and franchises granted by some other
government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a legislative
franchise as though the grant had been made by Congress
itself.[15] The term franchise has been broadly construed as
referring, not only to authorizations that Congress directly issues
in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has
been delegated by Congress.[16]
Tollway operators are, owing to the nature and object of their

business, franchise grantees. The construction, operation, and
maintenance of toll facilities on public improvements are activities
of public consequence that necessarily require a special grant of
authority from the state. Indeed, Congress granted special
franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the
North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the
exercise of its delegated powers under P.D. 1112.[17] The franchise
in this case is evidenced by a Toll Operation Certificate.[18]
Petitioners contend that the public nature of the services

rendered by tollway operators excludes such services from the
term sale of services under Section 108 of the Code.But, again,
nothing in Section 108 supports this contention. The reverse is
true. In specifically including by way of example electric utilities,
telephone, telegraph, and broadcasting companies in its list of VAT-
covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a
public nature such as public utilities and the collection of tolls or
charges for its use or service is a franchise.[19]
Nor can petitioners cite as binding on the Court statements

made by certain lawmakers in the course of congressional
deliberations of the would-be law. As the Court said in South
African Airways v. Commissioner of Internal
Revenue, [20]
statements made by individual members of Congress
in the consideration of a bill do not necessarily reflect the sense of
that body and are, consequently, not controlling in the
interpretation of law. The congressional will is ultimately
determined by the language of the law that the lawmakers voted
on. Consequently, the meaning and intention of the law must first
be sought in the words of the statute itself, read and considered in
their natural, ordinary, commonly accepted and most obvious
significations, according to good and approved usage and without
resorting to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to

impose VAT on toll fees is tantamount to taxing a tax.[21] Actually,
petitioners base this argument on the following discussion in Manila
International Airport Authority (MIAA) v. Court of Appeals:[22]
No one can dispute that properties of public

dominion mentioned in Article 420 of the Civil Code,
like roads, canals, rivers, torrents, ports and bridges
constructed by the State,are owned by the State. The
term ports includes seaports and airports.
The MIAA Airport Lands and Buildings constitute a
port constructed by the State. Under Article 420 of
the Civil Code, the MIAA Airport Lands and Buildings
are properties of public dominion and thus owned by
the State or the Republic of the Philippines.
x x x The operation by the government of a

tollway does not change the character of the road as
one for public use. Someone must pay for the
maintenance of the road, either the public indirectly
through the taxes they pay the government, or only
those among the public who actually use the road
through the toll fees they pay upon using the
road. The tollway system is even a more efficient
and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not

determine the character of the property whether it
is for public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one
intended for public use. Even if the government
collects toll fees, the road is still intended for public
use if anyone can use the road under the same terms
and conditions as the rest of the public. The charging
of fees, the limitation on the kind of vehicles that can
use the road, the speed restrictions and other
conditions for the use of the road do not affect the
public character of the road.
The terminal fees MIAA charges to passengers,

as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the
operations of MIAA.The collection of such fees does
not change the character of MIAA as an airport for
public use. Such fees are often termed users tax.
This means taxing those among the public who
actually use a public facility instead of taxing all the
public including those who never use the particular
public facility. A users tax is more equitable a
principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating

terminal fees to a users tax must also pertain to tollway fees. But
the main issue in the MIAA case was whether or
not Paraaque City could sell airport lands and buildings under MIAA
administration at public auction to satisfy unpaid real estate taxes.
Since local governments have no power to tax the national
government, the Court held that the City could not proceed with
the auction sale. MIAA forms part of the national government
although not integrated in the department framework.[24] Thus, its
airport lands and buildings are properties of public dominion
beyond the commerce of man under Article 420(1)[25] of the Civil
Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads
and toll fees was made, not to establish a rule that tollway fees are
users tax, but to make the point that airport lands and buildings
are properties of public dominion and that the collection of terminal
fees for their use does not make them private properties. Tollway
fees are not taxes.Indeed, they are not assessed and collected by
the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law
imposing a users tax, collectible from motorists, for the
construction and maintenance of certain roadways.The tax in such
a case goes directly to the government for the replenishment of
resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected
from tollways that are constructed, maintained, and operated by
private tollway operators at their own expense under the build,
operate, and transfer scheme that the government has adopted for
expressways.[26] Except for a fraction given to the government, the
toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the
tollways, are not taxes in any sense. A tax is imposed under the
taxing power of the government principally for the purpose of
raising revenues to fund public expenditures.[27] Toll fees, on the
other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well
as to assure them a reasonable margin of income. Although toll
fees are charged for the use of public facilities, therefore, they are
not government exactions that can be properly treated as a
tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of
ownership.[28]
Parenthetically, VAT on tollway operations cannot be deemed a tax

on tax due to the nature of VAT as an indirect tax. In indirect
taxation, a distinction is made between the liability for the tax and
burden of the tax. The seller who is liable for the VAT may shift or
pass on the amount of VAT it paid on goods, properties or services
to the buyer. In such a case, what is transferred is not the sellers
liability but merely the burden of the VAT.[29]
Thus, the seller remains directly and legally liable for payment
of the VAT, but the buyer bears its burden since the amount of VAT
paid by the former is added to the selling price. Once shifted, the
VAT ceases to be a tax[30] and simply becomes part of the cost that
the buyer must pay in order to purchase the good, property or
service.
Consequently, VAT on tollway operations is not really a tax on

the tollway user, but on the tollway operator. Under Section 105 of
the Code, [31] VAT is imposed on any person who, in the course of
trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts the
burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on
tax even if toll fees were deemed as a users tax. VAT is assessed
against the tollway operators gross receipts and not necessarily on
the toll fees. Although the tollway operator may shift the VAT
burden to the tollway user, it will not make the latter directly liable
for the VAT. The shifted VAT burden simply becomes part of the
toll fees that one has to pay in order to use the tollways.[32]
Three. Petitioner Timbol has no personality to invoke the non-

impairment of contract clause on behalf of private investors in the
tollway projects. She will neither be prejudiced by nor be affected
by the alleged diminution in return of investments that may result
from the VAT imposition. She has no interest at all in the profits to
be earned under the TOAs. The interest in and right to recover
investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of
recovery will be adversely affected by imposing VAT on tollway
operations is purely speculative. Equally presumptuous is her
assertion that a stipulation in the TOAs known as the Material
Adverse Grantor Action will be activated if VAT is thus imposed.
The Court cannot rule on matters that are manifestly conjectural.
Neither can it prohibit the State from exercising its sovereign
taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation

requirements for claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation. They cite
the fact that, in order to claim input VAT, the name, address and
tax identification number of the tollway user must be indicated in
the VAT receipt or invoice. The manner by which the BIR intends
to implement the VAT by rounding off the toll rate and putting any
excess collection in an escrow account is also illegal, while the
alternative of giving change to thousands of motorists in order to
meet the exact toll rate would be a logistical nightmare. Thus,
according to them, the VAT on tollway operations is not
administratively feasible.[33]
Administrative feasibility is one of the canons of a sound tax

system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid except to the
extent that specific constitutional or statutory limitations are
impaired.[34] Thus, even if the imposition of VAT on tollway
operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any
law or the Constitution.
Here, it remains to be seen how the taxing authority will

actually implement the VAT on tollway operations. Any declaration
by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of
the August 12, 2010 Senate hearing provides some clue as to how
the BIR intends to go about it,[35] the facts pertaining to the matter
are not sufficiently established for the Court to pass judgment on.
Besides, any concern about how the VAT on tollway operations will
be enforced must first be addressed to the BIR on whom the task
of implementing tax laws primarily and exclusively rests. The Court
cannot preempt the BIRs discretion on the matter, absent any clear
violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare

as illegal, BIR RMC 63-2010 which directs toll companies to record
an accumulated input VAT of zero balance in their books as of
August 16, 2010, the date when the VAT imposition was supposed
to take effect. The issuance allegedly violates Section 111(A)[36] of
the Code which grants first time VAT payers a transitional input
VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010

is actually the product of negotiations with tollway operators who
have been assessed VAT as early as 2005, but failed to charge
VAT-inclusive toll fees which by now can no longer be collected.
The tollway operators agreed to waive the 2% transitional input
VAT, in exchange for cancellation of their past due VAT liabilities.
Notably, the right to claim the 2% transitional input VAT belongs
to the tollway operators who have not questioned the circulars
validity. They are thus the ones who have a right to challenge the
circular in a direct and proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp

legislative prerogative or expand the VAT laws coverage when she
sought to impose VAT on tollway operations. Section 108(A) of the
Code clearly states that services of all other franchise grantees are
subject to VAT, except as may be provided under Section 119 of
the Code.Tollway operators are not among the franchise grantees
subject to franchise tax under the latter provision. Neither are their
services among the VAT-exempt transactions under Section 109 of
the Code.
If the legislative intent was to exempt tollway operations from

VAT, as petitioners so strongly allege, then it would have been well
for the law to clearly say so. Tax exemptions must be justified by
clear statutory grant and based on language in the law too plain to
be mistaken.[37] But as the law is written, no such exemption
obtains for tollway operators. The Court is thus duty-bound to
simply apply the law as it is found.
Lastly, the grant of tax exemption is a matter of legislative

policy that is within the exclusive prerogative of Congress. The
Courts role is to merely uphold this legislative policy, as reflected
first and foremost in the language of the tax statute. Thus, any
unwarranted burden that may be perceived to result from enforcing
such policy must be properly referred to Congress. The Court has
no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books

since 1994 when R.A. 7716 or the Expanded Value-Added Tax law
was passed. It is only now, however, that the executive has
earnestly pursued the VAT imposition against tollway
operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax
laws. Consequently, the executive is more properly suited to deal
with the immediate and practical consequences of the VAT
imposition.
WHEREFORE, the Court DENIES respondents Secretary of

Finance and Commissioner of Internal Revenues motion for
reconsideration of its August 24, 2010 resolution, DISMISSES the
petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for
lack of merit, and SETS ASIDE the Courts temporary restraining
order dated August 13, 2010.
SO ORDERED.
G.R. No. 204429 February 18, 2014
SMART COMMUNICATIONS, INC., Petitioner,

vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.
DECISION
CARPIO, J.:
The Case
This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012
Resolution3 of the Court of Tax. Appeals (CTA) En Banc.
Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011 Resolution5 of the
CTA First Division, which in turn affirmed the 2 December 2008 Decision6 and 21 May 2009 Order7 of
the Regional Trial Court of Tanauan City, Batangas, Branch 6. The trial court declared void the
assessment imposed by respondent Municipality of Malvar, Batangas against petitioner Smart
Communications, Inc. for its telecommunications tower for 2001 to July 2003 and directed
respondent to assess petitioner only for the period starting 1 October 2003.
The Facts
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of
providing telecommunications services to the general public while respondent Municipality of Malvar,
Batangas (Municipality) is a local government unit created by law.
In the course of its business, Smart constructed a telecommunications tower within the territorial
jurisdiction of the Municipality. The construction of the tower was for the purpose of receiving and
transmitting cellular communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance
Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the
Mayor of the Municipality an assessment letter with a schedule of payment for the total amount
of P389,950.00 for Smarts telecommunications tower. The letter reads as follows:
This is to formally submit to your good office your schedule of payments in the Municipal Treasury of
the Local Government Unit of Malvar, province of Batangas which corresponds to the tower of your
company built in the premises of the municipality, to wit:
TOTAL PROJECT COST: PHP
11,000,000.00
For the Year 2001-2003
50% of 1% of the total project cost Php55,000.00

Add: 45% surcharge 24,750.00
Php79,750.00
Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00
For the year 2004

1% of the total project cost Php110,000.00
37% surcharge 40,700.00

==========
Php150,700.00
TOTAL Php389,950.00
Hoping that you will give this matter your preferential attention.8
Due to the alleged arrears in the payment of the assessment, the Municipality also caused the
posting of a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the
assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance No.
18 on which the assessment was based.
In a letter dated 28 September 2004, the Municipality denied Smarts protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch 6,
an "Appeal/Petition" assailing the validity of Ordinance No. 18. The case was docketed as SP Civil
Case No. 04-11-1920.
On 2 December 2008, the trial court rendered a Decision partly granting Smarts Appeal/Petition.
The trial court confined its resolution of the case to the validity of the assessment, and did not rule
on the legality of Ordinance No. 18. The trial court held that the assessment covering the period from
2001 to July 2003 was void since Ordinance No. 18 was approved only on 30 July 2003. However,
the trial court declared valid the assessment starting 1 October 2003, citing Article 4 of the Civil
Code of the Philippines,9 in relation to the provisions of Ordinance No. 18 and Section 166 of
Republic Act No. 7160 or the Local Government Code of 1991 (LGC).10 The dispositive portion of the
trial courts Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment dated
August 24, 2004 against petitioner is hereby declared null and void insofar as the assessment made
from year 2001 to July 2003 and respondent is hereby prohibited from assessing and collecting,
from petitioner, fees during the said period and the Municipal Government of Malvar, Batangas is
directed to assess Smart Communications, Inc. only for the period starting October 1, 2003.
No costs.
SO ORDERED.11
The trial court denied the motion for reconsideration in its Order of 21 May 2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as CTA AC
No. 58.
On 17 December 2010, the CTA First Division denied the petition for review. The dispositive portion
of the decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly, the assailed
Decision dated December 2, 2008 and the Order dated May 21, 2009 of Branch 6 of the Regional
Trial Court of Tanauan City, Batangas in SP. Civil Case No. 04-11-1920 entitled "Smart
Communications, Inc. vs. Municipality of Malvar, Batangas" are AFFIRMED.
SO ORDERED.12
On 7 April 2011, the CTA First Division issued a Resolution denying the motion for reconsideration.
Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Divisions
decision and resolution. The dispositive portion of the CTA En Bancs 26 June 2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby DISMISSED for lack
of merit.
1w phi1
Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April 7, 2011 are
hereby AFFIRMED.
SO ORDERED.13
The CTA En Banc denied the motion for reconsideration.
Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc
declared that it is a court of special jurisdiction and as such, it can take cognizance only of such
matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No.
9282, the CTA En Banc held that the CTA has exclusive appellate jurisdiction to review on appeal,
decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally resolved by
them in the exercise of their original or appellate jurisdiction. However, the same provision does not
confer on the CTA jurisdiction to resolve cases where the constitutionality of a law or rule is
challenged.
The Issues
The petition raises the following arguments:

1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being
contrary to law and jurisprudence considering that the CTA En Banc should have exercised
its jurisdiction and declared the Ordinance as illegal.
contrary to law and jurisprudence considering that the doctrine of exhaustion of
administrative remedies does not apply in [this case].
contrary to law and jurisprudence considering that the respondent has no authority to impose
the so-called "fees" on the basis of the void ordinance.14
The Ruling of the Court
The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart maintains
that the CTA has jurisdiction over the present case considering the "unique" factual circumstances
involved.
The CTA refuses to take cognizance of this case since it challenges the constitutionality of
Ordinance No. 18, which is outside the province of the CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282,
created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15 of the law vests the
CTA with the exclusive appellate jurisdiction over "decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original
or appellate jurisdiction."
The question now is whether the trial court resolved a local tax case in order to fall within the ambit
of the CTAs appellate jurisdiction This question, in turn, depends ultimately on whether the fees
imposed under Ordinance No. 18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory, but
revenue-raising. Citing Philippine Airlines, Inc. v. Edu,16 Smart contends that the designation of "fees"
in Ordinance No. 18 is not controlling.
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the
power to create its own sources of revenues and 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 government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each local
government unit. Specifically, Section 142 of the LGC grants municipalities the power to levy taxes,
fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for the scale
of taxes on business that may be imposed by municipalities17 while Section 14718 of the same law
provides for the fees and charges that may be imposed by municipalities on business and
occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against
persons or property, while the term "fee" means "a charge fixed by law or ordinance for the
regulation or inspection of a business or activity."19
In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating
the Establishment of Special Projects," to regulate the "placing, stringing, attaching, installing, repair
and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and
other apparatus, and provide for the correction, condemnation or removal of the same when found to
be dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]."20 It was also
envisioned to address the foreseen "environmental depredation" to be brought about by these
"special projects" to the Municipality.21 Pursuant to these objectives, the Municipality imposed fees on
various structures, which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the
"placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph
and telephone wires, conduits, meters and other apparatus" listed therein, which included Smarts
telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the
enumerated activities particularly related to the construction and maintenance of various structures.
The fees in Ordinance No. 18 are not impositions on the building or structure itself; rather, they are
impositions on the activity subject of government regulation, such as the installation and construction
of the structures.22
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the
identified special projects, which included "cell sites" or telecommunications towers, the fees
imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising.
While the fees may contribute to the revenues of the Municipality, this effect is merely incidental.
Thus, the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City,23 the Court declared that "if the generating
of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make
the imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the purpose and
effect of the imposition determine whether it is a tax or a fee, and that the lack of any standards for
such imposition gives the presumption that the same is a tax.
We accordingly say that the designation given by the municipal authorities does not decide whether
the imposition is properly a license tax or a license fee. The determining factors are the purpose and
effect of the imposition as may be apparent from the provisions of the ordinance. Thus, "[w]hen no
police inspection, supervision, or regulation is provided, nor any standard set for the applicant to
establish, or that he agrees to attain or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a license on payment of the stipulated
sum will issue, to do business, subject to no prescribed rule of conduct and under no guardian eye,
but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised."
Contrary to Smarts contention, Ordinance No. 18 expressly provides for the standards which Smart
must satisfy prior to the issuance of the specified permits, clearly indicating that the fees are
regulatory in nature.
These requirements are as follows:
SECTION 5. Requirements and Procedures in Securing Preliminary Development Permit.
The following documents shall be submitted to the SB Secretary in triplicate:
a) zoning clearance
b) Vicinity Map
c) Site Plan
d) Evidence of ownership
e) Certificate true copy of NTC Provisional Authority in case of Cellsites, telephone or

telegraph line, ERB in case of gasoline station, power plant, and other concerned national
agencies
f) Conversion order from DAR is located within agricultural zone.
g) Radiation Protection Evaluation.
h) Written consent from subdivision association or the residence of the area concerned if the
special projects is located within the residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit Upon the expiration of 180 days and the
proponents of special projects shall apply for final [development permit] and they are require[d] to
submit the following:
a) evaluation from the committee where the Vice Mayor refers the special project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is
questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for lack of
jurisdiction. Likewise, Section 187 of the LGC,25 which outlines the procedure for questioning the
constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the issue
on non-exhaustion of administrative remedies.
On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that the
Municipality exceeded its power to impose taxes and fees as provided in Book II, Title One, Chapter
2, Article II of the LGC. Smart maintains that the mayors permit fees in Ordinance No. 18
(equivalent to 1% of the project cost) are not among those expressly enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not appear
in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the
Municipality is empowered to impose taxes, fees and charges, not specifically enumerated in the
LGC or taxed under the Tax Code or other applicable law. Section 186 of the LGC, granting local
government units wide latitude in imposing fees, expressly provides:
Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise
the power to levy taxes, fees or charges on any base or subject not otherwise specifically
enumerated herein or taxed under the provisions of the National Internal Revenue Code, as
amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust,
excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That
the ordinance levying such taxes, fees or charges shall not be enacted without any prior public
hearing conducted for the purpose.
Smart further argues that the Municipality is encroaching on the regulatory powers of the National
Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic Act No. 7925 which
provides that the National Telecommunications Commission (NTC), in the exercise of its regulatory
powers, shall impose such fees and charges as may be necessary to cover reasonable costs and
expenses for the regulation and supervision of the operations of telecommunications entities. Thus,
Smart alleges that the regulation of telecommunications entities and all aspects of its operations is
specifically lodged by law on the NTC.
To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing, repair and
construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" within the Municipality. The fees are not imposed to regulate the administrative,
technical, financial, or marketing operations of telecommunications entities, such as Smarts; rather,
to regulate the installation and maintenance of physical structures Smarts cell sites or
telecommunications tower. The regulation of the installation and maintenance of such physical
structures is an exercise of the police power of the Municipality. Clearly, the Municipality does not
encroach on NTCs regulatory powers.
The Court likewise rejects Smarts contention that the power to fix the fees for the issuance of
development permits and locational clearances is exercised by the Housing and Land Use
Regulatory Board (HLURB). Suffice it to state that the HLURB itself recognizes the local government
units power to collect fees related to land use and development. Significantly, the HLURB issued
locational guidelines governing telecommunications infrastructure. Guideline No. VI relates to the
1wphi1
collection of locational clearance fees either by the HLURB or the concerned local government unit,
to wit:
VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions shall collect the
locational clearance fee based on the revised schedule of fees under the special use project as per
Resolution No. 622, series of 1998 or by the concerned LGUs subject to EO 72.26
On whether Ordinance No. 18 is valid and constitutional
Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since the
fees are unjust, excessive, oppressive and confiscatory. Aside from this bare allegation, Smart did
not present any evidence substantiating its claims. In Victorias Milling Co., Inc. v. Municipality of
Victorias,28 the Court rejected the argument that the fees imposed by respondent therein are
excessive for lack of evidence supporting such claim, to wit:
An ordinance carries with it the presumption of validity. The question of reasonableness though is
open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will
go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be
prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance
is that factors relevant to such an inquiry are the municipal conditions as a whole and the nature of
the business made subject to imposition.
Plaintiff, has however not sufficiently proven that, taking these factors together, the license taxes are
unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting that the
amounts levied exceed the cost of regulation and the municipality has adequate funds for the
alleged purposes as evidenced by the municipalitys cash surplus for the fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of
Ordinance No. 18 in the Prayer of the Petition, without any argument or evidence to support its plea.
Nowhere in the body of the Petition was this issue specifically raised and discussed. Significantly,
Smart failed to cite any constitutional provision allegedly violated by respondent when it issued
Ordinance No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a law
as unconstitutional, Smart has the burden to prove a clear and unequivocal breach of the
Constitution, which Smart miserably failed to do. In Lawyers Against Monopoly and Poverty (LAMP)
v. Secretary of Budget and Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a clear and unequivocal, not
a doubtful, breach of the Constitution. In case of doubt in the sufficiency of proof establishing
unconstitutionality, the Court must sustain legislation because "to invalidate [a law] based on xx x
baseless supposition is an affront to the wisdom not only of the legislature that passed it but also of
the executive which approved it." This presumption of constitutionality can be overcome only by the
clearest showing that there was indeed an infraction of the Constitution, and only when such a
conclusion is reached by the required majority may the Court pronounce, in the discharge of the duty
it cannot escape, that the challenged act must be struck down.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
JOSE J. FERRER, JR., Petitioner, v. CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL OF QUEZON
CITY, CITY TREASURER OF QUEZON CITY, AND CITY ASSESSOR OF QUEZON CITY,Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for certiorari under Rule 65 of the Rules of Court with prayer for the issuance
of a temporary restraining order (TRO) seeking to declare unconstitutional and illegal Ordinance Nos. SP-
2095, S-2011 and SP-2235, S-2013 on the Socialized Housing Tax and Garbage Fee, respectively, which are
being imposed by the respondents.
The Case
On October 17, 2011,1 respondent Quezon City Council enacted Ordinance No. SP-2095, S-2011,2or
the Socialized Housing Tax of Quezon City, Section 3 of which provides:
chanRoble svirtual Lawlib ra ry
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the assessed value
of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be collected by the City Treasurer
which shall accrue to the Socialized Housing Programs of the Quezon City Government. The special
assessment shall accrue to the General Fund under a special account to be established for the purpose.
chanroblesv irt uallawl ibra ry
Effective for five (5) years, the Socialized Housing Tax (SHT) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement of current/existing
socialized housing facilities; (c) land development; (d) construction of core houses, sanitary cores, medium-
rise buildings and other similar structures; and (e) financing of public-private partnership agreement of the
Quezon City Government and National Housing Authority (NHA) with the private sector.3 Under certain
conditions, a tax credit shall be enjoyed by taxpayers regularly paying the special assessment:
SECTION 7. TAX CREDIT. Taxpayers dutifully paying the special assessment tax as imposed by this
ordinance shall enjoy a tax credit. The tax credit may be availed of only after five (5) years of continue[d]
payment. Further, the taxpayer availing this tax credit must be a taxpayer in good standing as certified by
the City Treasurer and City Assessor.
The tax credit to be granted shall be equivalent to the total amount of the special assessment paid by the
property owner, which shall be given as follows:
1. 6th year - 20%
2. 7th year - 20%
3. 8th year - 20%
4. 9th year - 20%
5. 10th year -
20%
Furthermore, only the registered owners may avail of the tax credit and may not be continued by the
subsequent property owners even if they are buyers in good faith, heirs or possessor of a right in whatever
legal capacity over the subject property.4
On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 and took effect
ten days after when it was approved by respondent City Mayor.6 The proceeds collected from the garbage
fees on residential properties shall be deposited solely and exclusively in an earmarked special account
under the general fund to be utilized for garbage collections.7 Section 1 of the Ordinance set forth the
schedule and manner for the collection of garbage fees:
SECTION 1. The City Government of Quezon City in conformity with and in relation to Republic Act No.
7160, otherwise known as the Local Government Code of 1991 HEREBY IMPOSES THE FOLLOWING
SCHEDULE AND MANNER FOR THE ANNUAL COLLECTION OF GARBAGE FEES, AS FOLLOWS:
On all domestic households in Quezon City;
LAND AREA IMPOSABLE FEE

Less than 200 sq. m. PHP 100.00
201 sq. m. 500 sq. m. PHP 200.00
501 sq. m. 1,000 sq. m. PHP 300.00
1,001 sq. m. 1,500 sq. m. PHP 400.00
1,501 sq. m. 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE

Less than 40 sq. m. PHP25.00
41 sq. m. 60 sq. m. PHP50.00
61 sq. m. 100 sq. m. PHP75.00
101 sq. m. 150 sq. m. PHP100.00
151 sq. m. 200 sq. [m.] or more PHP200.00
On high-rise Condominium Units
a) High-rise Condominium The Homeowners Association of high- rise

condominiums shall pay the annual garbage fee on the total size of the
entire condominium and socialized Housing Unit and an additional
garbage fee shall be collected based on area occupied for every unit
already sold or being amortized.
b) High-rise apartment units Owners of high-rise apartment units shall

pay the annual garbage fee on the total lot size of the entire apartment
and an additional garbage fee based on the schedule prescribed herein
for every unit occupied.
The collection of the garbage fee shall accrue on the first day of January and shall be paid simultaneously
with the payment of the real property tax, but not later than the first quarter installment.8 In case a
household owner refuses to pay, a penalty of 25% of the garbage fee due, plus an interest of 2% per month
or a fraction thereof, shall be charged.9 ChanRobles Vi rtualaw lib rary
Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in Quezon City
which is covered by Transfer Certificate of Title (TCT) No. 216288, and that, on January 7, 2014, he paid his
realty tax which already included the garbage fee in the sum of Php100.00.10 ChanRoblesVi rtualaw lib rary
The instant petition was filed on January 17, 2014. We issued a TRO on February 5, 2014, which enjoined
the enforcement of Ordinance Nos. SP-2095 and SP-2235 and required respondents to comment on the
petition without necessarily giving due course thereto.11 Cha nRobles Virtualawl ibra ry
Respondents filed their Comment12 with urgent motion to dissolve the TRO on February 17, 2014.
Thereafter, petitioner filed a Reply and a Memorandum on March 3, 2014 and September 8, 2014,
respectively.
Procedural Matters
A. Propriety of a Petition for Certiorari
Respondents are of the view that this petition for certiorari is improper since they are not tribunals, boards
or officers exercising judicial or quasi-judicial functions. Petitioner, however, counters that in enacting
Ordinance Nos. SP-2095 and SP-2235, the Quezon City Council exercised quasi-judicial function because the
ordinances ruled against the property owners who must pay the SHT and the garbage fee, exacting from
them funds for basic essential public services that they should not be held liable. Even if a Rule 65 petition is
improper, petitioner still asserts that this Court, in a number of cases like in Rosario v. Court of
Appeals,13 has taken cognizance of an improper remedy in the interest of justice.
We agree that respondents neither acted in any judicial or quasi-judicial capacity nor arrogated unto
themselves any judicial or quasi-judicial prerogatives.
A respondent is said to be exercising judicial function where he has the power to determine what the law is
and what the legal rights of the parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties.
Quasi-judicial function, on the other hand, is a term which applies to the actions, discretion, etc., of public
administrative officers or bodies required to investigate facts or ascertain the existence of facts, hold
hearings, and draw conclusions from them as a basis for their official action and to exercise discretion of a
judicial nature.
Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that there be a
law that gives rise to some specific rights of persons or property under which adverse claims to such rights
are made, and the controversy ensuing therefrom is brought before a tribunal, board, or officer clothed with
power and authority to determine the law and adjudicate the respective rights of the contending parties.14
For a writ of certiorari to issue, the following requisites must concur: (1) it must be directed against a
tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer
must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or
excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary
course of law. The enactment by the Quezon City Council of the assailed ordinances was done in the
exercise of its legislative, not judicial or quasi-judicial, function. Under Republic Act (R.A.) No. 7160, or
the Local Government Code of 1991 (LGC), local legislative power shall be exercised by the Sangguniang
Panlungsod for the city.15 Said law likewise is specific in providing that the power to impose a tax, fee, or
charge, or to generate revenue shall be exercised by the sanggunian of the local government unit concerned
through an appropriate ordinance.16 ChanRoblesVi rtua lawlib rary
Also, although the instant petition is styled as a petition for certiorari, it essentially seeks to declare the
unconstitutionality and illegality of the questioned ordinances. It, thus, partakes of the nature of a petition
for declaratory relief over which this Court has only appellate, not original, jurisdiction.17 ChanRobles Virtualawl ibra ry
Despite these, a petition for declaratory relief may be treated as one for prohibition or mandamus, over
which We exercise original jurisdiction, in cases with far-reaching implications or one which raises
transcendental issues or questions that need to be resolved for the public good.18 The judicial policy is that
this Court will entertain direct resort to it when the redress sought cannot be obtained in the proper courts
or when exceptional and compelling circumstances warrant availment of a remedy within and calling for the
exercise of Our primary jurisdiction.19 ChanRoble sVirt ualawli bra ry
Section 2, Rule 65 of the Rules of Court lay down under what circumstances a petition for prohibition may be
filed:
SEC. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation, board, officer or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist from further proceeding in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and justice may require.
In a petition for prohibition against any tribunal, corporation, board, or person whether exercising judicial,
quasi-judicial, or ministerial functions who has acted without or in excess of jurisdiction or with grave
abuse of discretion, the petitioner prays that judgment be rendered, commanding the respondents to desist
from further proceeding in the action or matter specified in the petition. In this case, petitioner's primary
intention is to prevent respondents from implementing Ordinance Nos. SP-2095 and SP-2235. Obviously,
the writ being sought is in the nature of a prohibition, commanding desistance.
We consider that respondents City Mayor, City Treasurer, and City Assessor are
performingministerial functions. A ministerial function is one that an officer or tribunal performs in the
context of a given set of facts, in a prescribed manner and without regard for the exercise of his or its own
judgment, upon the propriety or impropriety of the act done.20 Respondent Mayor, as chief executive of the
city government, exercises such powers and performs such duties and functions as provided for by the LGC
and other laws.21 Particularly, he has the duty to ensure that all taxes and other revenues of the city are
collected, and that city funds are applied to the payment of expenses and settlement of obligations of the
city, in accordance with law or ordinance.22 On the other hand, under the LGC, all local taxes, fees, and
charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly-authorized
deputies, while the assessor shall take charge, among others, of ensuring that all laws and policies
governing the appraisal and assessment of real properties for taxation purposes are properly
executed.23 Anent the SHT, the Department of Finance (DOF) Local Finance Circular No. 1-97, dated April
16, 1997, is more specific:
6.3 The Assessors office of the Id.ntified LGU shall:
a. immediately undertake an inventory of lands within its jurisdiction which shall be subject to
the levy of the Social Housing Tax (SHT) by the local sanggunian concerned;
b. inform the affected registered owners of the effectivity of the SHT; a list of the lands and
registered owners shall also be posted in 3 conspicuous places in the city/municipality;
c. furnish the Treasurers office and the local sanggunian concerned of the list of lands
affected;
6.4 The Treasurers office shall:
a. collect the Social Housing Tax on top of the Real Property Tax, SEF Tax and other special
assessments;
b. report to the DOF, thru the Bureau of Local Government Finance, and the Mayors office the
monthly collections on Social Housing Tax (SHT). An annual report should likewise be
submitted to the HUDCC on the total revenues raised during the year pursuant to Sec. 43,
R.A. 7279 and the manner in which the same was disbursed.
Petitioner has adduced special and important reasons as to why direct recourse to Us should be allowed.
Aside from presenting a novel question of law, this case calls for immediate resolution since the challenged
ordinances adversely affect the property interests of all paying constituents of Quezon City. As well, this
petition serves as a test case for the guidance of other local government units (LGUs). Indeed, the petition
at bar is of transcendental importance warranting a relaxation of the doctrine of hierarchy of courts.
In Social Justice Society (SJS) Officers, et al. v. Lim,24 the Court cited the case of Senator Jaworski v. Phil.
Amusement & Gaming Corp.,25 where We ratiocinated:
Granting arguendo that the present action cannot be properly treated as a petition for prohibition, the
transcendental importance of the issues involved in this case warrants that we set aside the
technical defects and take primary jurisdiction over the petition at bar. x x x This is in accordance
with the well-entrenched principle that rules of procedure are not inflexible tools designed to
hinder or delay, but to facilitate and promote the administration of justice. Their strict and rigid
application, which would result in technicalities that tend to frustrate, rather than promote
substantial justice, must always be eschewed.26
B. Locus Standi of Petitioner
Respondents challenge petitioners legal standing to file this case on the ground that, in relation to Section 3
of Ordinance No. SP-2095, petitioner failed to allege his ownership of a property that has an assessed value
of more than Php100,000.00 and, with respect to Ordinance No. SP-2335, by what standing or personality
he filed the case to nullify the same. According to respondents, the petition is not a class suit, and that, for
not having specifically alleged that petitioner filed the case as a taxpayer, it could only be surmised whether
he is a party-in-interest who stands to be directly benefited or injured by the judgment in this case.
It is a general rule that every action must be prosecuted or defended in the name of the real party-in-
interest, who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails
of the suit.
Jurisprudence defines interest as "material interest, an interest in issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a mere incidental interest. By real interest is
meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest." "To qualify a person to be a real party-in-interest in whose name an
action must be prosecuted, he must appear to be the present real owner of the right sought to be
enforced."27
Legal standing or locus standi calls for more than just a generalized grievance.28 The concept has been
defined as a personal and substantial interest in the case such that the party has sustained or will sustain
direct injury as a result of the governmental act that is being challenged.29 The gist of the question of
standing is whether a party alleges such personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.30 ChanRobles Vi rt ualawlib ra ry
A party challenging the constitutionality of a law, act, or statute must show not only that the law is invalid,
but also that he has sustained or is in immediate, or imminent danger of sustaining some direct injury as a
result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must be shown
that he has been, or is about to be, denied some right or privilege to which he is lawfully entitled, or that he
is about to be subjected to some burdens or penalties by reason of the statute complained of.31 ChanRobles Vi rtualaw lib rary
Tested by the foregoing, petitioner in this case clearly has legal standing to file the petition. He is a real
party-in-interest to assail the constitutionality and legality of Ordinance Nos. SP-2095 and SP-2235 because
respondents did not dispute that he is a registered co-owner of a residential property in Quezon City and
that he paid property tax which already included the SHT and the garbage fee. He has substantial right to
seek a refund of the payments he made and to stop future imposition. While he is a lone petitioner, his
cause of action to declare the validity of the subject ordinances is substantial and of paramount interest to
similarly situated property owners in Quezon City.
C. Litis Pendentia
Respondents move for the dismissal of this petition on the ground of litis pendentia. They claim that, as
early as February 22, 2012, a case entitled Alliance of Quezon City Homeowners, Inc., et al., v. Hon. Herbert
Bautista, et al., docketed as Civil Case No. Q-12-7-820, has been pending in the Quezon City Regional Trial
Court, Branch 104, which assails the legality of Ordinance No. SP-2095. Relying onCity of Makati, et al. v.
Municipality (now City) of Taguig, et al.,32 respondents assert that there is substantial identity of parties
between the two cases because petitioner herein and plaintiffs in the civil case filed their respective cases as
taxpayers of Quezon City.
For petitioner, however, respondents contention is untenable since he is not a party in Alliance and does not
even have the remotest identity or association with the plaintiffs in said civil case. Moreover, respondents
arguments would deprive this Court of its jurisdiction to determine the constitutionality of laws under
Section 5, Article VIII of the 1987 Constitution.33 ChanRoblesVi rt ualawlib ra ry
Litis pendentia is a Latin term which literally means a pending suit and is variously referred to in some
decisions as lis pendens and auter action pendant.34 While it is normally connected with the control which
the court has on a property involved in a suit during the continuance proceedings, it is more interposed as a
ground for the dismissal of a civil action pending in court.35 In Film Development Council of the Philippines v.
SM Prime Holdings, Inc.,36 We elucidated:
Litis pendentia, as a ground for the dismissal of a civil action, refers to a situation where two actions are
pending between the same parties for the same cause of action, so that one of them becomes unnecessary
and vexatious. It is based on the policy against multiplicity of suit and authorizes a court to dismiss a
case motu proprio.
xxxx
The requisites in order that an action may be dismissed on the ground of litis pendentiaare: (a) the identity
of parties, or at least such as representing the same interest in both actions; (b) the identity of rights
asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two
cases such that judgment in one, regardless of which party is successful, would amount to res judicata in
the other.
xxxx
The underlying principle of litis pendentia is the theory that a party is not allowed to vex another more than
once regarding the same subject matter and for the same cause of action. This theory is founded on the
public policy that the same subject matter should not be the subject of controversy in courts more than
once, in order that possible conflicting judgments may be avoided for the sake of the stability of the rights
and status of persons, and also to avoid the costs and expenses incident to numerous suits.
Among the several tests resorted to in ascertaining whether two suits relate to a single or common cause of
action are: (1) whether the same evidence would support and sustain both the first and second causes of
action; and (2) whether the defenses in one case may be used to substantiate the complaint in the other.
The determination of whether there is an identity of causes of action for purposes oflitis pendentia is
inextricably linked with that of res judicata, each constituting an element of the other. In either case, both
relate to the sound practice of including, in a single litigation, the disposition of all issues relating to a cause
of action that is before a court.37
There is substantial identity of the parties when there is a community of interest between a party in the first
case and a party in the second case albeit the latter was not impleaded in the first case.38Moreover, the fact
that the positions of the parties are reversed, i.e., the plaintiffs in the first case are the defendants in the
second case or vice-versa, does not negate the identity of parties for purposes of determining whether the
case is dismissible on the ground of litis pendentia.39 ChanRob les Virtualawl ibra ry
In this case, it is notable that respondents failed to attach any pleading connected with the alleged civil case
pending before the Quezon City trial court. Granting that there is substantial identity of parties between said
case and this petition, dismissal on the ground of litis pendentia still cannot be had in view of the absence of
the second and third requisites. There is no way for Us to determine whether both cases are based on the
same set of facts that require the presentation of the same evidence. Even if founded on the same set of
facts, the rights asserted and reliefs prayed for could be different. Moreover, there is no basis to rule that
the two cases are intimately related and/or intertwined with one another such that the judgment that may
be rendered in one, regardless of which party would be successful, would amount to res judicata in the
other.
D. Failure to Exhaust Administrative Remedies
Respondents contend that petitioner failed to exhaust administrative remedies for his non-compliance with
Section 187 of the LGC, which mandates:
Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory
Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the
date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
The provision, the constitutionality of which was sustained in Drilon v. Lim,40 has been construed as
mandatory41 considering that
A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most
effective instrument to raise needed revenues to finance and support the myriad activities of local
government units for the delivery of basic services essential to the promotion of the general welfare and
enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax
measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are
required to be done within certain time frames. x x x.42
The obligatory nature of Section 187 was underscored in Hagonoy Market Vendor Asso. v. Municipality of
Hagonoy:43 cralawlawl ibra ry
x x x [T]he timeframe fixed by law for parties to avail of their legal remedies before competent courts is not
a mere technicality that can be easily brushed aside. The periods stated in Section 187 of the Local
Government Code are mandatory. x x x Being its lifeblood, collection of revenues by the government is of
paramount importance. The funds for the operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of
revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time
limit for an aggrieved party to assail the legality of revenue measures and tax ordinances.44
Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,45 held that there was no need for
petitioners therein to exhaust administrative remedies before resorting to the courts, considering that there
was only a pure question of law, the parties did not dispute any factual matter on which they had to present
evidence. Likewise, in Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro,46 We relaxed
the application of the rules in view of the more substantive matters. For the same reasons, this petition is an
exception to the general rule.
Substantive Issues
Petitioner asserts that the protection of real properties from informal settlers and the collection of garbage
are basic and essential duties and functions of the Quezon City Government. By imposing the SHT and the
garbage fee, the latter has shown a penchant and pattern to collect taxes to pay for public services that
could be covered by its revenues from taxes imposed on property, idle land, business, transfer,
amusement, etc., as well as the Internal Revenue Allotment (IRA) from the National Government. For
petitioner, it is noteworthy that respondents did not raise the issue that the Quezon City Government is in
dire financial state and desperately needs money to fund housing for informal settlers and to pay for
garbage collection. In fact, it has not denied that its revenue collection in 2012 is in the sum of P13.69
billion.
Moreover, the imposition of the SHT and the garbage fee cannot be justified by the Quezon City Government
as an exercise of its power to create sources of income under Section 5, Article X of the 1987
Constitution.47 According to petitioner, the constitutional provision is not a carte blanche for the LGU to tax
everything under its territorial and political jurisdiction as the provision itself admits of guidelines and
limitations.
Petitioner further claims that the annual property tax is an ad valorem tax, a percentage of the assessed
value of the property, which is subject to revision every three (3) years in order to reflect an increase in the
market value of the property. The SHT and the garbage fee are actually increases in the property tax which
are not based on the assessed value of the property or its reassessment every three years; hence, in
violation of Sections 232 and 233 of the LGC.48 ChanRoblesVirt ualawli bra ry
For their part, respondents relied on the presumption in favor of the constitutionality of Ordinance Nos. SP-
2095 and SP-2235, invoking Victorias Milling Co., Inc. v. Municipality of Victorias, etc.,49People v. Siton, et
al.,50 and Hon. Ermita v. Hon. Aldecoa-Delorino.51 They argue that the burden of establishing the invalidity
of an ordinance rests heavily upon the party challenging its constitutionality. They insist that the questioned
ordinances are proper exercises of police power similar to Telecom. & Broadcast Attys. of the Phils., Inc. v.
COMELEC52 and Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.53 and that their enactment finds basis
in the social justice principle enshrined in Section 9,54 Article II of the 1987 Constitution.
As to the issue of publication, respondents argue that where the law provides for its own effectivity,
publication in the Official Gazette is not necessary so long as it is not punitive in character, citingBalbuna, et
al. v. Hon. Secretary of Education, et al.55 and Askay v. Cosalan.56 Thus, Ordinance No. SP-2095 took effect
after its publication, while Ordinance No. SP-2235 became effective after its approval on December 26,
2013.
Additionally, the parties articulate the following positions:
On the Socialized Housing Tax
Respondents emphasize that the SHT is pursuant to the social justice principle found in Sections 1 and 2,
Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A. No. 7279, or the Urban
Development and Housing Act of 1992 (UDHA).
Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,60 and Victorias Milling Co., Inc. v.
Municipality of Victorias, etc.,61 respondents assert that Ordinance No. SP-2095 applies equally to all real
property owners without discrimination. There is no way that the ordinance could violate the equal
protection clause because real property owners and informal settlers do not belong to the same class.
Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is consistent with the UDHA.
While the law authorizes LGUs to collect SHT on properties with an assessed value of more than P50,000.00,
the questioned ordinance only covers properties with an assessed value exceeding P100,000.00. As well, the
ordinance provides for a tax credit equivalent to the total amount of the special assessment paid by the
property owner beginning in the sixth (6th) year of the effectivity of the ordinance.
On the contrary, petitioner claims that the collection of the SHT is tantamount to a penalty imposed on real
property owners due to the failure of respondent Quezon City Mayor and Council to perform their duty to
secure and protect real property owners from informal settlers, thereby burdening them with the expenses
to provide funds for housing. For petitioner, the SHT cannot be viewed as a charity from real property
owners since it is forced, not voluntary.
Also, petitioner argues that the collection of the SHT is a kind of class legislation that violates the right of
property owners to equal protection of the laws since it favors informal settlers who occupy property not
their own and pay no taxes over law-abiding real property owners who pay income and realty taxes.
Petitioner further contends that respondents characterization of the SHT as nothing more than an advance
payment on the real property tax has no statutory basis. Allegedly, property tax cannot be collected before
it is due because, under the LGC, chartered cities are authorized to impose property tax based on the
assessed value and the general revision of assessment that is made every three (3) years.
As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn, was based on Section 43 of the
UDHA, petitioner asserts that there is no specific provision in the 1987 Constitution stating that the
ownership and enjoyment of property bear a social function. And even if there is, it is seriously doubtful and
far-fetched that the principle means that property owners should provide funds for the housing of informal
settlers and for home site development. Social justice and police power, petitioner believes, does not mean
imposing a tax on one, or that one has to give up something, for the benefit of another. At best, the
principle that property ownership and enjoyment bear a social function is but a reiteration of the Civil Law
principle that property should not be enjoyed and abused to the injury of other properties and the
community, and that the use of the property may be restricted by police power, the exercise of which is not
involved in this case.
Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT collected. Bistek is the
monicker of respondent City Mayor. The Bistekvilles makes it clear, therefore, that politicians will take the
credit for the tax imposed on real property owners.
On the Garbage Fee
Respondents claim that Ordinance No. S-2235, which is an exercise of police power, collects on the average
from every household a garbage fee in the meager amount of thirty-three (33) centavos per day compared
with the sum of P1,659.83 that the Quezon City Government annually spends for every household for
garbage collection and waste management.62 ChanRoblesVi rtua lawlib rary
In addition, there is no double taxation because the ordinance involves a fee. Even assuming that the
garbage fee is a tax, the same cannot be a direct duplicate tax as it is imposed on a different subject matter
and is of a different kind or character. Based on Villanueva, et al. v. City of Iloilo63 andVictorias Milling Co.,
Inc. v. Municipality of Victorias, etc.,64 there is no taxing twice because the real property tax is imposed on
ownership based on its assessed value, while the garbage fee is required on the domestic household. The
only reference to the property is the determination of the applicable rate and the facility of collection.
Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise of police power.
The cases of Calalang v. Williams,65Patalinghug v. Court of Appeals,66 and Social Justice Society (SJS), et al.
v. Hon. Atienza, Jr.,67 which were cited by respondents, are inapplicable since the assailed ordinance is a
revenue measure and does not regulate the disposal or other aspect of garbage.
The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only from domestic
households and not from restaurants, food courts, fast food chains, and other commercial dining places that
spew garbage much more than residential property owners.
Petitioner likewise contends that the imposition of garbage fee is tantamount to double taxation because
garbage collection is a basic and essential public service that should be paid out from property tax, business
tax, transfer tax, amusement tax, community tax certificate, other taxes, and the IRA of the Quezon City
Government. To bolster the claim, he states that the revenue collection of the Quezon City Government
reached Php13.69 billion in 2012. A small portion of said amount could be spent for garbage collection and
other essential services.
It is further noted that the Quezon City Government already collects garbage fee under Section 4768of R.A.
No. 9003, or the Ecological Solid Waste Management Act of 2000, which authorizes LGUs to impose fees in
amounts sufficient to pay the costs of preparing, adopting, and implementing a solid waste management
plan, and that LGUs have access to the Solid Waste Management (SWM) Fund created under Section 4669 of
the same law. Also, according to petitioner, it is evident that Ordinance No. S-2235 is inconsistent with R.A.
No. 9003 for while the law encourages segregation, composting, and recycling of waste, the ordinance only
emphasizes the collection and payment of garbage fee; while the law calls for an active involvement of the
barangay in the collection, segregation, and recycling of garbage, the ordinance skips such mandate.
Lastly, in challenging the ordinance, petitioner avers that the garbage fee was collected even if the required
publication of its approval had not yet elapsed. He notes that on January 7, 2014, he paid his realty tax
which already included the garbage fee.
The Courts Ruling
Respondents correctly argued that an ordinance, as in every law, is presumed valid.

An ordinance carries with it the presumption of validity. The question of reasonableness though is open to
judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in
writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to
such an inquiry are the municipal conditions as a whole and the nature of the business made subject to
imposition.70
For an ordinance to be valid though, it must not only be within the corporate powers of the LGU to enact and
must be passed according to the procedure prescribed by law, it should also conform to the following
requirements: (1) not contrary to the Constitution or any statute; (2) not unfair or oppressive; (3) not
partial or discriminatory; (4) not prohibit but may regulate trade; (5) general and consistent with public
policy; and (6) not unreasonable.71 As jurisprudence indicates, the tests are divided into the formal (i.e.,
whether the ordinance was enacted within the corporate powers of the LGU and whether it was passed in
accordance with the procedure prescribed by law), and the substantive (i.e., involving inherent merit, like
the conformity of the ordinance with the limitations under the Constitution and the statutes, as well as with
the requirements of fairness and reason, and its consistency with public policy).72 ChanRoble sVirt ualawli brary
An ordinance must pass muster under the test of constitutionality and the test of consistency with the
prevailing laws.73 If not, it is void.74 Ordinance should uphold the principle of the supremacy of the
Constitution.75 As to conformity with existing statutes, Batangas CATV, Inc. v. Court of Appeals76 has this to
say:
It is a fundamental principle that municipal ordinances are inferior in status and subordinate to the laws of
the state. An ordinance in conflict with a state law of general character and statewide application is
universally held to be invalid. The principle is frequently expressed in the declaration that municipal
authorities, under a general grant of power, cannot adopt ordinances which infringe the spirit of a state law
or repugnant to the general policy of the state. In every power to pass ordinances given to a municipality,
there is an implied restriction that the ordinances shall be consistent with the general law. In the language
of Justice Isagani Cruz (ret.), this Court, inMagtajas vs. Pryce Properties Corp., Inc., ruled that:
The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal
governments are only agents of the national government. Local councils exercise only delegated legislative
powers conferred on them by Congress as the national lawmaking body. The delegate cannot be superior to
the principal or exercise powers higher than those of the latter. It is a heresy to suggest that the local
government units can undo the acts of Congress, from which they have derived their power in the first
place, and negate by mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights wholly from the legislature. It
breathes into them the breath of life, without which they cannot exist. As it creates, so it may destroy. As it
may destroy, it may abridge and control. Unless there is some constitutional limitation on the right, the
legislature might, by a single act, and if we can suppose it capable of so great a folly and so great a wrong,
sweep from existence all of the municipal corporations in the State, and the corporation could not prevent it.
We know of no limitation on the right so far as to the corporation themselves are concerned. They are, so to
phrase it, the mere tenants at will of the legislature.
This basic relationship between the national legislature and the local government units has not been
enfeebled by the new provisions in the Constitution strengthening the policy of local autonomy. Without
meaning to detract from that policy, we here confirm that Congress retains control of the local government
units although in significantly reduced degree now than under our previous Constitutions. The power to
create still includes the power to destroy. The power to grant still includes the power to withhold or recall.
True, there are certain notable innovations in the Constitution, like the direct conferment on the local
government units of the power to tax, which cannot now be withdrawn by mere statute. By and large,
however, the national legislature is still the principal of the local government units, which cannot defy its will
or modify or violate it.77
LGUs must be reminded that they merely form part of the whole; that the policy of ensuring the autonomy
of local governments was never intended by the drafters of the 1987 Constitution to create an imperium in
imperio and install an intra-sovereign political subdivision independent of a single sovereign
state.78 [M]unicipal corporations are bodies politic and corporate, created not only as local units of local
self-government, but as governmental agencies of the state. The legislature, by establishing a municipal
corporation, does not divest the State of any of its sovereignty; absolve itself from its right and duty to
administer the public affairs of the entire state; or divest itself of any power over the inhabitants of the
district which it possesses before the charter was granted.79 ChanRoblesVirtualawl ibra ry
LGUs are able to legislate only by virtue of a valid delegation of legislative power from the national
legislature; they are mere agents vested with what is called the power of subordinate legislation.80Congress
enacted the LGC as the implementing law for the delegation to the various LGUs of the States great powers,
namely: the police power, the power of eminent domain, and the power of taxation. The LGC was fashioned
to delineate the specific parameters and limitations to be complied with by each LGU in the exercise of these
delegated powers with the view of making each LGU a fully functioning subdivision of the State subject to
the constitutional and statutory limitations.81
ChanRobles Vi rtua lawlib rary
Specifically, with regard to the power of taxation, it is indubitably the most effective instrument to raise
needed revenues in financing and supporting myriad activities of the LGUs 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.82 As this Court opined in National Power Corp. v. City of Cabanatuan:83 cralawlawlib rary
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, Section 3 of Article X
of 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 x84
Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of Benguet85 that:
The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized
in Icard v. City Council of Baguio:
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality, cannot
assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity
arising out of the term used in granting that power must be resolved against the municipality. Inferences,
implications, deductions all these have no place in the interpretation of the taxing power of a municipal
corporation. [Underscoring supplied]
xxxx
Per Section 5, Article X of the 1987 Constitution, 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.
Nevertheless, such authority is subject to such guidelines and limitations as the Congress may provide.
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and
fiscal matters.86
Indeed, LGUs have no inherent power to tax except to the extent that such power might be delegatedto
them either by the basic law or by the statute.87 Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may
provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not
be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit
will have its fair share of available resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and just.88 ChanRoblesVirtualawl ibra ry
Subject to the provisions of the LGC and consistent with the basic policy of local autonomy, every LGU is
now empowered and authorized to create its own sources of revenue and to levy taxes, fees, and charges
which shall accrue exclusively to the local government unit as well as to apply its resources and assets for
productive, developmental, or welfare purposes, in the exercise or furtherance of their governmental or
proprietary powers and functions.89 The relevant provisions of the LGC which establish the parameters of the
taxing power of the LGUs are as follows:
SECTION 130. Fundamental Principles. The following fundamental principles shall govern the exercise of
the taxing and other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayers ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition
unless otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitionsmortis causa, except as otherwise
provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes,
fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses
or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided
herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the Cooperative Code of the Philippines respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units.
SECTION 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city, may levy the
taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes,
fees and charges levied and collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.
SECTION 186. Power To Levy Other Taxes, Fees or Charges. Local government units may exercise the
power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws:
Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing conducted for the purpose.
On the Socialized Housing Tax
Contrary to petitioners submission, the 1987 Constitution explicitly espouses the view that the use of
property bears a social function and that all economic agents shall contribute to the common good.90The
Court already recognized this in Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.:91 cra lawlawlib rary
Property has not only an individual function, insofar as it has to provide for the needs of the owner, but also
a social function insofar as it has to provide for the needs of the other members of society. The principle is
this:
Police power proceeds from the principle that every holder of property, however absolute and unqualified
may be his title, holds it under the implied liability that his use of it shall not be injurious to the equal
enjoyment of others having an equal right to the enjoyment of their property, nor injurious to the right of
the community. Rights of property, like all other social and conventional rights, are subject to reasonable
limitations in their enjoyment as shall prevent them from being injurious, and to such reasonable restraints
and regulations established by law as the legislature, under the governing and controlling power vested in
them by the constitution, may think necessary and expedient.92
Police power, which flows from the recognition that salus populi est suprema lex (the welfare of the people is
the supreme law), is the plenary power vested in the legislature to make statutes and ordinances to
promote the health, morals, peace, education, good order or safety and general welfare of the
people.93 Property rights of individuals may be subjected to restraints and burdens in order to fulfill the
objectives of the government in the exercise of police power. 94 In this jurisdiction, it is well-entrenched that
taxation may be made the implement of the states police power.95 ChanRoble sVirt ualawli bra ry
Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5% on the assessed value of land
in excess of Php100,000.00. This special assessment is the same tax referred to in R.A. No. 7279 or the
UDHA.96 The SHT is one of the sources of funds for urban development and housing program.97 Section 43
of the law provides:
Sec. 43. Socialized Housing Tax. Consistent with the constitutional principle that the ownership and
enjoyment of property bear a social function and to raise funds for the Program, all local government units
are hereby authorized to impose an additional one-half percent (0.5%) tax on the assessed value of all
lands in urban areas in excess of Fifty thousand pesos (P50,000.00).
The rationale of the SHT is found in the preambular clauses of the subject ordinance, to wit:
WHEREAS, the imposition of additional tax is intended to provide the City Government with sufficient funds
to initiate, implement and undertake Socialized Housing Projects and other related preliminary activities;
WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and Projects of the City
Government, specifically the marginalized sector through the acquisition of properties for human
settlements;
WHEREAS, the removal of the urban blight will definitely increase fair market value of properties in the
city[.]
The above-quoted are consistent with the UDHA, which the LGUs are charged to implement in their
respective localities in coordination with the Housing and Urban Development Coordinating Council, the
national housing agencies, the Presidential Commission for the Urban Poor, the private sector, and other
non-government organizations.98 It is the declared policy of the State to undertake a comprehensive and
continuing urban development and housing program that shall, among others, uplift the conditions of the
underprivileged and homeless citizens in urban areas and in resettlement areas, and provide for the rational
use and development of urban land in order to bring about, among others, reduction in urban dysfunctions,
particularly those that adversely affect public health, safety and ecology, and access to land and housing by
the underprivileged and homeless citizens.99Urban renewal and resettlement shall include the rehabilitation
and development of blighted and slum areas100 and the resettlement of program beneficiaries in accordance
with the provisions of the UDHA.101 ChanRoblesVi rt ualawlib ra ry
Under the UDHA, socialized housing102 shall be the primary strategy in providing shelter for the
underprivileged and homeless.103 The LGU or the NHA, in cooperation with the private developers and
concerned agencies, shall provide socialized housing or resettlement areas with basic services and facilities
such as potable water, power and electricity, and an adequate power distribution system, sewerage
facilities, and an efficient and adequate solid waste disposal system; and access to primary roads and
transportation facilities.104 The provisions for health, education, communications, security, recreation, relief
and welfare shall also be planned and be given priority for implementation by the LGU and concerned
agencies in cooperation with the private sector and the beneficiaries themselves.105 ChanRoble sVirtual awlibra ry
Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination with the NHA, are
directed to implement the relocation and resettlement of persons living in danger areas such as esteros,
railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and other public places like sidewalks,
roads, parks, and playgrounds.106 In coordination with the NHA, the LGUs shall provide relocation or
resettlement sites with basic services and facilities and access to employment and livelihood opportunities
sufficient to meet the basic needs of the affected families.107 ChanRobles Vi rtual awlib rary
Clearly, the SHT charged by the Quezon City Government is a tax which is within its power to impose. Aside
from the specific authority vested by Section 43 of the UDHA, cities are allowed to exercise such other
powers and discharge such other functions and responsibilities as are necessary, appropriate, or incidental
to efficient and effective provision of the basic services and facilities which include, among others, programs
and projects for low-cost housing and other mass dwellings.108 The collections made accrue to its socialized
housing programs and projects. The tax is not a pure exercise of taxing power or merely to raise revenue; it
is levied with a regulatory purpose. The levy is primarily in the exercise of the police power for the general
welfare of the entire city. It is greatly imbued with public interest. Removing slum areas in Quezon City is
not only beneficial to the underprivileged and homeless constituents but advantageous to the real property
owners as well. The situation will improve the value of the their property investments, fully enjoying the
same in view of an orderly, secure, and safe community, and will enhance the quality of life of the poor,
making them law-abiding constituents and better consumers of business products.
Though broad and far-reaching, police power is subordinate to constitutional limitations and is subject to the
requirement that its exercise must be reasonable and for the public good.109 In the words ofCity of Manila v.
Hon. Laguio, Jr.:110 cralawlawlib rary
The police power granted to local government units must always be exercised with utmost observance of the
rights of the people to due process and equal protection of the law. Such power cannot be exercised
whimsically, arbitrarily or despotically as its exercise is subject to a qualification, limitation or restriction
demanded by the respect and regard due to the prescription of the fundamental law, particularly those
forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to the
extent that may fairly be required by the legitimate demands of public interest or public welfare. Due
process requires the intrinsic validity of the law in interfering with the rights of the person to his life, liberty
and property.
xxxx
To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance, and
to free it from the imputation of constitutional infirmity, not only must it appear that the interests of the
public generally, as distinguished from those of a particular class, require an interference with private rights,
but the means adopted must be reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals. It must be evident that no other alternative for the accomplishment of
the purpose less intrusive of private rights can work. A reasonable relation must exist between the purposes
of the police measure and the means employed for its accomplishment, for even under the guise of
protecting the public interest, personal rights and those pertaining to private property will not be permitted
to be arbitrarily invaded.
Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary
intrusion into private rights a violation of the due process clause.111
As with the State, LGUs may be considered as having properly exercised their police power only if there is a
lawful subject and a lawful method or, to be precise, if the following requisites are met: (1) the interests of
the public generally, as distinguished from those of a particular class, require its exercise and (2) the means
employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon
individuals.112 Cha nRobles Vi rtua lawlib rary
In this case, petitioner argues that the SHT is a penalty imposed on real property owners because it burdens
them with expenses to provide funds for the housing of informal settlers, and that it is a class legislation
since it favors the latter who occupy properties which is not their own and pay no taxes.
We disagree.
Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed.113 The guarantee means that no person or class of persons
shall be denied the same protection of laws which is enjoyed by other persons or other classes in like
circumstances.114 Similar subjects should not be treated differently so as to give undue favor to some and
unjustly discriminate against others.115 The law may, therefore, treat and regulate one class differently from
another class provided there are real and substantial differences to distinguish one class from another.116 ChanRobles Virtualawl ibra ry
An ordinance based on reasonable classification does not violate the constitutional guaranty of the equal
protection of the law. The requirements for a valid and reasonable classification are: (1) it must rest on
substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to
existing conditions only; and (4) it must apply equally to all members of the same class.117 ChanRobles Vi rtualaw lib rary
For the purpose of undertaking a comprehensive and continuing urban development and housing program,
the disparities between a real property owner and an informal settler as two distinct classes are too obvious
and need not be discussed at length. The differentiation conforms to the practical dictates of justice and
equity and is not discriminatory within the meaning of the Constitution. Notably, 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 over
another.118 It is inherent in the power to tax that a State is free to select the subjects of
taxation.119 Inequities which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation.120 ChanRobles Vi rtua lawlib rary
Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not confiscatory or
oppressive since the tax being imposed therein is below what the UDHA actually allows. As pointed out by
respondents, while the law authorizes LGUs to collect SHT on lands with an assessed value of more than
P50,000.00, the questioned ordinance only covers lands with an assessed value exceeding P100,000.00.
Even better, on certain conditions, the ordinance grants a tax credit equivalent to the total amount of the
special assessment paid beginning in the sixth (6th) year of its effectivity. Far from being obnoxious, the
provisions of the subject ordinance are fair and just.
On the Garbage Fee
In the United States of America, it has been held that the authority of a municipality to regulate garbage
falls within its police power to protect public health, safety, and welfare.121 As opined, the purposes and
policy underpinnings of the police power to regulate the collection and disposal of solid waste are: (1) to
preserve and protect the public health and welfare as well as the environment by minimizing or eliminating a
source of disease and preventing and abating nuisances; and (2) to defray costs and ensure financial
stability of the system for the benefit of the entire community, with the sum of all charges marshalled and
designed to pay for the expense of a systemic refuse disposal scheme.122 ChanRobles Vi rtualawl ib rary
Ordinances regulating waste removal carry a strong presumption of validity.123 Not surprisingly, the
overwhelming majority of U.S. cases addressing a city's authority to impose mandatory garbage service and
fees have upheld the ordinances against constitutional and statutory challenges.124 ChanRoble sVirt ua lawlibra ry
A municipality has an affirmative duty to supervise and control the collection of garbage within its corporate
limits.125 The LGC specifically assigns the responsibility of regulation and oversight of solid waste to local
governing bodies because the Legislature determined that such bodies were in the best position to develop
efficient waste management programs.126 To impose on local governments the responsibility to regulate
solid waste but not grant them the authority necessary to fulfill the same would lead to an absurd
result.127 As held in one U.S. case:
x x x When a municipality has general authority to regulate a particular subject matter, the manner and
means of exercising those powers, where not specifically prescribed by the legislature, are left to the
discretion of the municipal authorities. x x x Leaving the manner of exercising municipal powers to the
discretion of municipal authorities "implies a range of reasonableness within which a municipality's exercise
of discretion will not be interfered with or upset by the judiciary."128
In this jurisdiction, pursuant to Section 16 of the LGC and in the proper exercise of its corporate powers
under Section 22 of the same, the Sangguniang Panlungsod of Quezon City, like other local legislative
bodies, is empowered to enact ordinances, approve resolutions, and appropriate funds for the general
welfare of the city and its inhabitants.129 Section 16 of the LGC provides:
SECTION 16. General Welfare. Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient
and effective governance, and those which are essential to the promotion of the general welfare. Within
their respective territorial jurisdictions, local government units shall ensure and support, among other
things, the preservation and enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of appropriate and self-reliant
scientific and technological capabilities, improve public morals, enhance economic prosperity and social
justice, promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.
The general welfare clause is the delegation in statutory form of the police power of the State to
LGUs.130 The provisions related thereto are liberally interpreted to give more powers to LGUs in accelerating
economic development and upgrading the quality of life for the people in the community.131 Wide discretion
is vested on the legislative authority to determine not only what the interests of the public require but also
what measures are necessary for the protection of such interests since the Sanggunian is in the best
position to determine the needs of its constituents.132 ChanRobles Virtualawl ibra ry
One of the operative principles of decentralization is that, subject to the provisions of the LGC and national
policies, the LGUs shall share with the national government the responsibility in the management and
maintenance of ecological balance within their territorial jurisdiction.133 In this regard, cities are allowed to
exercise such other powers and discharge such other functions and responsibilities as are necessary,
appropriate, or incidental to efficient and effective provision of the basic services and facilities which include,
among others, solid waste disposal system or environmental management system and services or facilities
related to general hygiene and sanitation.134 R.A. No. 9003, or the Ecological Solid Waste Management Act
of 2000,135 affirms this authority as it expresses that the LGUs shall be primarily responsible for the
implementation and enforcement of its provisions within their respective jurisdictions while establishing a
cooperative effort among the national government, other local government units, non-government
organizations, and the private sector.136 ChanRobles Vi rtua lawlib rary
Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees and charges for
services rendered.137 Charges refer to pecuniary liability, as rents or fees against persons or property,
while Fee means a charge fixed by law or ordinance for the regulation or inspection of a business or
activity.138 ChanRobles Vi rtua lawlib rary
The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed for the regulation of
an activity. The basis for this could be discerned from the foreword of said Ordinance, to wit:
WHEREAS, Quezon City being the largest and premiere city in the Philippines in terms of population and
urban geographical areas, apart from being competent and efficient in the delivery of public service,
apparently requires a big budgetary allocation in order to address the problems relative and connected to
the prompt and efficient delivery of basic services such as the effective system of waste management, public
information programs on proper garbage and proper waste disposal, including the imposition of waste
regulatory measures;
WHEREAS, to help augment the funds to be spent for the citys waste management system, the City
Government through the Sangguniang Panlungsod deems it necessary to impose a schedule of reasonable
fees or charges for the garbage collection services for residential (domestic household) that it renders to the
public.
Certainly, as opposed to petitioners opinion, the garbage fee is not a tax. In Smart Communications, Inc. v.
Municipality of Malvar, Batangas,139 the Court had the occasion to distinguish these two concepts:
In Progressive Development Corporation v. Quezon City, the Court declared that if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a
tax.
In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the purpose and effect of
the imposition determine whether it is a tax or a fee, and that the lack of any standards for such imposition
gives the presumption that the same is a tax.
We accordingly say that the designation given by the municipal authorities does not decide whether the
imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of
the imposition as may be apparent from the provisions of the ordinance. Thus, [w]hen no police inspection,
supervision, or regulation is provided, nor any standard set for the applicant to establish, or that he agrees
to attain or maintain, but any and all persons engaged in the business designated, without qualification or
hindrance, may come, and a license on payment of the stipulated sum will issue, to do business, subject to
no prescribed rule of conduct and under no guardian eye, but according to the unrestrained judgment or
fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the police
power, is being exercised.
In Georgia, U.S.A., assessments for garbage collection services have been consistently treated as a fee and
not a tax.140 In another U.S. case,141 the garbage fee was considered as a "service charge" rather than a tax
as it was actually a fee for a service given by the city which had previously been provided at no cost to its
citizens.
Hence, not being a tax, the contention that the garbage fee under Ordinance No. SP-2235 violates the rule
on double taxation142 must necessarily fail.
Nonetheless, although a special charge, tax, or assessment may be imposed by a municipal corporation, it
must be reasonably commensurate to the cost of providing the garbage service.143 To pass judicial scrutiny,
a regulatory fee must not produce revenue in excess of the cost of the regulation because such fee will be
construed as an illegal tax when the revenue generated by the regulation exceeds the cost of the
regulation.144 ChanRoble sVirtualawl ibra ry
Petitioner argues that the Quezon City Government already collects garbage fee under Section 47 of R.A.
No. 9003, which authorizes LGUs to impose fees in amounts sufficient to pay the costs of preparing,
adopting, and implementing a solid waste management plan, and that it has access to the SWM Fund under
Section 46 of the same law. Moreover, Ordinance No. S-2235 is inconsistent with R.A. No. 9003, because
the ordinance emphasizes the collection and payment of garbage fee with no concern for segregation,
composting and recycling of wastes. It also skips the mandate of the law calling for the active involvement
of the barangay in the collection, segregation, and recycling of garbage.
We now turn to the pertinent provisions of R.A. No. 9003.
Under R.A. No. 9003, it is the declared policy of the State to adopt a systematic, comprehensive and
ecological solid waste management program which shall, among others, ensure the proper segregation,
collection, transport, storage, treatment and disposal of solid waste through the formulation and adoption of
the best environmental practices in ecological waste management.145The law provides that segregation and
collection of solid waste shall be conducted at the barangaylevel, specifically for biodegradable, compostable
and reusable wastes, while the collection of non-recyclable materials and special wastes shall be the
responsibility of the municipality or city.146Mandatory segregation of solid wastes shall primarily be
conducted at the source, to include household, institutional, industrial, commercial and agricultural
sources.147Segregation at sourcerefers to a solid waste management practice of separating, at the point of
origin, different materials found in solid waste in order to promote recycling and re-use of resources and to
reduce the volume of waste for collection and disposal.148 Based on Rule XVII of the Department of
Environment and Natural Resources (DENR) Administrative Order No. 2001-34, Series of 2001,149 which is
the Implementing Rules and Regulations (IRR) of R.A. No. 9003, barangays shall be responsible for the
collection, segregation, and recycling of biodegradable, recyclable, compostable and reusable wastes.150 For
the purpose, a Materials Recovery Facility (MRF), which shall receive biodegradable wastes for composting
and mixed non-biodegradable wastes for final segregation, re-use and recycling, is to be established in
every barangay or cluster of barangays.151 ChanRobles Virtualawl ibra ry
According to R.A. 9003, an LGU, through its local solid waste management board, is mandated by law to
prepare a 10-year solid waste management plan consistent with the National Solid Waste Management
Framework.152 The plan shall be for the re-use, recycling and composting of wastes generated in its
jurisdiction; ensure the efficient management of solid waste generated within its jurisdiction; and place
primary emphasis on implementation of all feasible re-use, recycling, and composting programs while
identifying the amount of landfill and transformation capacity that will be needed for solid waste which
cannot be re-used, recycled, or composted.153 One of the components of the solid waste management plan
is source reduction:
(e) Source reduction The source reduction component shall include a program and implementation
schedule which shows the methods by which the LGU will, in combination with the recycling and composting
components, reduce a sufficient amount of solid waste disposed of in accordance with the diversion
requirements of Section 20.
The source reduction component shall describe the following:

(1) strategies in reducing the volume of solid waste generated at source;
(2) measures for implementing such strategies and the resources necessary to carry out such activities;
(3) other appropriate waste reduction technologies that may also be considered, provided that such
technologies conform with the standards set pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Section 15 of this Act;
(5) the methods that the LGU will use to determine the categories of solid wastes to be diverted from
disposal at a disposal facility through re-use, recycling and composting; and
(6) new facilities and of expansion of existing facilities which will be needed to implement re-use, recycling
and composting.
The LGU source reduction component shall include the evaluation and identification of rate structures and
fees for the purpose of reducing the amount of waste generated, and other source reduction strategies,
including but not limited to, programs and economic incentives provided under Sec. 45 of this Act to reduce
the use of non-recyclable materials, replace disposable materials and products with reusable materials and
products, reduce packaging, and increase the efficiency of the use of paper, cardboard, glass, metal, and
other materials. The waste reduction activities of the community shall also take into account, among others,
local capability, economic viability, technical requirements, social concerns, disposition of residual waste and
environmental impact: Provided, That, projection of future facilities needed and estimated cost shall be
incorporated in the plan. x x x154
The solid waste management plan shall also include an implementation schedule for solid waste diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion. Each LGU plan shall include an implementation
schedule which shows that within five (5) years after the effectivity of this Act, the LGU shall divert at least
25% of all solid waste from waste disposal facilities through re-use, recycling, and composting activities and
other resource recovery activities: Provided, That the waste diversion goals shall be increased every three
(3) years thereafter: Provided, further, That nothing in this Section prohibits a local government unit from
implementing re-use, recycling, and composting activities designed to exceed the goal.
The baseline for the twenty-five percent (25%) shall be derived from the waste characterization
result155 that each LGU is mandated to undertake.156 ChanRoblesVi rtualaw lib rary
In accordance with Section 46 of R.A. No. 9003, the LGUs are entitled to avail of the SWM Fund on the basis
of their approved solid waste management plan. Aside from this, they may also impose SWM Fees under
Section 47 of the law, which states:
SEC. 47. Authority to Collect Solid Waste Management Fees The local government unit shall impose fees in
amounts sufficient to pay the costs of preparing, adopting, and implementing a solid waste management
plan prepared pursuant to this Act. The fees shall be based on the following minimum factors:
(a) types of solid waste;
(b) amount/volume of waste; and
(c) distance of the transfer station to the waste management facility.

The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In determining
the amounts of the fees, an LGU shall include only those costs directly related to the adoption and
implementation of the plan and the setting and collection of the local fees.
Rule XVII of the IRR of R.A. No. 9003 sets forth the details:
Section 1. Power to Collect Solid Waste Management Fees. The Local SWM Board/Local SWM Cluster Board
shall impose fees on the SWM services provided for by the LGU and/or any authorized organization or unit.
In determining the amounts of the fees, a Local SWM Board/Local SWM Cluster Board shall include only
those costs directly related to the adoption and implementation of the SWM Plan and the setting and
collection of the local fees. This power to impose fees may be ceded to the private sector and civil society
groups which have been duly accredited by the Local SWM Board/Local SWM Cluster Board; provided, the
SWM fees shall be covered by a Contract or Memorandum of Agreement between the respective board and
the private sector or civil society group.
The fees shall pay for the costs of preparing, adopting and implementing a SWM Plan prepared pursuant to
the Act. Further, the fees shall also be used to pay the actual costs incurred in collecting the local fees and
for project sustainability.
Section 2. Basis of SWM Service Fees
Reasonable SWM service fees shall be computed based on but not limited to the following minimum factors:
a) Types of solid waste to include special waste
b) amount/volume of waste
c) distance of the transfer station to the waste management facility
d) capacity or type of LGU constituency
e) cost of construction
f) cost of management
g) type of technology
Section 3. Collection of Fees. Fees may be collected corresponding to the following levels:
a) Barangay The Barangay may impose fees for collection and segregation of biodegradable, compostable
and reusable wastes from households, commerce, other sources of domestic wastes, and for the use of
Barangay MRFs. The computation of the fees shall be established by the respective SWM boards. The
manner of collection of the fees shall be dependent on the style of administration of respective Barangay
Councils. However, all transactions shall follow the Commission on Audit rules on collection of fees.
b) Municipality The municipal and city councils may impose fees on the barangay MRFs for the collection
and transport of non-recyclable and special wastes and for the disposal of these into the sanitary landfill.
The level and procedure for exacting fees shall be defined by the Local SWM Board/Local SWM Cluster Board
and supported by LGU ordinances, however, payments shall be consistent with the accounting system of
government.
c) Private Sector/Civil Society Group On the basis of the stipulations of contract or Memorandum of
Agreement, the private sector or civil society group shall impose fees for collection, transport and tipping in
their SLFs. Receipts and invoices shall be issued to the paying public or to the government.
From the afore-quoted provisions, it is clear that the authority of a municipality or city to impose fees is
limited to the collection and transport of non-recyclable and special wastes and for the disposal of these
into the sanitary landfill. Barangays, on the other hand, have the authority to impose fees for the collection
and segregation of biodegradable, compostable and reusable wastes from households, commerce,
other sources of domestic wastes, and for the use of barangay MRFs. This is but consistent with Section 10
of R.A. No. 9003 directing that segregation and collection of biodegradable, compostable and reusable
wastes shall be conducted at the barangay level, while the collection of non-recyclable materials and special
wastes shall be the responsibility of the municipality or city.
In this case, the alleged bases of Ordinance No. S-2235 in imposing the garbage fee is the volume of waste
currently generated by each person in Quezon City, which purportedly stands at 0.66 kilogram per day, and
the increasing trend of waste generation for the past three years.157 Respondents did not elaborate any
further. The figure presented does not reflect the specific types of wastes generated whether residential,
market, commercial, industrial, construction/demolition, street waste, agricultural, agro-industrial,
institutional, etc. It is reasonable, therefore, for the Court to presume that such amount pertains to the
totality of wastes, without any distinction, generated by Quezon City constituents. To reiterate, however, the
authority of a municipality or city to impose fees extends only to those related to the collection and
transport of non-recyclable and special wastes.
Granting, for the sake of argument, that the 0.66 kilogram of solid waste per day refers only to non-
recyclable and special wastes, still, We cannot sustain the validity of Ordinance No. S-2235. It violates the
equal protection clause of the Constitution and the provisions of the LGC that an ordinance must be
equitable and based as far as practicable on the taxpayers ability to pay, and not unjust, excessive,
oppressive, confiscatory.158 ChanRobles Vi rtualaw lib rary
In the subject ordinance, the rates of the imposable fee depend on land or floor area and whether the payee
is an occupant of a lot, condominium, social housing project or apartment. For easy reference, the relevant
provision is again quoted below:
On all domestic households in Quezon City;
LAND AREA IMPOSABLE FEE

Less than 200 sq. m. PHP 100.00
201 sq. m. 500 sq. m. PHP 200.00
501 sq. m. 1,000 sq. m. PHP 300.00
1,001 sq. m. 1,500 sq. m. PHP 400.00
1,501 sq. m. 2,000 sq. m.
PHP 500.00
or more
On all condominium unit and socialized housing projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE

Less than 40 sq. m. PHP25.00
41 sq. m. 60 sq. m. PHP50.00
61 sq. m. 100 sq. m. PHP75.00
101 sq. m. 150 sq. m. PHP100.00
151 sq. m. 200 sq. [m.] or
PHP200.00
more
On high-rise Condominium Units
a) High-rise Condominium The Homeowners Association of high rise

condominiums shall pay the annual garbage fee on the total size of the
entire condominium and socialized Housing Unit and an additional
garbage fee shall be collected based on area occupied for every unit
already sold or being amortized.
b) High-rise apartment units Owners of high-rise apartment units shall

pay the annual garbage fee on the total lot size of the entire apartment
and an additional garbage fee based on the schedule prescribed herein
for every unit occupied.
For the purpose of garbage collection, there is, in fact, no substantial distinction between an occupant of a
lot, on one hand, and an occupant of a unit in a condominium, socialized housing project or apartment, on
the other hand. Most likely, garbage output produced by these types of occupants is uniform and does not
vary to a large degree; thus, a similar schedule of fee is both just and equitable.159 ChanRobles Vi rtualaw lib rary
The rates being charged by the ordinance are unjust and inequitable: a resident of a 200 sq. m. unit in a
condominium or socialized housing project has to pay twice the amount than a resident of a lot similar in
size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and less have to pay a fixed
rate of Php100.00; and the same amount of garbage fee is imposed regardless of whether the resident is
from a condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose of
promoting shared responsibility with the residents to attack their common mindless attitude in over-
consuming the present resources and in generating waste.160 Instead of simplistically categorizing the
payee into land or floor occupant of a lot or unit of a condominium, socialized housing project or apartment,
respondent City Council should have considered factors that could truly measure the amount of wastes
generated and the appropriate fee for its collection. Factors include, among others, household age and size,
accessibility to waste collection, population density of the barangay or district, capacity to pay, and actual
occupancy of the property. R.A. No. 9003 may also be looked into for guidance. Under said law, SWM
service fees may be computed based on minimum factors such as types of solid waste to include special
waste, amount/volume of waste, distance of the transfer station to the waste management facility, capacity
or type of LGU constituency, cost of construction, cost of management, and type of technology. With respect
to utility rates set by municipalities, a municipality has the right to classify consumers under reasonable
classifications based upon factors such as the cost of service, the purpose for which the service or the
product is received, the quantity or the amount received, the different character of the service furnished, the
time of its use or any other matter which presents a substantial difference as a ground of distinction.161 c ralawlawli bra ry
[A] lack of uniformity in the rate charged is not necessarily unlawful discrimination. The establishment of
classifications and the charging of different rates for the several classes is not unreasonable and does not
violate the requirements of equality and uniformity. Discrimination to be unlawful must draw an unfair line
or strike an unfair balance between those in like circumstances having equal rights and privileges.
Discrimination with respect to rates charged does not vitiate unless it is arbitrary and without a reasonable
fact basis or justification.162
On top of an unreasonable classification, the penalty clause of Ordinance No. SP-2235, which states:
SECTION 3. Penalty Clause A penalty of 25% of the garbage fee due plus an interest of 2% per month or a
fraction thereof (interest) shall be charged against a household owner who refuses to pay the garbage fee
herein imposed.
lacks the limitation required by Section 168 of the LGC, which provides:
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. Thesanggunian may impose a
surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges not paid on time and an
interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no case shall the total interest on the
unpaid amount or portion thereof exceed thirty-six (36) months. (Emphasis supplied)
Finally, on the issue of publication of the two challenged ordinances.
Petitioner argues that the garbage fee was collected even if the required publication of its approval had not
yet elapsed. He notes that he paid his realty tax on January 7, 2014 which already included the garbage fee.
Respondents counter that if the law provides for its own effectivity, publication in the Official Gazette is not
necessary so long as it is not penal in nature. Allegedly, Ordinance No. SP-2095 took effect after its
publication while Ordinance No. SP-2235 became effective after its approval on December 26, 2013.
The pertinent provisions of the LGC state:

SECTION 59. Effectivity of Ordinances or Resolutions. (a) Unless otherwise stated in the ordinance or
the resolution approving the local development plan and public investment program, the same shall take
effect after ten (10) days from the date a copy thereof is posted in a bulletin board at the entrance of
the provincial capitol or city, municipal, or barangay hall, as the case may be, and in at least two (2) other
conspicuous places in the local government unit concerned.
(b) The secretary to the sanggunian concerned shall cause the posting of an ordinance or resolution in the
bulletin board at the entrance of the provincial capitol and the city, municipal, or barangay hall in at least
two (2) conspicuous places in the local government unit concerned not later than five (5) days after
approval thereof.
The text of the ordinance or resolution shall be disseminated and posted in Filipino or English and in the
language or dialect understood by the majority of the people in the local government unit concerned, and
the secretary to the sanggunian shall record such fact in a book kept for the purpose, stating the dates of
approval and posting.
(c) The gist of all ordinances with penal sanctions shall be published in a newspaper of general circulation
within the province where the local legislative body concerned belongs. In the absence of any newspaper of
general circulation within the province, posting of such ordinances shall be made in all municipalities and
cities of the province where the sanggunian of origin is situated.
(d) In the case of highly urbanized and independent component cities, the main features of the ordinance or
resolution duly enacted or adopted shall, in addition to being posted, be published once in a local
newspaper of general circulation within the city: Provided, That in the absence thereof the
ordinance or resolution shall be published in any newspaper of general circulation.
SECTION 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their
approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper of local circulation:
Provided, however, That in provinces, cities and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.
(Emphasis supplied)
On October 17, 2011, respondent Quezon City Council enacted Ordinance No. SP-2095, which provides that
it would take effect after its publication in a newspaper of general circulation.163 On the other hand,
Ordinance No. SP-2235, which was passed by the City Council on December 16, 2013, provides that it would
be effective upon its approval.164 Ten (10) days after its enactment, or on December 26, 2013, respondent
City Mayor approved the same.165 ChanRobles Vi rtua lawlib rary
The case records are bereft of any evidence to prove petitioners negative allegation that respondents did
not comply with the posting and publication requirements of the law. Thus, We are constrained not to give
credit to his unsupported claim.
WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality and legality of Ordinance No.
SP-2095, S-2011, or the Socialized Housing Tax of Quezon City, is SUSTAINED for being consistent with
Section 43 of Republic Act No. 7279. On the other hand, Ordinance No. SP-2235, S-2013, which collects an
annual garbage fee on all domestic households in Quezon City, is hereby declared as UNCONSTITUTIONAL
AND ILLEGAL. Respondents are DIRECTED to REFUND with reasonable dispatch the sums of money
collected relative to its enforcement.
The temporary restraining order issued by the Court on February 5, 2014 is LIFTED with respect to
Ordinance No. SP-2095. In contrast, respondents are PERMANENTLY ENJOINED from taking any further
action to enforce Ordinance No. SP. 2235.
SO ORDERED. cralawlawlibra ry
COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE

PORT OF SUBIC vs. HYPERMIX FEEDS CORPORATION
DECISION
SERENO, J.:
Before us is a Petition for Review under Rule 45, [1] assailing the
Decision[2] and the Resolution[3] of the Court of Appeals (CA), which nullified the
Customs Memorandum Order (CMO) No. 27-2003[4] on the tariff classification of
wheat issued by petitioner Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-
2003. Under the Memorandum, for tariff purposes, wheat was classified according
to the following: (1) importer or consignee; (2) country of origin; and (3) port of
discharge.[5] The regulation provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. Depending on these
factors, wheat would be classified either as food grade or feed grade. The
corresponding tariff for food grade wheat was 3%, for feed grade, 7%.
CMO 27-2003 further provided for the proper procedure for protest or
Valuation and Classification Review Committee (VCRC) cases. Under this
procedure, the release of the articles that were the subject of protest required the
importer to post a cash bond to cover the tariff differential.[6]
A month after the issuance of CMO 27-2003, on 19 December 2003,
respondent filed a Petition for Declaratory Relief[7] with the Regional Trial Court
(RTC) of Las Pias City. It anticipated the implementation of the regulation on its
imported and perishable Chinese milling wheat in transit from China.[8] Respondent
contended that CMO 27-2003 was issued without following the mandate of the
Revised Administrative Code on public participation, prior notice, and publication
or registration with the University of the Philippines Law Center.
Respondent also alleged that the regulation summarily adjudged it to be a feed
grade supplier without the benefit of prior assessment and examination; thus, despite
having imported food grade wheat, it would be subjected to the 7% tariff upon the
arrival of the shipment, forcing them to pay 133% more than was proper.
Furthermore, respondent claimed that the equal protection clause of the
Constitution was violated when the regulation treated non-flour millers differently
from flour millers for no reason at all.
Lastly, respondent asserted that the retroactive application of the regulation
was confiscatory in nature.
On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO)
effective for twenty (20) days from notice.[9]
Petitioners thereafter filed a Motion to Dismiss. [10] They alleged that: (1) the
RTC did not have jurisdiction over the subject matter of the case, because respondent
was asking for a judicial determination of the classification of wheat; (2) an action
for declaratory relief was improper; (3) CMO 27-2003 was an internal administrative
rule and not legislative in nature; and (4) the claims of respondent were speculative
and premature, because the Bureau of Customs (BOC) had yet to examine
respondents products. They likewise opposed the application for a writ of
preliminary injunction on the ground that they had not inflicted any injury through
the issuance of the regulation; and that the action would be contrary to the rule that
administrative issuances are assumed valid until declared otherwise.
On 28 February 2005, the parties agreed that the matters raised in the
application for preliminary injunction and the Motion to Dismiss would just be
resolved together in the main case. Thus, on 10 March 2005, the RTC rendered its
Decision[11] without having to resolve the application for preliminary injunction and
the Motion to Dismiss.
The trial court ruled in favor of respondent, to wit:
WHEREFORE, in view of the foregoing, the Petition is GRANTED and
the subject Customs Memorandum Order 27-2003 is declared INVALID and OF
NO FORCE AND EFFECT. Respondents Commissioner of Customs, the District
Collector of Subic or anyone acting in their behalf are to immediately cease and
desist from enforcing the said Customs Memorandum Order 27-2003.
SO ORDERED.[12]
The RTC held that it had jurisdiction over the subject matter, given that the
issue raised by respondent concerned the quasi-legislative powers of petitioners. It
likewise stated that a petition for declaratory relief was the proper remedy, and that
respondent was the proper party to file it. The court considered that respondent was
a regular importer, and that the latter would be subjected to the application of the
regulation in future transactions.
With regard to the validity of the regulation, the trial court found that
petitioners had not followed the basic requirements of hearing and publication in the
issuance of CMO 27-2003. It likewise held that petitioners had substituted the quasi-
judicial determination of the commodity by a quasi-legislative
predetermination.[13] The lower court pointed out that a classification based on
importers and ports of discharge were violative of the due process rights of
respondent.
Dissatisfied with the Decision of the lower court, petitioners appealed to the
CA, raising the same allegations in defense of CMO 27-2003.[14] The appellate court,
however, dismissed the appeal. It held that, since the regulation affected substantial
rights of petitioners and other importers, petitioners should have observed the
requirements of notice, hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for the consideration of this Court:
I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE
WHICH IS NOT IN ACCORD WITH THE LAW AND PREVAILING
JURISPRUDENCE.
II. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT
THE TRIAL COURT HAS JURISDICTION OVER THE CASE.
The Petition has no merit.

We shall first discuss the propriety of an action for declaratory relief.
Rule 63, Section 1 provides:
Who may file petition. Any person interested under a deed, will, contract or
other written instrument, or whose rights are affected by a statute, executive order
or regulation, ordinance, or any other governmental regulation may, before breach
or violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of
his rights or duties, thereunder.
The requirements of an action for declaratory relief are as follows: (1) there
must be a justiciable controversy; (2) the controversy must be between persons
whose interests are adverse; (3) the party seeking declaratory relief must have a legal
interest in the controversy; and (4) the issue involved must be ripe for judicial
determination.[15] We find that the Petition filed by respondent before the lower court
meets these requirements.
First, the subject of the controversy is the constitutionality of CMO 27-2003
issued by petitioner Commissioner of Customs. In Smart Communications v.
NTC,[16] we held:
The determination of whether a specific rule or set of rules issued by an

administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. This is within the scope of
judicial power, which includes the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments. Judicial
power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphasis supplied)
Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v.

Department of Finance Secretary,[17] we said:
xxx [A] legislative rule is in the nature of subordinate legislation, designed
to implement a primary legislation by providing the details thereof. xxx
In addition such rule must be published. On the other hand, interpretative

rules are designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to make
three inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii)whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute its
judgment as to the desirability or wisdom of the rule for the legislative body, by its
delegation of administrative judgment, has committed those questions to
administrative judgments and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but into the correctness or
propriety of the rule. As a matter of power a court, when confronted with an
interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the
opposite extreme and substitute its judgment; or (iii) give some intermediate degree
of authoritative weight to the interpretative rule. (Emphasis supplied)
Second, the controversy is between two parties that have adverse interests.
Petitioners are summarily imposing a tariff rate that respondent is refusing to pay.
Third, it is clear that respondent has a legal and substantive interest in the
implementation of CMO 27-2003. Respondent has adequately shown that, as a
regular importer of wheat, on 14 August 2003, it has actually made shipments of
wheat from China to Subic. The shipment was set to arrive in December 2003. Upon
its arrival, it would be subjected to the conditions of CMO 27-2003. The regulation
calls for the imposition of different tariff rates, depending on the factors enumerated
therein. Thus, respondent alleged that it would be made to pay the 7% tariff applied
to feed grade wheat, instead of the 3% tariff on food grade wheat. In addition,
respondent would have to go through the procedure under CMO 27-2003, which
would undoubtedly toll its time and resources. The lower court correctly pointed out
as follows:
xxx As noted above, the fact that petitioner is precisely into the business of
importing wheat, each and every importation will be subjected to constant
disputes which will result into (sic) delays in the delivery, setting aside of funds
as cash bond required in the CMO as well as the resulting expenses thereof. It
is easy to see that business uncertainty will be a constant occurrence for
petitioner. That the sums involved are not minimal is shown by the discussions
during the hearings conducted as well as in the pleadings filed. It may be that
the petitioner can later on get a refund but such has been foreclosed because the
Collector of Customs and the Commissioner of Customs are bound by their own
CMO. Petitioner cannot get its refund with the said agency. We believe and so find
that Petitioner has presented such a stake in the outcome of this controversy as to
vest it with standing to file this petition.[18] (Emphasis supplied)
Finally, the issue raised by respondent is ripe for judicial determination,

because litigation is inevitable[19] for the simple and uncontroverted reason that
respondent is not included in the enumeration of flour millers classified as food grade
wheat importers. Thus, as the trial court stated, it would have to file a protest case
each time it imports food grade wheat and be subjected to the 7% tariff.
It is therefore clear that a petition for declaratory relief is the right remedy
given the circumstances of the case.
Considering that the questioned regulation would affect the substantive rights
of respondent as explained above, it therefore follows that petitioners should have
applied the pertinent provisions of Book VII, Chapter 2 of the Revised
Administrative Code, to wit:
Section 3. Filing. (1) Every agency shall file with the University of the
Philippines Law Center three (3) certified copies of every rule adopted by it. Rules
in force on the date of effectivity of this Code which are not filed within three (3)
months from that date shall not thereafter be the bases of any sanction against any
party of persons.
xxx xxx xxx
Section 9. Public Participation. - (1) If not otherwise required by

law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their
views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless
the proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be
observed.
When an administrative rule is merely interpretative in nature, its applicability

needs nothing further than its bare issuance, for it gives no real consequence more
than what the law itself has already prescribed. When, on the other hand, the
administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation of the law but substantially increases
the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that
new issuance is given the force and effect of law.[20]
Likewise, in Taada v. Tuvera,[21] we held:
The clear object of the above-quoted provision is to give the general
public adequate notice of the various laws which are to regulate their actions
and conduct as citizens.Without such notice and publication, there would be no
basis for the application of the maxim ignorantia legis non excusat. It would be
the height of injustice to punish or otherwise burden a citizen for the
transgression of a law of which he had no notice whatsoever, not even a
constructive one.
Perhaps at no time since the establishment of the Philippine Republic has

the publication of laws taken so vital significance that at this time when the people
have bestowed upon the President a power heretofore enjoyed solely by the
legislature. While the people are kept abreast by the mass media of the debates and
deliberations in the Batasan Pambansa and for the diligent ones, ready access to
the legislative records no such publicity accompanies the law-making process of
the President. Thus, without publication, the people have no means of knowing
what presidential decrees have actually been promulgated, much less a definite
way of informing themselves of the specific contents and texts of such decrees.
(Emphasis supplied)
Because petitioners failed to follow the requirements enumerated by the

Revised Administrative Code, the assailed regulation must be struck down.
Going now to the content of CMO 27-3003, we likewise hold that it is
unconstitutional for being violative of the equal protection clause of the Constitution.
The equal protection clause means that no person or class of persons shall be
deprived of the same protection of laws enjoyed by other persons or other classes in
the same place in like circumstances. Thus, the guarantee of the equal protection of
laws is not violated if there is a reasonable classification. For a classification to be
reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it is not limited to existing conditions only;
and (4) it applies equally to all members of the same class.[22]
Unfortunately, CMO 27-2003 does not meet these requirements. We do not
see how the quality of wheat is affected by who imports it, where it is discharged, or
which country it came from.
Thus, on the one hand, even if other millers excluded from CMO 27-2003
have imported food grade wheat, the product would still be declared as feed grade
wheat, a classification subjecting them to 7% tariff. On the other hand, even if the
importers listed under CMO 27-2003 have imported feed grade wheat, they would
only be made to pay 3% tariff, thus depriving the state of the taxes due. The
regulation, therefore, does not become disadvantageous to respondent only, but even
to the state.
It is also not clear how the regulation intends to monitor more closely wheat
importations and thus prevent their misclassification. A careful study of CMO 27-
2003 shows that it not only fails to achieve this end, but results in the opposite. The
application of the regulation forecloses the possibility that other corporations that
are excluded from the list import food grade wheat; at the same time, it creates an
assumption that those who meet the criteria do not import feed grade wheat. In the
first case, importers are unnecessarily burdened to prove the classification of their
wheat imports; while in the second, the state carries that burden.
Petitioner Commissioner of Customs also went beyond his powers when the
regulation limited the customs officers duties mandated by Section 1403 of the Tariff
and Customs Law, as amended. The law provides:
Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and
Appraise Imported Articles. The customs officer tasked to examine, classify, and
appraise imported articlesshall determine whether the packages designated for
examination and their contents are in accordance with the declaration in the
entry, invoice and other pertinent documents and shall make return in such a
manner as to indicate whether the articles have been truly and correctly
declared in the entry as regard their quantity, measurement, weight, and tariff
classification and not imported contrary to law. He shall submit samples to the
laboratory for analysis when feasible to do so and when such analysis is necessary
for the proper classification, appraisal, and/or admission into the Philippines of
imported articles.
Likewise, the customs officer shall determine the unit of quantity in
which they are usually bought and sold, and appraise the imported articles in
accordance with Section 201 of this Code.
Failure on the part of the customs officer to comply with his duties shall
subject him to the penalties prescribed under Section 3604 of this Code.
The provision mandates that the customs officer must first assess and determine the
classification of the imported article before tariff may be imposed. Unfortunately,
CMO 23-2007 has already classified the article even before the customs officer had
the chance to examine it. In effect, petitioner Commissioner of Customs diminished
the powers granted by the Tariff and Customs Code with regard to wheat importation
when it no longer required the customs officers prior examination and assessment
of the proper classification of the wheat.
It is well-settled that rules and regulations, which are the product of a
delegated power to create new and additional legal provisions that have the effect of
law, should be within the scope of the statutory authority granted by the legislature
to the administrative agency. It is required that the regulation be germane to the
objects and purposes of the law; and that it be not in contradiction to, but in
conformity with, the standards prescribed by law.[23]
In summary, petitioners violated respondents right to due process in the
issuance of CMO 27-2003 when they failed to observe the requirements under the
Revised Administrative Code. Petitioners likewise violated respondents right to
equal protection of laws when they provided for an unreasonable classification in
the application of the regulation. Finally, petitioner Commissioner of Customs went
beyond his powers of delegated authority when the regulation limited the powers of
the customs officer to examine and assess imported articles.
WHEREFORE, in view of the foregoing, the Petition is DENIED.
SO ORDERED.
LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, v. COURT OF APPEALS AND COMMISSIONER
OF INTERNAL REVENUE, Respondents.
G.R. Nos. 136328-29
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. FORTUNE TOBACCO

CORPORATION,Respondent.
[G.R. No. 144942]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LA SUERTE CIGAR & CIGARETTE

FACTORY, Respondent.
[G.R. No. 148605]
STERLING TOBACCO CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE,Respondent.
[G.R. No. 158197]
LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.
[G.R. No. 165499]
LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.
DECISION
LEONEN, J.:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased by cigarette
manufacturers for use as raw material in the manufacture of their cigarettes. Under the National Internal
Revenue Code of 1997 (1997 NIRC), before it was amended on December 19, 2012 through Republic Act
No. 103511 (Sin Tax Law), stemmed leaf tobacco is subject to an excise tax of P0.75 for each kilogram
thereof.2 The 1997 NIRC further provides that stemmed leaf tobacco leaf tobacco which has had the
stem or midrib removed3 may be sold in bulk as raw material by one manufacturer directly to another
without payment of the tax, under such conditions as may be prescribed in the rules and regulations
prescribed by the Secretary of Finance.4 chanrobleslaw
This is a consolidation of six petitions for review of several decisions of the Court of Appeals, involving three
cigarette manufacturers and the Commissioner of Internal Revenue. G.R. No. 125346 is an appeal5 from
the Court of Appeals (Sixth Division) that reversed6 the Court of Tax Appeals decision7 and held petitioner
La Suerte Cigar & Cigarette Factory (La Suerte) liable for deficiency specific tax on its purchase of imported
and locally produced stemmed leaf tobacco and sale of stemmed leaf tobacco to Associated Anglo-American
Tobacco Corporation (AATC) during the period from January 1, 1986 to June 30, 1989. G.R. Nos. 136328
29 is an appeal8 by the Commissioner of Internal Revenue (Commissioner) from the decision9 of the Court
of Appeals that affirmed the Court of Tax Appeals rulings10 that Fortune Tobacco Corporation (Fortune) was
not obliged to pay the excise tax on its importations of stemmed leaf tobacco for the periods from January
1, 1986 to June 30, 1989 and July 1, 1989 to November 30, 1990. In G.R. No. 148605, Sterling Tobacco
Corporation (Sterling) appeals11 the decision12 of the Court of Appeals that reversed the Court of Tax
Appeals decision13 and held it liable to pay deficiency excise taxes on its importation and local purchases of
stemmed leaf tobacco from November 1986 to June 24, 1989.G.R. No. 144942 is an appeal14 from the
Court of Appeals decision15 that affirmed the Court of Tax Appeals decision16 and ordered the refund of
specific taxes paid by La Suerte on its importation of stemmed leaf tobacco in April 1995. In G.R. No.
158197, La Suerte sought to appeal17 the decision18 of the Court of Appeals holding it liable for deficiency
specific tax on its local and imported purchases of stemmed leaf tobacco and those it sold for the period
from June 21, 1989 to November 20, 1990. Finally, in G.R. No. 165499, La Suerte again sought to appeal
by certiorari19 the decision20 of the Court of Appeals reversing the Court of Tax Appeals and holding it liable
for deficiency specific tax on its importation of stemmed leaf tobacco in March 1995. chanrobl eslaw
Factual background
Overview of cigarette manufacturing
The primary component of cigarettes is tobacco, a processed product derived from the leaves of the plants
in the genus Nicotiana.21 Most cigarettes contain a mixture or blend of several types of tobacco from a
variety of sources.
The tobacco types grown in the Philippines are: Virginia (or flue-cured),22 which accounts for 59.35% of
tobacco production, Burley (or bright air-cured),23 which makes up 22.21%, and theNative (or dark
air-cured),24 which makes up the remaining 18.44%.25 [T]he native type is normally categorized into
three: cigar filler type, wrapper type and chewing type, or . . . Batek tobacco.26 Virginia and Burley,
considered as the aromatic type, are intended for cigarette manufacturing.
Growing and harvesting
Tobacco seeds undergo a process of germination, which takes about 7 to 10 days, depending on the
tobacco varieties. . . . The tobacco seedlings are then sown in cold frames or hotbeds to prevent attacks
from insects, and then transplanted into the fields27 after 45 to 65 days.28 chanrob leslaw
Harvesting begins 55 to 60 days after transplanting.29 A farmer carries out either priming (leaf by leaf)
or stalk harvesting (by the whole plant).30 chan roble slaw
Curing
After harvest, tobacco is stored for curing, which allows for the slow oxidation and degradation of
carotenoids. This allows for the leaves to take on properties that are usually attributed to the smoothness
of the smoke.31chanrobles law
Curing methods vary with the type of tobacco grown. The tobacco barn design varies accordingly.32There
are two main ways of curing tobacco in the Philippine setting:
1) Air-curing (for Burley and Native tobacco) is carried out by hanging the
tobacco in well-ventilated barns, where the tobacco is allowed to dry
over a period of 4 to 8 weeks. Air-cured tobacco is generally low in sugar
content, which gives the tobacco smoke a light, smooth, semi-sweet
flavor. These tobacco leaves usually have a high nicotine
content[;]33 and
2) Flue-curing (for Virginia tobacco) process starts by the sticking of

tobacco leaves, which are then hung from tier-poles in curing barns. The
procedure will generally take about a week. Flue-cured tobacco generally
produces cigarette tobacco, which usually has a high content of sugar,
with medium to high levels of nicotine.34
Once cured, the leaves are sorted into grades based on size, color, and quality, and packed in standard
bales.35 The bales are then moved to accredited trading centers where they are purchased by leaf buyers
such as wholesale tobacco dealers and exporters or cigarette manufacturing companies.36 chan rob leslaw
Redrying and aging
After purchase, leaf tobacco is re-dried and then added with moisture to make the tobacco pliable enough to
remove its large stems.37 The leaves are stripped or de-stemmed, either by hand or machine, cleaned and
compressed into boxes or porous wooden vats called hogsheads, and aged.38Thereafter, the leaves are
either exported or used for the manufacture of cigarettes, cigars, and other tobacco products.
Primary processing39 chanrob leslaw
In the cigarette factory, the tobacco leaves undergo a conditioning process where high temperatures and
humidity restore moisture to suitable levels for cutting and blending tobacco and completing the cigarette-
making process.40 chanrob leslaw
[T]obaccos are precisely cut and blended according to . . . formulas, or recipes, to produce tobaccos for
various brands of cigarettes. These brand recipes include ingredients and flavors that are added to the
tobacco to give each brand its unique characteristics.41
chanrobl eslaw
Cigarette making and packing42 chanrobles law
The blended tobacco often referred to as filler or cut-filler . . . is delivered by a pneumatic feed
system to cigarette making machines . . . within the factory.43 The machine disperses the shredded tobacco
over a continuous roll of cigarette paper and cuts the paper to the desired length. The completed cigarettes
are subsequently packed, sealed, and placed in cartons.
Cigarette manufacturers
La Suerte Cigar & Cigarette Factory (La Suerte),44 Fortune Tobacco Corporation (Fortune),45 and Sterling
Tobacco Corporation (Sterling)46 are domestic corporations engaged in the production and manufacture of
cigars and cigarettes. These companies import leaf tobacco from foreign sources and purchase locally
produced leaf tobacco to be used in the manufacture of cigars and cigarettes.47chanro bles law
The transactions of these cigarette manufacturers pertinent to these consolidated cases are the following:
1. La Suertes local purchases, importations, and sale of stemmed leaf tobacco from January 1, 1986
to June 30, 1989 (G.R. No. 125346), and from June 1989 to November 1990 (G.R. No. 158197),
and importations in March 1995 (G.R. No. 165499) and April 1995 (G.R. No. 144942);
2. Fortunes importation of tobacco strips from January 1, 1986 to June 30, 1989, and from July 1,
1989 to November 30, 1990 (G.R. Nos. 13632829); and
3. Sterlings importations and local purchases of stemmed leaf tobacco from November 1986 to June
24, 1989 (G.R. No. 148605).
History of applicable tax provisions
The first tax code came into existence in 1939 with the enactment of Commonwealth Act No. 46648(1939
Code). Section 136 of the 1939 Code imposed specific (excise) taxes on manufactured products of tobacco,
but excluded cigars and cigarettes, which were subject to tax under a different section.49 Section 136
provided thus:
SECTION 136. Specific Tax on Products of Tobacco. On manufactured products of tobacco, except cigars,
cigarettes, and tobacco specially prepared for chewing so as to be unsuitable for consumption in any other
manner, but including all other tobacco twisted by hand or reduced into a condition to be consumed in any
manner other than by the ordinary mode of drying and curing; and on all tobacco prepared or partially
prepared for sale or consumption, even if prepared without the use of any machine or instrument and
without being pressed or sweetened; and on all fine-cut shorts and refuse, scraps, clippings, cuttings, and
sweepings of tobacco, there shall be collected on each kilogram, sixty centavos.
On tobacco specially prepared for chewing so as to be unsuitable for use in any other manner, on each
kilogram, forty-eight centavos. (Emphasis supplied)
Section 132 of the 1939 Code, however, by way of exception, provided that stemmed leaf tobacco . . . may
be sold in bulk as raw material by one manufacturer directly to another, under such conditions as may be
prescribed in the regulations of the Department of Finance, without the prepayment of the tax. Section 132
stated:
SECTION 132. Removal of Tobacco Products Without Pre-payment of Tax. Products of tobacco entirely
unfit for chewing or smoking may be removed free of tax for agricultural or industrial use, under such
conditions as may be prescribed in the regulations of the Department of Finance; and stemmed leaf tobacco,
fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings and sweepings of
tobacco may be sold in bulk as raw material by one manufacturer directly to another, under such
conditions as may be prescribed in the regulations of the Department of Finance, without the pre-
payment of the tax.
"Stemmed leaf tobacco," as herein used means leaf tobacco which has had the stem or midrib removed. The
term does not include broken leaf tobacco. (Emphasis supplied)
On September 29, 1954, upon the recommendation of then Acting Collector of Internal Revenue J. Antonio
Araneta, the Department of Finance promulgated Revenue Regulations No. V-39 (RR No. V-39), or The
Tobacco Products Regulations, relative to the enforcement of the provisions of Title IV of the [1939 Tax
Code] in so far as they affect the manufacture or importation of, and the collection and payment of the
specific tax on, manufactured tobacco or products of tobacco.50 Section 20(a) of RR No. V-39, which lays
the rules for tax exemption on tobacco products, states:
SECTION 20. Exemption from tax of tobacco products intended for agricultural or industrial
purposes. (a) Sale of stemmed leaf tobacco, etc., by one factory to another. Subject to the
limitations herein established, products of tobacco entirely unfit for chewing or smoking may be removed
free of tax for agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut
chewing tobacco, refuse, scraps, cuttings, clippings, and sweepings of tobacco may be sold in bulk as raw
materials by one manufacturer directly to another without the prepayment of specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings,
and sweeping of leaf tobacco or partially manufactured tobacco or other refuse of tobacco may be
transferred from one factory to another under an official L-7 invoice on which shall be entered the exact
weight of the tobacco at the time of its removal, and entry shall be made in the L-7 register in the place
provided on the page of removals. Corresponding debit entry will be made in the L-7 register book of the
factory receiving the tobacco under heading Refuse, etc., received from other factory, showing the date of
receipt, assessment and invoice numbers, name and address of the consignor, form in which received, and
the weight of the tobacco. This paragraph should not, however, be construed to permit the transfer of
materials unsuitable for the manufacture of tobacco products from one factory to another. (Emphasis
supplied)
Sections 10 and 11 of RR No. V-39 enumerate and describe the record books to be kept and used by
manufacturers of tobacco products, viz:
SECTION 10. (a) Register, auxiliary, and stamps requisition books for manufacturers. The
Collector of Internal Revenue shall from time to time supply provincial revenue agents or the Chief of the
Tobacco Tax Section with the necessary number of manufacturers official register books and official auxiliary
register books as may be required in each locality by manufacturers of tobacco products. Whenever any
manufacturer shall have qualified himself as such by executing a proper bond, registering his factory, and
paying the privilege tax and shall have complied with all the requirements of engaging in such business
contained in the National Internal Revenue Code and in these regulations, the internal revenue agent within
whose district the factory is located shall deliver to said manufacturer the necessary official register books
and auxiliary register books. These books consist of the following: chan roble svirtual lawlib rary
B.I.R. No. 31.09Official Register Book, A-3 for manufacturers of chewing and smoking tobacco.
B.I.R. No. 31.10Manufactured tobacco (Transcript sheet of above).
B.I.R. No. 31.18Official Register Book, A-4, for manufacturers of cigar.
B.I.R. No. 31.19(Transcript sheet of the above).
B.I.R. No. 31.27Official Register Book, A-5, for Manufacturers of cigarettes.
B.I.R. No. 31.28(Transcript sheet of above).
B.I.R. No. 31.01Official Register Book, L-7, record of raw materials for manufacturers of any class of
tobacco products.
B.I.R. No. 31.02(Transcript sheet of above)[.]
B.I.R. No. 31.46Auxiliary Register Book, L-7-1/2, bale book, for manufacturers of any class of tobacco
products.
B.I.R. No. 31.47(Transcript sheet of above).
B.I.R. No. 31.12Stamp requisition book, for manufacturers of manufactured tobacco.
B.I.R. No. 31.21Stamp requisition book, for manufacturers of cigars.
B.I.R. No. 31.30Stamp requisition book, for manufacturers of cigarettes.
B.I.R. No. 31.05L-7 Official Invoice Book for, use in connection with L-7 register book.
B.I.R. No. 31.05L-7-1/2 Official Invoice Book, for use in connection with L-7-1/2 bale book.
(b) General nature of official register and auxiliary register books. The L-7 official register book is
the record of all raw materials used in the manufacture of tobacco products of all description in the
factory. It is the primary record of the internal operations of the factory. It shows the raw materials used in
the manufacture and the articles actually manufactured or produced. The Schedule A register books are the
record of the articles actually manufactured or produced, and transferred from the credit side of the official
register book, L-7. They show the amount of taxes paid and the name of the person to whom the finished
products is consigned or sold when leaving the factory. The bale book[,] L-7-1/2, is an auxiliary to the L-7
official register book.
All official register books and other official records herein required of manufacturers shall be kept in the
factory premises, or in the factory warehouse, in the case of bale books, and open to inspection by any
internal revenue officer at all times of the day or night.
....
SECTION 11. Entries to be made in the official register and auxiliary register books; monthly
transcripts. (a) Official bale book (L-7-1/2). All leaf tobacco received in any factory or factory warehouse
shall be debited, and any removal of tobacco from the factory shall be credited in the official bale book;
except cuttings, clippings, sweepings, and other partially manufactured tobacco, which shall be credited in
the L-7 register book.
The Collector of Internal Revenue may in his discretion waive the requirements of keeping an official bale
book by small factories.
(b) The Official Register Book (L-7). One L-7 books shall suffice for each manufacturer of tobacco
products, regardless of the classes of tobacco manufactured by him. All loose leaf tobacco received in the
factory proper and all bales of leaf tobacco which are opened in the factory for use in the manufacture of
tobacco products shall be entered in the L-7 official register book under the heading Received from Dealers
at the net weights. In the column headed Name[] and Address shall be shown the words Transferred
from tobacco factory warehouse. All leaf tobacco received into a factory must be entered in the official bale
book pertaining to the factory and bales of leaf tobacco shall not be taken up in the L-7 register book until
said bales are transferred for use and credited in the official bale book. While leaf tobacco must be taken in
the official bale book, this is done for statistical purposes only. As soon as it enters the factory for use in
manufacture it should be taken up in the L-7 register book and credited in the official bale book.
All removals of waste of tobacco, whether transferred to other factories, removed for agricultural or
industrial purposes, or destroyed on the premises or elsewhere, shall be entered in the official register book,
L-7, under the heading Raw Materials Removed, showing all information required therein. (Emphasis
supplied)
Section 2 of RR No. V-39 broadly defined manufactured products of tobacco and manufacturer of tobacco
products as follows:
Section 2. Definition of terms. When used in there [sic] regulations, the following terms shall be given
the interpretations indicated in their respective definitions given below, except where the context indicates
otherwise:cha nro blesvi rtua llawli bra ry
(a) Manufactured products of tobacco shall include cigars, cigarettes, smoking tobacco, chewing, snuff,
and all other forms of manufactured and partially manufactured tobacco, as defined in section 194 (M)51 of
the National Internal Revenue Code.
(b) Manufacturer of tobacco products shall include all persons engaged in the manufacture of any of the
forms of tobacco mentioned in the next preceding paragraph.
In 1967, the Secretary of Finance promulgated Revenue Regulations No. 17-67 (RR No. 17-67), as
amended,52 or the Tobacco Revenue Regulations on Leaf, Scrap, Other Partially Manufactured Tobacco and
Other Tobacco Products; Grading, Classification, Inspection, Shipments, Exportation, Importation and the
Manufacturers thereof under the provisions of Act No. 2613, as amended. Section 2(i) of RR No. 17-67
defined a manufacturer of tobacco and included in the definition one who prepares partially manufactured
tobacco. Section 2(m) defined partially manufactured tobacco as including stemmed leaf tobacco. Thus,
Sections 2(i) and (m) read:
(i) "Manufacturer of tobacco" Includes every person whose business it is
to manufacture tobacco o[r] snuff or who employs others to manufacture
tobacco or snuff, whether such manufacture be by cutting, pressing (not
baling), grinding, or rubbing (grating) any raw or leaf tobacco, or
otherwise preparing raw or leaf tobacco, or manufactured or partially
manufactured tobacco and snuff, or putting up for consumption scraps,
refuse, or stems of tobacco resulting from any process of handling
tobacco stems, scraps, clippings, or waste by sifting, twisting, screening
or by any other process.
....
(m) Partially manufactured tobacco Includes:
(1) Stemmed leaf handstripped tobacco, clean, good, partially broken

leaf only, free from mold and dust.
(2) Long-filler handstripped tobacco of good, long pieces of broken leaf

usable as filler for cigars without further preparation, and free from
mold, dust stems and cigar cuttings.
(3) Short-filler handstripped or machine-stripped tobacco, clean, good,

short pieces of broken leaf, which will not pass through a screen of two
inches (2") mesh.
(4) Cigar-cuttings clean cuttings or clippings from cigars, unsized with

any other form of tobacco.
(5) Machine-scrap tobacco machine-threshed, clean, good tobacco, not

included in any of the above terms, usable in the manufacture of tobacco
products.
(6) Stems midribs of leaf tobacco removed from the whole leaf or
broken leaf either by hand or machine.
(7) Waste tobacco denatured tobacco; powder or dust, refuse, unfit for
human consumption; discarded materials in the manufacture of tobacco
products, which may include stems.
Section 3 of RR No. 17-67 classified entities that dealt with tobacco according to the type of permit that the
Bureau of Internal Revenue issued to each entity. Under this classification, wholesale leaf tobacco dealers
were considered L-3 permittees. Those (referring to wholesale leaf tobacco dealers) that reprocess partially
manufactured tobacco for export, for themselves, and/or for other L-6 or L-7 permittees were considered L-
6 permittees. Manufacturers of tobacco products such as cigarette manufacturers were considered L-7
permittees. Section 3 of RR No. 17-67 reads:
(a) L-3 Wholesale leaf tobacco dealer.
(b) L-3F Wholesale leaf tobacco dealer. Issued only in favor of Farmer's
Cooperative Marketing Association (FaCoMas) duly organized in
accordance with law. [This function relative to tobacco trading was
transferred to the Philippine Virginia Tobacco Administration (PVTA)
under Section 15 of Republic Act No. 2265].
(c) L-3R Wholesale leaf tobacco dealers. Issued only in favor of persons
or entities having fully equipped Redrying Plants.
(d) L-3- Buyers for wholesale leaf tobacco dealers.
(e) L-4 Wholesale leaf tobacco dealers. Issued only in favor of persons or
entities having flue-curing barns, who may purchase or receive green
Virginia leaf tobacco from bona fide tobacco planters only, or handle
green leaf of their own production, which tobacco shall be sold or
transferred only to holders of L-3 and L-3R permits after flue-curing the
tobacco.
(f) L-5 Tobacco planters selling to consumers part or the whole of their
tobacco production.
(g) L-6 Wholesale leaf tobacco dealers who, exclusively for export, except
as otherwise provided for in these regulations, perform the following
functions:
(1) Handstripped and/or thresh whole leaf tobacco for themselves or for
other L-6 or L-7 permittees;
(2) Re-process partially manufactured tobacco for themselves, or for

other L-6 or L-7 permittees;
(3) Sell their partially manufactured tobacco to other L-6 permittees.
(h) L-7 Manufacturers of tobacco products. [L-7 designates an auxiliary

registered book (bale books), for manufacturers of tobacco products.]
(i) B-14 Wholesale leaf tobacco dealers (Privilege tax receipt)
(j) B-14 (a) Retail leaf tobacco dealers (Privilege tax receipt)
La Suerte contends that on December 12, 1972, then Internal Revenue Commissioner Misael P. Vera issued
a ruling which declared that:
. . . . The subsequent sale or transfer by the L-6/L-3R permittee for export or to an L-7-1/2 for use in the
manufacture of cigars or cigarettes may also be allowed without the prepayment of the specific tax.53
Almost 40 years from the enactment of the 1939 Tax Code, Presidential Decree No. 1158-A, otherwise
known as the National Internal Revenue Code of 1977, was promulgated on June 3, 1977, to consolidate
and integrate the various tax laws which have so far amended or repealed the provisions found in the 1939
Tax Code. Section 132 was renumbered as Section 144, and Section 136 as Section 148. Sections 144 and
148, read:
SEC. 144. Removal of tobacco products without prepayment of tax.Products of tobacco entirely unfit for
chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as
may be prescribed in the regulations of the Department of Finance, and stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cuts chewing tobacco, re-refuse, scraps, cuttings, clippings, stems or midribs, and
sweepings of tobacco may be sold in bulk as raw material by one manufacturer directly to another, under
such conditions as may be prescribed in the regulations of the Department of Finance, without the
prepayment of the tax.
Stemmed leaf tobacco, as herein used means leaf tobacco which has had the stem or midrib removed. The
term does not include broken leaf tobacco.
....
SEC. 148. Specific tax on products of tobacco.On manufactured products of tobacco, except cigars,
cigarettes, and tobacco specially prepared for chewing so as to be unsuitable for consumption in any other
manner, but including all other tobacco twisted by hand or reduced into a condition to be consumed in any
manner other than by the ordinary mode of drying and curing; and on all tobacco prepared or partially
prepared for sale or consumption, even if prepared without the use of any machine or instrument and
without being pressed or sweetened; and on all fine-cut shorts and refuse, scraps, clippings, cuttings,
stems, and sweepings of tobacco, there shall be collected on each kilogram, seventy-five
centavos: Provided, however, That fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco resulting from the handling, or stripping of whole leaf tobacco may be transferred,
disposed of, or otherwise sold, without prepayment of the specific tax herein provided for under such
conditions as may be prescribed in the regulations promulgated by the Secretary of Finance upon
recommendation of the Commissioner if the same are to be exported or to be used in the manufacture of
other tobacco products on which the specific tax will eventually be paid on the finished product.
kilogram, sixty centavos.
Sections 144 and 148 were subsequently renumbered as Sections 120 and 125 respectively under
Presidential Decree No. 1994,54 which took effect on January 1, 1986 (1986 Tax Code); then as Sections
137 and 141 under Executive Order No. 273;55 and finally as Sections 140 and 144 under Republic Act No.
8424 or the Tax Reform Act of 1997. However, the provisions remained basically unchanged.
The business transactions of La Suerte, Fortune, and Sterling that the Commissioner found to be taxable for
specific tax took place during the effectivity of the 1986 Tax Code, as amended by Executive Order No. 273.
The pertinent provisions are Sections 137 and 141, thus:
SEC. 137. Removal of tobacco products without prepayment of tax. Products of tobacco entirely unfit for
may be prescribed in the regulations of the Ministry of Finance. Stemmed leaf tobacco, fine-cut shorts, the
refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or midribs, and sweepings of tobacco
may be sold in bulk as raw material by one manufacturer directly to another, without payment of the tax
under such conditions as may be prescribed in the regulations of the Ministry of Finance.
Stemmed leaf tobacco,' as herein used, means leaf tobacco which has had the stem or midrib removed. The
term does not include broken leaf tobacco.
....
SEC. 141. Tobacco Products. There shall be collected a tax of seventy-five centavos on each kilogram of
the following products of tobacco:
(a) tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the
ordinary mode of drying and curing;
(b) tobacco prepared or partially prepared with or without the use of any machine or instruments or without
being pressed or sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco.
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco resulting from the
handling or stripping of whole leaf tobacco may be transferred, disposed of, or otherwise sold, without
prepayment of the specific tax herein provided for under such conditions as may be prescribed in the
regulations promulgated by the Ministry of Finance upon recommendation of the Commissioner, if the same
are to be exported or to be used in the manufacture of other tobacco products on which the excise tax will
eventually be paid on the finished product.
kilogram, sixty centavos.
Parenthetically, the present provisions explicitly state the following:
Stemmed leaf tobacco, tobacco prepared or partially prepared with or without the use of any machine or
instrument or without being pressed or sweetened, fine-cut shorts and refuse, scraps, clippings, cuttings,
stems, midribs, and sweepings of tobacco resulting from the handling or stripping of whole leaf tobacco shall
be transferred, disposed of, or otherwise sold, without any prepayment of the excise tax . . . if the same are
to be exported or to be used in the manufacture of cigars, cigarettes, or other tobacco products on which
the excise tax will eventually be paid on the finished product, under such conditions as may be prescribed in
the rules and regulations promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.56
BIR assessments
G.R. No. 125346

Sometime in June, 1989, a team of examiners from the Bureau of Internal Revenue, led by Crisanto G.
Luna, Revenue Officer III of the Field Operation Division of the Excise Tax Service, conducted an
examination of the books of La Suerte by virtue of a letter of authority issued by then Commissioner Jose U.
Ong.
On January 3, 1990, La Suerte received a letter from then Commissioner Jose U. Ong demanding the
payment of P34,934,827.67 as deficiency excise tax on La Suertes entire importation and local purchase of
stemmed leaf tobacco for the period covering January 1, 1986 to June 30, 1989.
On January 12, 1990, La Suerte . . . protest[ed] the excise tax deficiency assessment . . . stressing that the
BIR assessment was based solely on Section 141(b) of the Tax Code without, however, applying Section 137
thereof, the more specific provision, which expressly allows the sale of stemmed leaf tobacco as raw
material by one manufacturer directly to another without payment of the excise tax. However, in a letter,
dated August 31, 1990, Commissioner Jose U. Ong denied La Suertes protest, insisting that stemmed leaf
tobacco is subject to excise tax unless there is an express grant of exemption from [the] payment of
tax.ChanRoblesVirt ualawli bra ry
In a letter dated October 17, 1990, Commissioner Ong reiterated his demand for the payment of the alleged
deficiency excise taxes due from La Suerte, to wit:
Please be informed that in an investigation conducted by this Office, it was ascertained that you incurred a
deficiency specific tax on your importation and local purchase of stemmed leaf tobacco covering the period
from January 1, 1986 to June 30, 1989 in the total amount of P34,904,247.00 computed as follows: chan roblesv irtuallawl ib rary
STEMMEDLEAF TOBACCO
13,918,465
Imported P10,438,848.00
kls. x P0.75
32,620,532
Local 24,465,399.00
kls. x 0.75
Total Amount Due (Basic Tax) - - - - - - - - - - - -P34,904,247.00
. . . . (page 99, Rollo)

On December 6, 1990, La Suerte filed with the Court of Tax Appeals a Petition for Review seeking for the
annulment of the assessments. . .
. . . On July 13, 1995, the Tax Court rendered [its] Decision, the dispositive portion of which reads[:]
WHEREFORE, in all the foregoing, the assessment of alleged deficiency specific tax in the amount of
P34,904,247.00 issued by the Respondent is hereby CANCELLED for lack of merit.
SO ORDERED.57
The Commissioner appealed the Court of Tax Appeals decision before the Court of Appeals. On December
29, 1995, the Court of Appeals Sixth Division ruled against La Suerte and found that RR No. V-39 limits the
tax exemption on transfers of stemmed leaf tobacco to transfers between two L-7 permittees.58 The Court of
Appeals ruled as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Decision appealed from is hereby REVERSED and SET ASIDE.
Respondent is ordered to pay the petitioner Commissioner of Internal Revenue the amount of
P34,904,247.00 as deficiency specific tax on its importations and local purchases of stemmed leaf tobacco
and its sale of stemmed leaf tobacco to Associated Anglo-American Tobacco Corporation covering the period
from January 1, 1986 to June 30, 1989, plus 25% surcharge for late payment and 20% interest per annum
from October 17, 1990 until fully paid pursuant to sections 248 and 249 of the Tax Code.
SO ORDERED.59
La Suerte filed a motion for reconsideration, which was denied by the Court of Appeals in its June 7, 1996
resolution.60
cha nro bleslaw
On August 2, 1996, La Suerte filed the instant petition for review,61 praying for the reversal of the Court of
Appeals decision and cancellation of the assessment by the Commissioner. La Suerte raises the following
grounds in support of its prayer:
A. THE COURT OF APPEALS ERRED WHEN IT CONSIDERED SECTION 20 (A) OF RR NO. V-39, SINCE
THE COMMISSIONER RAISED IT FOR THE FIRST TIME IN THE COURT OF APPEALS
B. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SECTION 20(A) OF RR NO. V-39 RESTRICTS
THE APPLICATION OF SECTION 137 OF THE TAX CODE, SINCE LANGUAGE IN SEC. 137 IS
UNQUALIFIED, WHILE SEC. 20(A) CONTAINS NO RESTRICTIVE LANGUAGE
C. THE COURT OF APPEALS ERRED WHEN IT IGNORED SEC. 43 OF RR NO. 17-67 AS WELL AS
OPINIONS OF BIR OFFICIALS WHICH CONFIRMED THE EXEMPTION OF STEMMED LEAF TOBACCO
FROM PREPAYMENT OF SPECIFIC TAX
D. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SEC. 43 OF RR NO. 17-67 DID NOT REPEAL
SECTIONS 35 AND 20(A) OF RR NO. V-39, SINCE THEIR PROVISIONS ARE REPUGNANT TO EACH
OTHER
E. THE COURT OF APPEALS ERRED WHEN IT HELD THAT RR NO. V-39 IMPOSES SPECIFIC TAXES ON
STEMMED LEAF TOBACCO, SINCE IT MAKES NO MENTION AT ALL OF TAXES ON STEMMED LEAF
TOBACCO
F. THE COURT OF APPEALS ERRED WHEN IT HELD RR NO. V-39 APPLIED TO L-6 PERMITTEES OR
MANUFACTURERS OF STEMMED LEAF TOBACCO, SINCE L-6 CLASSIFICATION WAS NON-EXISTENT
AT THE TIME
G. THE COURT OF APPEALS ERRED WHEN IT INTERPRETED SECTION 20(A) OF RR NO. V-39 IN SUCH
A WAY AS TO RESULT IN ADMINISTRATIVE LEGISLATION, SINCE THE INTERPRETATION
SANCTIONED THE RESTRICTION OF AN UNQUALIFIED PROVISION OF LAW BY A MERE REGULATION
H. THE COURT OF APPEALS ERRED WHEN IT GAVE NO WEIGHT TO THE DECEMBER 12, 1972 BIR
RULING AND OPINIONS OF OTHER BIR OFFICIALS WHICH CONFIRMED THE EXEMPTION OF
STEMMED LEAF TOBACCO FROM PREPAYMENT OF SPECIFIC TAX
I. THE COURT OF APPEALS ERRED WHEN IT HELD [THAT] NON-APPLICATION OF [THE] DECEMBER 12
RULING DID NOT IMPINGE ON PRINCIPLE OF NON-RETROACTIVITY OF RULINGS BECAUSE THE
ASSESSMENT DID NOT CITE THE RULING, SINCE CITATION OF A RULING IN AN ASSESSMENT [IS]
NOT NECESSARY FOR PRINCIPLE TO APPLY
J. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE ADMINISTRATIVE PRACTICE OF BIR
FOR OVER HALF A CENTURY OF NOT SUBJECTING STEMMED LEAF TOBACCO TO SPECIFIC TAX
K. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SUBJECTING STEMMED LEAF TOBACCO TO
SPECIFIC TAX IS NOT PROHIBITED FORM OF DOUBLE TAXATION, SINCE A TAX ON BOTH STEMMED
LEAF TOBACCO AND CIGARETTES INTO WHICH IT IS MANUFACTURED IS DOUBLE TAXATION
L. THE COURT OF APPEALS ERRED WHEN IT HELD LA SUERTE LIABLE FOR SPECIFIC TAX EVEN IF NO
EFFORT WAS FIRST MADE TO COLLECT THE TAX FROM THE MANUFACTURER OF STEMMED LEAF
TOBACCO, SINCE TAX CODE ALLOWS THIS ONLY IF SPECIAL ALLOWANCE IS GRANTED, WHICH IS
NOT THE CASE
M. THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE REENACTMENT OF THE
1939 CODE AS THE 1977 CODE AND 1986 TAX CODES ADOPTED THE INTERPRETATION IN THE
DECEMBER 1972 BIR RULING
N. THE COURT OF APPEALS ERRED WHEN IT APPLIED THE RULES OF CONSTRUCTION ON EXEMPTION
FROM TAXES, SINCE NO TAX EXEMPTION WAS INVOLVED BUT MERELY AN EXEMPTION FROM
PREPAYMENT OF TAX.62
G.R. No. 13632829
In the letter dated November 24, 1989, the Commissioner demanded from Fortune the payment of
deficiency excise tax in the amount of P28,938,446.25 for its importation of tobacco strips from January 1,
1986 to June 30, 1989. Fortune requested for reconsideration, which was denied by the Commissioner on
August 31, 1990. Undaunted, Fortune appealed to the Court of Tax Appeals through a petition for review,
which was docketed as CTA Case No. 4587.63 chanrobleslaw
In the decision dated November 23, 1994, the Court of Tax Appeals ruled in favor of Fortune and set aside
the Commissioners assessment of P28,938,446.25 as deficiency excise tax.
Meanwhile, on March 20, 1991, Fortune received another letter from the Bureau of Internal Revenue,
demanding payment of P1,989,821.86 as deficiency specific tax on its importation of stemmed leaf tobacco
from July 1, 1989 to November 30, 1990.64 Fortune filed its protest and requested the Commissioner to
cancel and withdraw the assessment.65 On April 18, 1991, the Commissioner denied with finality Fortunes
request.66 Fortune appealed to the Court of Tax Appeals, and the case was docketed as CTA Case No.
4616.67 chan robles law
In the decision dated October 6, 1994, the Court of Tax Appeals ruled in favor of Fortune and set aside the
Commissioners assessment of P1,989,821.26 as deficiency excise tax on stemmed leaf tobacco.
The Commissioner filed separate petitions before the Court of Appeals, challenging the decisions rendered
by the Court of Tax Appeals in CTA Case Nos. 4587 and 4616. These petitions were consolidated on
November 28, 1996.68 chan roble slaw
In the decision dated January 30, 1998, the Court of Appeals Seventeenth Division dismissed the
consolidated petitions filed by the Commissioner and affirmed the assailed decisions of the Court of Tax
Appeals. It also denied the Commissioners motion for reconsideration.
Hence, the Commissioner filed the present petition69 on January 8, 1999. The Commissioner claims that the
Court of Appeals erred (1) in holding that stemmed leaf tobacco is not subject to the specific tax imposed
under Section 141 of the Tax Code[;]70 (2) in not holding that under Section 137 of the Tax Code,
stemmed leaf tobacco is exempt from specific tax when sold in bulk as raw material by one manufacturer
directly to another under such conditions as may be prescribed in the regulations of the Department of
Finance[;]71 and (3) in holding that there is double taxation in the prohibited sense when specific tax is
imposed on stemmed leaf tobacco and again on the finished product of which stemmed leaf tobacco is a raw
material.72 chanrob leslaw
G.R. No. 144942
In April 1995, [La Suerte] imported stemmed leaf tobacco from various sellers abroad.73 The
Commissioner assessed specific taxes on the stemmed leaf tobacco in the amount of P175,909.50, which
[La Suerte] paid under protest.74 Consequently, [La Suerte] filed a claim for refund with [the
Commissioner], [who] failed to act on the same.75 Undeterred, La Suerte appealed to the Court of Tax
Appeals, which in its March 9, 1999 decision, ruled in its favor.
The Commissioner appealed to the Court of Appeals Third Division, which on August 31, 2000, rendered its
decision in CA-G.R. SP. No. 51902, affirming the decision of the Court of Tax Appeals.
The Commissioner then filed the instant petition for review76 asking this court to overturn the Court of
Appeals decision. It avers that the Court of Appeals erred in holding that Section 137 of the Tax Code
applied without any conditions as to the domicile of the manufacturers and that [the Commissioner] cannot
indirectly restrict its application to local manufacturers.77
chan robles law
The Third Division of this court initially denied78 the petition due to an insufficient or defective verification
and because the petition was filed by revenue lawyers and not by the Solicitor General.79 chanro bles law
The Commissioner filed a motion for clarification80 seeking to clarify whether the Bureau of Internal Revenue
legal officers can file petitions for review pursuant to Section 220 of the Tax Code without the intervention of
the Office of the Solicitor General.
The motion was referred to the En Banc81 on August 7, 2001, which issued the resolution on July 4, 2002,
holding that Section 220 of the Tax Reform Act must not be understood as overturning the long established
procedure before this Court in requiring the Solicitor General to represent the interest of the Republic. This
Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for
the government in appellate proceedings.82 In the same resolution, this court also declared the following:
The present controversy ruminate upon the singular issue of whether or not Revenue Regulation 1767 [sic]
issued by petitioner, in relation to Section 137 of the Internal Revenue Code in the imposition of a tax on
stemmed-leaf tobacco, deviated from the tax code. This question basically inquires then into whether or not
the revenue regulation has exceeded, on constitutional grounds, the allowable limits of legislative
delegation.
Aware that the dismissal of the petition could have lasting effect on government tax revenues, the lifeblood
of the state, the Court heeds the plea of petitioner for a chance to prosecute its case.83 (Emphasis and
underscoring supplied)
This court resolved to reinstate84 and give due course85 to the Commissioners petition.
G.R. No. 148605
On January 12, 1990, [Sterling] received a pre-assessment notice for alleged deficiency excise tax on its
importation and local purchase of stemmed-leaf tobacco for P5,187,432.00 covering the period from
November 1986 to January 1989.86 Sterling filed its protest letter87 dated January 19, 1990. The
Commissioner, through its letters88 dated August 31, 1990 and October 17, 1990, denied the protest with
finality.
Sterling filed before the Court of Tax Appeals a petition for review89 dated January 3, 1991, seeking the
cancellation of the deficiency assessment and praying that the Commissioner be ordered to desist from
collecting the assessed excise tax. On July 13, 1995, the Court of Tax Appeals rendered its decision ordering
the cancellation of the assessment for deficiency excise tax.
The Commissioner then appealed90 to the Court of Appeals. On March 7, 2001, the latter, through its Ninth
Division, rendered a decision reversing the Court of Tax Appeals ruling, thus:
WHEREFORE, premises considered, the Decision of the Court of Tax Appeals in C.T.A. Case No. 4532 is
hereby REVERSED and SET ASIDE, and the respondent is ORDERED to pay to the public petitioner the
amount of P5,187,432.00 as deficiency specific tax on its imported and locally purchased stemmed leaf
tobacco from November 1986 to June 24, 1989, plus 25% surcharge on 5,187,432.00, and 20% interest per
annum on the total amount due from December 07, 1990 until full payment, pursuant to Sections 248-49 of
the Tax Code.
SO ORDERED.91
Sterling filed a motion for reconsideration,92 which was denied by the Court of Appeals in its June 19, 2001
resolution.
Hence, on August 13, 2001, Sterling filed the instant petition for review.93 chan roble slaw
Sterling argues that the Court of Appeals erred in holding that (1) then Section 141 of the Tax Code subjects
stemmed leaf tobacco to excise tax; (2) Section 137 of the Tax Code did not exempt stemmed leaf tobacco
from prepayment of excise tax; (3) Section 20(A) of RR No. V-39 restricts the application of Section 137 of
the Tax Code since its language was unqualified, while Section 20(A) contained no restrictive language; (4)
RR No. V-39 imposed specific taxes on stemmed leaf tobacco since its language made no mention of taxes
on stemmed leaf tobacco; (5) the reason behind limiting exemptions only to transfers from one L-7 to
another L-7 is because sale has previously been subjected to specific tax; and (6) the exemption from
specific tax did not apply to imported stemmed leaf tobacco.94 chanro bleslaw
Sterling further argues that the Court of Appeals erred in not holding that (1) the Commissioners
interpretation of Section 141 of the Tax Code and Section 20(A) of RR No. V-39 amounts to an amendment
of Sections 141 and 137 of the Tax Code by a mere administrative regulation; (2) a December 12, 1972
Bureau of Internal Revenue ruling and opinions of other Bureau of Internal Revenue officials confirmed the
exemption of stemmed leaf tobacco from prepayment of specific tax; (3) the administrative practice of the
Bureau of Internal Revenue for over half a century of not subjecting stemmed leaf tobacco to excise tax
proves that no excise taxes were ever intended to be imposed; (4) imposition of excise tax on stemmed leaf
tobacco would result in the prohibited form of double taxation; and (5) the re-enactment of the relevant
provisions in the 1977 and 1986 Tax Codes adopted the interpretation in the December 1972 Bureau of
Internal Revenue ruling.95 Sterling also contends that the Court of Appeals erred in applying the rules of
construction on exemption from taxes, since no tax exemption was involved, but merely an exemption from
prepayment of excise tax.96 chanrobles law
G.R. No. 158197
On January 10, 1991, the Commissioner sent a pre-assessment notice to La Suerte demanding payment of
P11,757,275.25 as deficiency specific tax on its local purchases and importations and on the sale of
stemmed leaf tobacco during the period from September 14, 1989 to November 20, 1990.97 On February 8,
1991, La Suerte received the formal assessment letter of the Commissioner.98 chanro bleslaw
La Suerte filed its protest on March 8, 1991.99 On May 14, 1991, La Suerte received the Commissioners
decision denying the protest with finality.100 chanrobles law
On June 13, 1991, the Court of Tax Appeals promulgated a Decision finding for . . . La Suerte and disposing
[as follows:]101
WHEREFORE, in view of the foregoing, We find the petition for review meritorious and the same is hereby
GRANTED. Respondents decision dated April 29, 1991 is hereby set aside and the formal assessment for the
deficiency specific tax in the sum of P11,575,275.25 subject of the respondents letter, dated January 30,
1991, is deemed cancelled.
No pronouncement as to costs of suit.
SO ORDERED.102
The Commissioner filed a motion for reconsideration that was denied by the Court of Tax Appeals in its April
5, 1995 resolution.103cha nrob leslaw
The Commissioner appealed to the Court of Appeals.104 In its decision dated July 18, 2002, the Court of
Appeals reversed the decision of the Court of Tax Appeals. It cited Commissioner of Internal Revenue v. La
Campaa Fabrica de Tabacos, Inc.105 as basis for its ruling. La Suerte filed a motion for reconsideration, but
it was denied by the Court of Appeals in the resolution106 dated May 9, 2003.
La Suerte prays for the reversal of the Court of Appeals decision and resolution in its petition for
review,107 wherein it raises the following arguments:
I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT SECTION 20(A) OF REV.
REGS. NO. V-39 LIMITED THE CLASS OF MANUFACTURERS WHOSE SALES OF STEMMED
LEAF TOBACCO WERE EXEMPT FROM PRE-PAYMENT OF SPECIFIC TAX.
II. EVEN IF SEC. 3 OF RR NO. 17-67 HAD BEEN WAS [sic] INTENDED TO LIMIT
MANUFACTURERS EXEMPT FROM PREPAYMENT OF SPECIFIC TAX, THIS WOULD AMOUNT
TO UNLAWFUL DELEGATION OF LEGISLATIVE POWER.
III. RR NO. 17-67 WAS NEITHER ISSUED TO AMEND RR NO. V-39 NOR TO AMEND THE TAX
CODE, BUT SOLELY TO IMPLEMENT ACT NO. 2613, AS AMENDED, WHICH WAS ENACTED IN
1916 AND HAD ABSOLUTELY NOTHING TO DO WITH TAXES.
IV. SECTION 2(H) OF RR NO. 17-67 EXCEEDED THE CONSTITUTIONAL LIMITS ON THE
DELEGATION OF LEGISLATIVE POWER.
V. SECTION 3(M) OF RR NO. 17-67 AS INTERPRETED BY COMMISSIONER EXCEEDED

ALLOWABLE LIMITS ON DELEGATION OF LEGISLATIVE POWER.
VI. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING SECTION 20(A) OF RR NO. V-39
TO LA SUERTES IMPORTS OF STEMMED LEAF TOBACCO, FOR THE APPLICABLE PROVISION
IS CHAPTER V OF RR NO. V-39.
VII. THE COMMISSIONERS PRESENT INTERPRETATION OF SECTIONS 2(M)(1) AND 3(H) OF RR

NO. 17-67, WAS NOT THE INTERPRETATION GIVEN TO THOSE SECTIONS BY ITS FRAMERS,
AS SHOWN BY THE LONG ADMINISTRATIVE PRACTICE AFTER THE ISSUANCE OF RR NO.
17-67 AND THE BIR RULING DATED DECEMBER 12, 1972, WHICH CONFIRMED THE TAX-
FREE TRANSFER OF STEMMED- LEAF TOBACCO.108
G.R. No. 165499

On various dates in March 1995, the Commissioner of Internal Revenue . . . collected from La Suerte the
aggregate amount of THREE HUNDRED TWENTY-FIVE THOUSAND FOUR HUNDRED TEN PESOS
(P325,410.00) for specific taxes on La Suertes bulk purchases of stemmed-leaf tobacco from foreign
tobacco manufacturers. La Suerte paid the said amount under protest.
....
On September 27, 1996 and October 2, 1996, La Suerte instituted with the Commissioner of Internal
Revenue . . . and with Revenue District No. 52, a claim for refund of specific taxes said to have been
erroneously paid on its importations of stemmed-leaf tobacco for the period of November 1994 up to May
1995, including the amount of Three Hundred Twenty Five Thousand Four Hundred Ten Pesos
(P325,410.00). . . .
Inasmuch as its claim for refund was not acted upon by petitioner and in order to toll the running of the
two-year reglementary period within which to file a judicial claim for such refund as provided under Section
229 of the 1997 National Internal Revenue Code, as amended, La Suerte filed on February 8, 1997 a
petition for review with the CTA.109
On September 23, 1998, the Court of Tax Appeals rendered judgment granting the petition for review and
ordering the Commissioner to refund the amount of P325,410.00 to La Suerte.110 The Commissioner filed a
motion for reconsideration, but this was denied by the Court of Tax Appeals on December 15, 1998.111 chan roble slaw
On appeal, the Court of Appeals Fourth Division reversed112 the Court of Tax Appeals ruling. It also
denied113 La Suertes motion for reconsideration. Hence, this petition was filed,114 reiterating the same
arguments already presented in the other cases.
This court ordered the consolidation of G.R. Nos. 13632829 and 125346.115 Thereafter, this court
consolidated G.R. Nos. 165499, 144942, and 148605.116 Finally, this court approved the consolidation of
G.R. Nos. 125346, 13632829, 144942, 148605, 158197, and 165499.117]
Issues
I. Whether stemmed leaf tobacco is subject to excise (specific) tax under Section 141 of the 1986 Tax
Code;
II. Whether Section 137 of the 1986 Tax Code exempting from the payment of specific tax the sale of
stemmed leaf tobacco by one manufacturer to another is not subject to any qualification and,
therefore, exempts an L-7 manufacturer from paying said tax on its purchase of stemmed leaf
tobacco from other manufacturers who are not classified as L-7 permittees;
III. Whether stemmed leaf tobacco imported by La Suerte, Fortune, and Sterling is exempt from specific
tax under Section 137 of the 1986 Tax Code;
IV. Whether Section 20(a) of RR No. V-39, in relation to RR No. 17-67, which limits the exemption from
payment of specific tax on stemmed leaf tobacco to sales transactions between manufacturers
classified as L-7 permittees is a valid exercise by the Department of Finance of its rule-making
power under Section 338118 of the 1939 Tax Code;
V. Whether the possessor or owner of stemmed leaf tobacco may be held liable for the payment of
specific tax if such tobacco product is removed from the place of production without payment of said
tax;
VI. Whether the August 31, 1990 ruling of then Bureau of Internal Revenue Commissioner Jose U. Ong
denying La Suertes request for exemption from specific tax on its local purchase and importation of
stemmed leaf tobacco violates the principle on non-retroactivity of administrative ruling for allegedly
contradicting the previous position taken by the Bureau of Internal Revenue that such a transaction
is not subject to specific tax as expressed in the December 12, 1972 ruling of then Bureau of
Internal Revenue Commissioner Misael P. Vera; and
VII. Whether the imposition of excise tax on stemmed leaf tobacco under Section 141 of the 1986 Tax
Code constitutes double taxation.
Arguments of the cigarette manufacturers
The cigarette manufacturers claim that since Section 137 of the 1986 Tax Code and Section 20(a) of RR No.
V-39 do not distinguish as to the type of manufacturer that may sell stemmed-leaf tobacco without the
prepayment of specific tax[,] [t]he logical conclusion is that any kind of tobacco manufacturer is entitled to
this treatment.119 The authority of the Secretary of Finance to prescribe the conditions refers only to
procedural matters and should not curtail or modify the substantive right granted by the law.120 The
cigarette manufacturers add that the reference to an L-7 invoice and L-7 register book in the second
paragraph of Section 20(a) cannot limit the application of the tax exemption provision only to transfers
between L-7 permittees because (1) it does not so provide;121and (2) under the terms of RR No. V-39, L-7
referred to manufacturers of any class of tobacco products, including manufacturers of stemmed leaf
tobacco.122 chanrob leslaw
They further argue that, going by the theory of the Commissioner, RR No. 17-67 would have unduly
restricted the meaning of manufacturers by limiting it to a few manufacturers such as manufacturers of
cigars and cigarettes.123 Allegedly, RR No. 17-67 cannot change the original meaning of L-7 in Section 20(A)
of RR No. V-39 without exceeding constitutional limits of delegated legislative power.124 La Suerte further
points out that RR No. 17-67 was not even issued for the purpose of implementing the Tax Code but for the
sole purpose of implementing Act No. 2613; and Section 3 of RR No. 17-67 restricts the new designations
only for administrative purposes.125 chan robles law
Moreover, the cigarette manufacturers contend that Section 132 does not operate as a tax exemption
because prepayment means payment of obligation in advance or before it is due.126Consequently, the rules
of construction on tax exemption do not apply.127 According to them, the absence of tax prepayment for the
sale of stemmed leaf tobacco impliedly indicates the underlying policy of the law: that stemmed leaf tobacco
shall not be taxed twice, first, as stemmed leaf tobacco and, second, as a component of the finished
products of which it forms an integral part.128 chanro bleslaw
Fortune, for its part, claims that stemmed leaf tobacco is not subject to excise tax. It argues that stemmed
leaf tobacco cannot be considered prepared or partially prepared tobacco because it does not fall within the
definition of a processed tobacco under Section 1-b of Republic Act No. 698, as amended.129 Furthermore,
it adds that Section 141 should be strictly construed against the taxing power.130 There being no explicit
reference to stemmed leaf tobacco in Section 141, it cannot be claimed or construed to be subject to specific
tax.131
chanrobles law
According to Fortune, a plain reading of Section 141 readily reveals that the intention was to impose excise
taxes on products of tobacco that are not to be used as raw materials in the manufacture of other tobacco
products.132 Section 2(m)(1) unduly expanded the meaning of prepared or partially prepared tobacco to
include a raw material like stemmed leaf tobacco; hence, ultra vires and invalid.133 chanro bles la w
As regards the taxability of their importations, Sterling argues that since locally manufactured stemmed leaf
tobaccos are not subject to specific tax, it follows that imported stemmed leaf tobaccos are also not subject
to specific tax.134 On the other hand, La Suerte claims that Section 20(A) of RR No. V-39 does not apply to
its imports because the applicable provision is Section 128(b) of the 1986 Tax Code, which states that
imported articles shall be subject to the same tax and the same rates and basis of excise taxes applicable
to locally manufactured articles, and Chapter V of RR No. V-39 (Payment of specific taxes on imported
cigars, cigarettes, smoking and chewing tobacco).135 chanroble slaw
Finally, La Suerte and Sterling136 argues that the Court of Appeals erred: (1) in ignoring Section 43 of RR
No. 17-67, December 12, 1972 Bureau of Internal Revenue ruling and other Bureau of Internal Revenue
opinions confirming the exemption of stemmed leaf tobacco from prepayment of specific tax;137 (2) in
disregarding the Bureau of Internal Revenues practice for over half a century of not subjecting stemmed
leaf tobacco to specific tax;138 (3) in failing to consider that the re-enactment of the 1939 Tax Code as the
1977 and 1986 Tax Codes impliedly adopted the interpretation in the December 12, 1972 ruling; and 4) in
holding that non-application of the December 12, 1972 ruling did not impinge on the principle of non-
retroactivity of rulings.139 Moreover, it argues that the Tax Code does not authorize collection of specific tax
from buyers without a prior attempt to collect tax from manufacturers.140 chanro bles law
Respondents arguments
Respondent counters that under Section 141(b), partially prepared or manufactured tobacco is subject to
specific tax.141 The definition of partially manufactured tobacco in Section 2(m) of RR No. 17-67 includes
stemmed leaf tobacco; hence, stemmed leaf tobacco is subject to specific tax.142Imported stemmed leaf
tobacco is also subject to specific tax under Section 141(b) in relation to Section 128 of the 1977 Tax
Code.143 Fortunes reliance on the definition of processed tobacco in Section 1-b of Republic Act No.
698144 as amended by Republic Act No. 1194 is allegedly misplaced because the definition therein of
processed tobacco merely clarified the type of tobacco product that may not be imported into the
country.145chanro bleslaw
Respondent posits that there is no double taxation in the prohibited sense even if specific tax is also
imposed on the finished product of which stemmed leaf tobacco is a raw material.146 Congress clearly
intended it considering that stemmed leaf tobacco, as partially prepared or manufactured tobacco, is
subjected to specific tax under Section 141(b), while cigars and cigarettes, of which stemmed leaf tobacco is
a raw material, are also subjected to specific tax under Section 142.147 It adds that there is no
constitutional prohibition against double taxation.148 chanroble slaw
Foreign manufacturers of tobacco products not engaged in trade or business in the Philippines cannot be
classified as L-7, L-6, or L-3R since they are beyond the pale of Philippine laws and regulations.149 Since
the transfer of stemmed leaf tobacco from one factory to another must be under an official L-7 invoice and
entered in the L-7 registers of both transferor and transferee, it is obvious that the factories contemplated
are those located or operating in the Philippines and operated only by L-7 permittees.150 The transaction
contemplated under Section 137 is sale and not importation because the law uses the word sold.151 The
law uses importation or imported whenever the transaction involves bringing in articles from foreign
countries.152 chan roble slaw
Respondent argues that the issuance of RR Nos. V-39 and 17-67 is a valid exercise by the Department of
Finance of its rule-making power under Sections 132 and 338 of the 1939 Tax Code.153 It explains that the
reason for the exemption from specific tax of the sale of stemmed leaf tobacco as raw material by one L-7
directly to another L-7 is that the stemmed leaf tobacco is supposed to have been already subjected to
specific tax when an L-7 purchased the same from an L-6.154 Section 20(A) of RR No. V-39 adheres to the
standards set forth in Section 245 because it provides the conditions for a tax-free removal of stemmed leaf
tobacco under Section 137 without negating the imposition of specific tax under Section 141(b).155 To
construe Section 137 in the restrictive manner suggested by La Suerte will practically defeat the revenue-
generating provision of Section 141(b).156 chanrobles law
It further argues that the August 31, 1990 ruling of then Bureau of Internal Revenue Commissioner Jose U.
Ong denying La Suertes request for exemption from specific tax on its local purchase and importation of
stemmed leaf tobacco does not violate the principle on non-retroactivity of administrative ruling. It alleges
that an erroneous ruling, like the December 12, 1972 ruling, does not give rise to a vested right that can be
invoked by La Suerte.157 chan robles law
Finally, respondent contends that under Section 127, if domestic products are removed from the place of
production without payment of the excise taxes due thereon, it is not required that the tax be collected first
from the manufacturer or producer before the possessor thereof shall be liable.158 cha nrob leslaw
Courts ruling
Nature of excise tax
Excise tax is a tax on the production, sale, or consumption of a specific commodity in a country. Section 110
of the 1986 Tax Code explicitly provides that the excise taxes on domestic products shall be paid by the
manufacturer or producer before [the] removal [of those products] from the place of production. It does
not matter to what use the article[s] subject to tax is put; the excise taxes are still due, even though the
articles are removed merely for storage in some other place and are not actually sold or consumed.159 The
excise tax based on weight, volume capacity or any other physical unit of measurement is referred to as
specific tax. If based on selling price or other specified value, it is referred to as ad valorem tax.
Section 141 subjects partially prepared tobacco, such as stemmed leaf tobacco, to excise tax
Section 141 of the 1986 Tax Code provides:

SEC. 141. Tobacco Products. There shall be collected a tax of seventy-five centavos on each kilogram of
the following products of tobacco:chanrob lesvi rtual lawlib rary
(a) tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the
ordinary mode of drying and curing;
(b) tobacco prepared or partially prepared with or without the use of any machine or instruments or without
being pressed or sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco.
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco resulting from the
handling or stripping of whole leaf tobacco may be transferred, disposed of, or otherwise sold, without
prepayment of the specific tax herein provided for under such conditions as may be prescribed in the
regulations promulgated by the Ministry of Finance upon recommendation of the Commissioner, if the same
are to be exported or to be used in the manufacture of other tobacco products on which the excise tax will
eventually be paid on the finished product.
kilogram, sixty centavos. (Emphasis supplied)
It is evident that when tobacco is harvested and processed either by hand or by machine, all its products
become subject to specific tax. Section 141 reveals the legislative policy to tax all forms of manufactured
tobacco in contrast to raw tobacco leaves including tobacco refuse or all other tobacco which has been
cut, split, twisted, or pressed and is capable of being smoked without further industrial processing.
Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially prepared tobacco.
The removal of the stem or midrib from the leaf tobacco makes the resulting stemmed leaf tobacco a
prepared or partially prepared tobacco. The following is La Suertes own illustration of how the stemmed leaf
tobacco comes about: In the process of removing the stems, the whole leaf tobacco breaks into pieces; after
the stems or midribs are removed, the tobacco is threshed (cut by machine into fine narrow strips) and then
undergoes a process of redrying,160 undoubtedly showing that stemmed leaf tobacco is a partially prepared
tobacco.
Since the Tax Code contained no definition of partially prepared tobacco, then the term should be
construed in its general, ordinary, and comprehensive sense.161 chan roble slaw
RR No. 17-67, as amended, supplements the law by delineating what products of tobacco are prepared or
manufactured and partially prepared or partially manufactured. Section 2(m) states:
(m) Partially manufactured tobacco Includes: chanrob lesvi rtua llawlib ra ry
(1) Stemmed leaf handstripped tobacco, clean, good, partially broken
leaf only, free from mold and dust.
(2) Long-filler handstripped tobacco of good, long pieces of broken leaf

usable as filler for cigars without further preparation, and free from
mold, dust stems and cigar cuttings.
(3) Short-filler handstripped or machine-stripped tobacco, clean, good,

short pieces of broken leaf, which will not pass through a screen of two
inches (2") mesh.
(4) Cigar-cuttings clean cuttings or clippings from cigars, unsized with

any other form of tobacco.
(5) Machine-scrap tobacco machine-threshed, clean, good tobacco, not

included in any of the above terms, usable in the manufacture of tobacco
products.
(6) Stems midribs of leaf tobacco removed from the whole leaf or
broken leaf either by hand or machine.
(7) Waste tobacco denatured tobacco; powder or dust, refuse, unfit for
human consumption; discarded materials in the manufacture of tobacco
products, which may include stems.
Insisting on the inapplicability of RR No. 17-67, La Suerte points to the different definitions given to
stemmed leaf tobacco by Section 2(m)(1) of RR No. 17-67 and Section 137. It argues that while RR No. 17-
67 defines stemmed leaf tobacco as handstripped tobacco of clean, good, partially broken leaf only, free
from mold and dust, Section 137 defines it as leaf tobacco which has had the stem or midrib removed. The
term does not include broken leaf tobacco. We are not convinced.
Different definitions of the term stemmed leaf are unavoidable, especially considering that Section 2(m)(1)
is an implementing regulation of Act No. 2613, which was enacted in 1916 for purposes ofimproving the
quality of Philippine tobacco products, while Section 137 defines the tobacco product only for the purpose
of exempting it from the specific tax. Whichever definition is adopted, there is no doubt that stemmed leaf
tobacco is a partially prepared tobacco.
The onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the cigarette
manufacturers. Taxation is the rule, exemption is the exception.162 Accordingly, statutes granting tax
exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. The cigarette manufacturers must justify their claim by a clear and categorical provision in the
law. Otherwise, they are liable for the specific tax on stemmed leaf tobacco found in their possession
pursuant to Section 127163 of the 1986 Tax Code, as amended.
Stemmed leaf tobacco transferred in bulk between cigarette manufacturers are exempt from
excise tax under Section 137 of the 1986 Tax Code in conjunction with RR No. V-39 and RR No.
17-67
In the instant case, an exemption on the taxability of stemmed leaf tobacco is found in Section 137, which
provides the following:
SEC. 137. Removal of tobacco products without prepayment of tax. Products of tobacco entirely unfit for
may be prescribed in the regulations of the Ministry of Finance. Stemmed leaf tobacco, fine-cut shorts, the
refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or midribs, and sweepings of
tobacco may be sold in bulk as raw material by one manufacturer directly to another, without payment of
the tax under such conditions as may be prescribed in the regulations of the Ministry of Finance.
Stemmed leaf tobacco,' as herein used, means leaf tobacco which has had the stem or midrib removed. The
term does not include broken leaf tobacco. (Emphasis and underscoring supplied)
Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf tobacco is sold
in bulk as raw material by one manufacturer directly to another; and (2) that the sale or transfer has
complied with the conditions prescribed by the Department of Finance.
That the title of Section 137 uses the term without prepayment while the body itself uses without
payment is of no moment. Both terms simply mean that stemmed leaf tobacco may be removed from the
factory or place of production without prior payment of the specific tax.
This court has held in Commissioner of Internal Revenue v. La Campaa Fabrica de Tabacos,
Inc.,164reiterated in Compania General de Tabacos de Filipinas v. Court of Appeals165 and Commissioner of
Internal Revenue v. La Suerte Cigar and Cigarette Factory, Inc.166 that the exemption from specific tax of
the sale of stemmed leaf tobacco is qualified by and is subject to such conditions as may be prescribed in
the regulations of the Department of Finance. These conditions were provided for in RR Nos. V-39 and 17-
67. Thus, Section 137 must be read and interpreted in accordance with these regulations.
Section 20(a) of RR No. V-39 provides the rules for tax exemption on tobacco products:
SECTION 20. Exemption from tax of tobacco products intended for agricultural or industrial
purposes. (a) Sale of stemmed leaf tobacco, etc., by one factory to another. Subject to the
limitations herein established, products of tobacco entirely unfit for chewing or smoking may be removed
free of tax for agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut
chewing tobacco, refuse, scraps, cuttings, clippings, and sweepings of tobacco may be sold in bulk as raw
materials by one manufacturer directly to another without the prepayment of the specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings,
and sweeping of leaf tobacco or partially manufactured tobacco or other refuse of tobacco may be
transferred from one factory to another under an official L-7 invoice on which shall be entered the exact
weight of the tobacco at the time of its removal, and entry shall be made in the L-7 register in the place
provided on the page of removals. Corresponding debit entry will be made in the L-7 register book of the
factory receiving the tobacco under heading Refuse, etc., received from other factory, showing the date of
receipt, assessment and invoice numbers, name and address of the consignor, form in which received, and
the net weight of the tobacco. This paragraph should not, however, be construed to permit the transfer of
materials unsuitable for the manufacture of tobacco products from one factory to another. (Emphasis
supplied)
The conditions under which stemmed leaf tobacco may be transferred from one factory to another without
prepayment of specific tax are as follows: chan roble svi rtual lawlib rary
(a) The transfer shall be under an official L-7 invoice on which shall be
entered the exact weight of the tobacco at the time of its removal;
(b) Entry shall be made in the L-7 register in the place provided on the page
for removals; and
(c) Corresponding debit entry shall be made in the L-7 register book of the
factory receiving the tobacco under the heading, Refuse, etc., received
from the other factory, showing the date of receipt, assessment and
invoice numbers, name and address of the consignor, form in which
received, and the weight of the tobacco.
Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of Internal Revenue with an L-7
permit refer to "manufacturers of tobacco products." Hence, the transferor and transferee of the stemmed
leaf tobacco must be an L-7 tobacco manufacturer.
La Campaa explained that the reason behind the tax exemption of stemmed leaf tobacco transferred
between two L-7 manufacturers is that the same had already been previously taxed when acquired by the L-
7 manufacturer from dealers of tobacco, thus:
[T]he exemption from specific tax of the sale of stemmed leaf tobacco as raw material by one L-7 directly to
another L-7 is because such stemmed leaf tobacco has been subjected to specific tax when an L-7
manufacturer purchased the same from wholesale leaf tobacco dealers designated under Section 3, Chapter
I, Revenue Regulations No. 17-67 (supra) as L-3, L-3F, L-3R, L-4, or L-6, the latter being also a stripper of
leaf tobacco. These are the sources of stemmed leaf tobacco to be used as raw materials by an L-7
manufacturer which does not produce stemmed leaf tobacco. When an L-7 manufacturer sells the stemmed
leaf tobacco purchased from the foregoing suppliers to another L-7 manufacturer as raw material, such sale
is not subject to specific tax under Section 137 (now Section 140), as implemented by Section 20(a) of
Revenue Regulations No. V-39.167
There is no new product when stemmed leaf tobacco is transferred between two L-7 permit holders. Thus,
there can be no excise tax that will attach. The regulation, therefore, is reasonable and does not create a
new statutory right.
RR Nos. V-39 and 17-67 did not exceed the allowable limits of legislative delegation
The cigarette manufacturers contend that the authority of the Department of Finance to prescribe conditions
is merely procedural. Its rule-making power is only for the effective enforcement of the law, which implicitly
rules out substantive modifications. The Secretary of Finance cannot, by mere regulation, limit the classes of
manufacturers that may be entitled to the tax exemption. Otherwise, Section 137 (Section 132 in the 1939
Tax Code) would be invalid as an undue delegation of legislative power without the required standards or
parameters.
The power of taxation is inherently legislative and may be imposed or revoked only by the
legislature.168 Moreover, this plenary power of taxation cannot be delegated by Congress to any other
branch of government or private persons, unless its delegation is authorized by the Constitution
itself.169 Hence, the discretion to ascertain the following (a) basis, amount, or rate of tax; (b) person or
property that is subject to tax; (c) exemptions and exclusions from tax; and (d) manner of collecting the tax
may not be delegated away by Congress.
However, it is well-settled that the power to fill in the details and manner as to the enforcement and
administration of a law may be delegated to various specialized administrative agencies like the Secretary of
Finance in this case.170
chanroble slaw
This court in Maceda v. Macaraig, Jr.171 explained the rationale behind the permissible delegation of
legislative powers to specialized agencies like the Secretary of Finance:
The latest in our jurisprudence indicates that delegation of legislative power has become the rule and its
non-delegation the exception. The reason is the increasing complexity of modern life and many technical
fields of governmental functions as in matters pertaining to tax exemptions. This is coupled by the growing
inability of the legislature to cope directly with the many problems demanding its attention. The growth of
society has ramified its activities and created peculiar and sophisticated problems that the legislature cannot
be expected reasonably to comprehend. Specialization even in legislation has become necessary. To many of
the problems attendant upon present day undertakings, the legislature may not have the competence, let
alone the interest and the time, to provide the required direct and efficacious, not to say specific
solutions.172
Thus, rules and regulations implementing the law are designed to fill in the details or to make explicit what
is general, which otherwise cannot all be incorporated in the provision of the law.173 Such rules and
regulations, when promulgated in pursuance of the procedure or authority conferred upon the administrative
agency by law,174 deserve to be given weight and respect by the courts in view of the rule-making authority
given to those who formulate them and their specific expertise in their respective fields.175 To be valid, a
revenue regulation must be within the scope of statutory authority or standard granted by the legislature.
Specifically, the regulation must (1) be germane to the object and purpose of the law;176 (2) not contradict,
but conform to, the standards the law prescribes;177and (3) be issued for the sole purpose of carrying into
effect the general provisions of our tax laws.178
chanrobles law
Section 338 authorizes the Secretary of Finance to promulgate all needful rules and regulations for
the effective enforcement of the provisions of the 1939 Tax Code.
The specific authority of the Department of Finance to issue regulations relating to the taxation of tobacco
products is found in Section 4179 (Specific provisions to be contained in regulations); Section
125180 (Payment of specific tax on imported articles to customs officers prior to release from the
customhouse); Section 132 (Removal of tobacco products without prepayment of tax); Section
149181 (Extent of supervision over establishments producing taxable output); Section 150182(Records to be
kept by manufacturers; Assessment based thereon); and Section 152183 (Labels and form of packages) of
the 1939 Tax Code.
RR No. V-39 was promulgated to enforce the provisions of Title IV (Specific Taxes) of the 1939 Tax Code
relating to the manufacture and importation of, and payment of specific tax on, manufactured tobacco or
products of tobacco. By an explicit provision in Section 132, the lawmakers defer to the Department of
Finance to provide the details upon which the removal of stemmed leaf tobacco may be exempt from the
specific tax in view of its supposed expertise in the tobacco trade. Section 20(a) of RR No. V-39 adhered to
the standards because it provided the conditions the proper documentation and recording of raw
materials transferred from one factory to another for a tax-free removal of stemmed leaf tobacco, without
negating the imposition of specific tax under Section 137. The effective enforcement of the provisions of
[the Tax Code] in Section 338 provides a sufficient standard for the Secretary of Finance in determining
the conditions for the tax-free removal of stemmed leaf tobacco. Section 4 further provides a limitation on
the contents of revenue regulations to be issued by the Secretary of Finance.
On the other hand, RR No. 17-67 was promulgated [i]n accordance with the provisions of Section 79 (B) of
the Administrative Code, as amended by Act No. 2803.184 Among the specific administrative powers
conferred upon a department head under the Administrative Code is that of promulgating rules and
regulations, not contrary to law, necessary to regulate the proper working and harmonious and efficient
administration of each and all of the offices and dependencies of his Department, and for the strict
enforcement and proper execution of the laws relative to matters under the jurisdiction of said
Department.185 Under the 1939 Tax Code, the Secretary of Finance is authorized to prescribe regulations
affecting the business of persons dealing in articles subject to specific tax, including the mode in which the
processes of production of tobacco and tobacco products should be conducted and the records to be kept by
manufacturers. Clearly then, the provisions of RR No. 17-67 classifying and regulating the business of
persons dealing in tobacco and tobacco products are within the rule-making authority of the Secretary of
Finance.
RR No. 17-67 did not create a new classification
The contention of the cigarette manufacturers that RR No. 17-67 unduly restricted the meaning of
manufacturers of tobacco products by limiting it to a few manufacturers such as manufacturers of cigars and
cigarettes is misleading.
The definitions in RR No. 17-67 of manufacturer of tobacco and manufacturer of cigars and/or cigarettes
are in conformity with, as in fact they are verbatim adoptions of, the definitions under Section 194(m) and
(n) of the 1939 Tax Code.
The cigarette companies further argue that RR No. 17-67 unduly restricted the meaning of L-7 in Section
20(a) of RR No. V-39 because when RR No. V-39 was issued, there was no distinction at all between L-7, L-
3, L-6 permittees, and L-7 referred to manufacturers of any class of tobacco products including stemmed
leaf tobacco.
This argument is similarly misplaced.
A reading of the entire RR No. V-39 shows that the regulation pertains particularly to activities of
manufacturers of smoking and chewing tobacco, cigars and cigarettes.186 This was rightly so because the
regulation was issued to enforce the tax law provisions in relation to the manufacture andimportation of
tobacco products. Clearly apparent in Section 10(a) is that when a manufacturer of chewing and smoking
tobacco, cigars, or cigarettes has been qualified to conduct his or her business as such, he or she is issued
by the internal revenue agent the corresponding register books and auxiliary register books pertaining to his
business as well as the official register book, L-7, to be used as record of the raw materials for his or her
product. It is, therefore, logical to conclude that the L-7 invoice and L-7 register book under Section 20(a)
refers to those invoice and books used by manufacturers of chewing and smoking tobacco, cigars or
cigarettes.
RR No. 17-67 clarified RR No. V-39 by explicitly designating the manufacturers of tobacco products as L-7
permittees (Section 2), in contrast to wholesale leaf tobacco dealers and those that process partially
manufactured tobacco such as stemmed leaf tobacco. RR No. 17-67 did not create a new and restrictive
classification but only expressed in clear and categorical terms the distinctions between manufacturers and
dealers of tobacco that were already implicit in RR No. V-39.
Indeed, there is no repugnancy between RR No. 17-67 and RR No. V-39, on the one hand, and the Tax
Code, on the other. It is safer to presume that the term manufacturer used in Section 137 on tax exempt
removals referred to an entity that is engaged in the business of, and was licensed by the Bureau of Internal
Revenue as a, manufacturer of tobacco products. It does not include an entity engaged in business as a
dealer in tobacco that, incidentally or in furtherance of its business as a dealer, strip or thresh whole leaf
tobacco or reprocess partially manufactured tobacco.187 chanrobles l aw
Such construction is consistent with the rule that tax exemptions, deemed to be in derogation of the states
sovereign right of taxation, are strictly applied and may be granted only under clear and unmistakable terms
of the law and not merely upon a vague implication or inference.188 chan roble slaw
RR No. V-39 must be applied and read together with RR No. 17-67
The cigarette manufacturers argument is misplaced, stating that RR No. 17-67 could not modify RR No. V-
39 because it was promulgated to enforce Act No. 2613, as amended (entitled An Act to Improve the
Methods of Production and the Quality of Tobacco in the Philippines and to Develop the Export Trade
Therein), which allegedly had nothing whatsoever to do with the Tax Code or with the imposition of taxes.
The Tobacco Inspection Service, instituted under Act No. 2613, was made part of the Bureau of Internal
Revenue and Bureau of Customs administration for . . . internal revenue purposes.189 The Collector of
Internal Revenue was charged to enforce Act No. 2613, otherwise known as the Tobacco Inspection Law,
with a view to promoting the Philippine tobacco trade and thereby increase the revenues of the government.
This can be inferred from a reading of the following provisions of Act No. 2613:
SEC. 6. The Collector of Internal Revenue shall have the power and it shall be his duty: chan roblesv irt uallawl ibra ry
(a) To establish general and local rules respecting the classification,

marking, and packing of tobacco for domestic sale or factory use and for
exportation so far as may be necessary to secure leaf tobacco of good
quality and to secure its handling under sanitary conditions, and to the
end that leaf tobacco be not mixed, packed, and marked and of the
same quality when it is not of the same class and origin.
(b) To establish from time to time adequate rules defining the standard and
the type of leaf and manufactured tobacco which shall be exported, as
well also as the manner in which standard tobacco, shall be packed.
Before establishing the rules above specified, the Collector of Internal
Revenue shall give due notice of the proposed rules or amendments to
those interested and shall give them an opportunity to present their
objections to such rules or amendments.
(c) To require, whenever it shall be deemed expedient the inspection of and

affixture of inspection labels to tobacco removed from the province of its
origin to another province before such removal, or to tobacco for
domestic sale or factory use.190
SEC. 7. No leaf tobacco or manufactured tobacco shall be exported until it shall have been inspected by the
Collector of Internal Revenue or his duly authorized representative and found to be standard for export.
Collector of customs shall not permit the exportation of tobacco from the Philippines unless the shipment be
in conformity with the requirements set forth in this Act. The prohibition contained in this section shall not
apply to waste and refuse tobacco accumulated in the manufacturing process when it is invoiced and
marked as such waste and refuse.191 (Emphasis supplied)
....
SEC. 9. The Collector of Internal Revenue may appoint inspectors of tobacco for the purpose of making the
inspections herein required, and may also detail any officer or employee of the Bureau to perform such duty.
Said inspectors or employees shall likewise be charged with the duty of grading leaf tobacco and shall
perform such other duties as may be required of them in the promotion of the Philippine tobacco industry.
The Collector of Internal Revenue shall likewise appoint, with the approval of the Secretary of Finance,
agents in the United States for the purpose of promoting the export trade in tobacco with the United States,
whose duty it shall be to inspect shipments of tobacco upon or after their arrival in that country when so
required, to assist manufacturers of, exporters of, and dealers in tobacco in disseminating information
regarding Philippine tobacco and, at the request of the parties, to act as arbitrators between the exporter in
the Philippine Islands and the importer in the United States whenever a dispute arises between them as to
the quality, sizes, classes, or shapes shipped or received. When acting as arbitrator as aforesaid, the agent
shall proceed in accordance with the law governing arbitration and award in the locality where the dispute
arises. All agents, inspectors, and employees acting under and by virtue of this Act shall be subject to all
penal provisions applicable to internal-revenue officers generally.192 (Emphasis supplied)
....
SEC. 12. The inspection fees collected by virtue of the provisions of this Act shall constitute a special fund to
be known a the Tobacco Inspection Fund, which shall be expended by the Collector of Internal Revenue,
with the approval of the Secretary of Finance, upon allotment by a Board consisting of the Commissioner of
Internal Revenue, the Director of Plant Industry, the Director of the Bureau of Commerce and Industry, two
manufacturers designated by the Manila Tobacco Association, and two persons representing the interests of
the tobacco producers and growers, appointed by the President of the Philippine Islands[.]
These funds may be expended for any of the following purposes: chan roble svirtual lawlib rary
(a) The payment of the expenses incident to the enforcement of this Act including the salaries of the
inspectors and agents.
(b) The payment of expenses incident to the reconditioning and returning to the Philippine Islands of
damaged tobacco and the reimbursement of the value of the United States internal-revenue stamps lost
thereby.
(c) The advertising of Philippine tobacco products in the United States and in foreign countries.
(d) The establishment of tobacco warehouses in the Philippine Islands and in the United States at such
points as the trade conditions may demand.
(e) The payment of bounties to encourage the production of leaf tobacco of high quality.
(f) The promotion and defense of the Philippine tobacco interests in the United States and in foreign
countries.
(g) The establishment, operation, and maintenance of tobacco experimental farms for the purpose of
studying and testing the best methods for the improvement of the leaves: Provided, however, That thirty
per centum of the total annual income of the tobacco inspection fund shall be expended for the
establishment, operation, and maintenance of said tobacco experimental farms and for the investigation and
discovery of efficacious ways and means for the extermination and control of the pests and diseases of
tobacco: Provided, further, That in the establishment of experimental farms, preference shall be given to
municipalities offering the necessary suitable land for the establishment of an experimental farm.
(h) The sending of special agents and commissions to study the markets of the United States and foreign
countries with regard to the Philippine cigars and their propaganda in said markets.
(i) The organization of exhibits of cigars and other Philippine tobacco products in the United States and in
foreign countries.193
c han robles law
SEC. 13. The Collector Internal Revenue shall be the executive officer charged with the enforcement of the
provisions of this Act and of the regulations issued in accordance therewith, but it shall be the duty of the
Director of Agriculture, with the approval of the Secretary of Public Instruction, to execute and enforce the
provisions hereof referring to the cultivation of tobacco. (Emphasis supplied)
The cigarette manufacturers, thus, erroneously concluded that Act No. 2613 does not involve taxation.
Parenthetically, Section 8 of Act No. 2613 pertained to the imposition of tobacco inspection fees, which are
National Internal Revenue taxes, these being one of the miscellaneous taxes provided for under the Tax
Code. Said Section 8 was in fact repealed by Section 369(b) of the 1939 Tax Code, and the provision
regarding inspection fees are found in Section 302 of the 1939 Tax Code.
Since the two revenue regulations, RR Nos. V-34 and 17-67, are in pari materia, i.e., they both pertain
specifically to the regulation of tobacco trade, they should be read and applied together.
Statutes are in pari materia when they relate to the same person or thing or to the same class of persons or
things, or object, or cover the same specific or particular subject matter.
It is axiomatic in statutory construction that a statute must be interpreted, not only to be consistent with
itself, but also to harmonize with other laws on the same subject matter, as to form a complete, coherent
and intelligible system. The rule is expressed in the maxim, interpretare et concordare legibus est optimus
interpretandi, or every statute must be so construed and harmonized with other statutes as to form a
uniform system of jurisprudence.194 (Citation omitted)
The foregoing rules on statutory construction can be applied by analogy to administrative issuances such as
RR No. V-39 and RR No. 17-67, especially since both are issued by the same administrative agency.
Importation of stemmed leaf tobacco not included in the exemption under Section 137
The transaction contemplated in Section 137 does not include importation of stemmed leaf tobacco for the
reason that the law uses the word sold to describe the transaction of transferring the raw materials from
one manufacturer to another.
The Tax Code treats an importer and a manufacturer differently. Section 123 clearly distinguishes
between goods manufactured or produced in the Philippines and things imported. The law uses the proper
term importation or imported whenever the transaction involves bringing in articles from foreign
countries as provided under Section 125 (cf. Section 124). Whenever the Tax Code refers to importers and
manufacturers, they are separately mentioned as two distinct persons or entities (Sections 156 and 160).
Under Chapter II, whenever the law uses the word manufacturer, it only means local manufacturer or
producer of domestic products (Sections 150, 151, and 152 of the 1939 Tax Code).
Moreover, foreign manufacturers of tobacco products not engaged in trade or business in the Philippines
cannot be designated as L-7 since these are beyond the pale of Philippine law and regulations. The factories
contemplated are those located or operating only in the Philippines.
Contrary to La Suertes claim, Chapter V, Section 61 of RR No. V-39195 is not applicable to justify the tax
exemption of its importation of stemmed leaf tobacco because from the title of Chapter V, the provision
particularly refers to specific taxes on imported cigars, cigarettes, smoking and chewing tobacco.
No estoppel against government
The cigarette manufacturers contend that for a long time prior to the transactions herein involved, the
Collector of Internal Revenue had never subjected their purchases and importations of stemmed leaf tobacco
to excise taxes. This prolonged practice allegedly represents the official and authoritative interpretation of
the law by the Bureau of Internal Revenue which must be respected.
We are not persuaded.
In Philippine Long Distance Telephone Co. v. Collector of Internal Revenue,196 this court has held that this
principle is not absolute, and an erroneous implementation by an officer based on a misapprehension of law
may be corrected when the true construction is ascertained. Thus:
The appellant argues that the Collector of Internal Revenue, previous to the transactions herein involved,
had never collected the franchise tax on items of the same nature as those herein in question and this is
strong evidence that such transactions are not subject to tax on the principle that a prolonged practice on
the part of an executive or administrative officer in charge of executing a certain statute is an authoritative
construction of great weight. This contention may be granted, but the principle is not absolute and may be
overcome by strong reasons to the contrary. If through a misapprehension of law an officer has erroneously
executed it for a long time, the error may be corrected when the true construction is ascertained. Such we
deem to be the situation in the present case. Incidentally, the doctrine of estoppel does not apply
here.197 (Emphasis supplied)
This court reiterated this rule in Abello v. Commissioner of Internal Revenue198 where it rejected petitioners
claim that the prolonged practice (since 1939 up to 1988) of the Bureau of Internal Revenue in not
subjecting political contributions to donors tax was an authoritative interpretation of the statute, entitled to
great weight and the highest respect:
This Court holds that the BIR is not precluded from making a new interpretation of the law, especially when
the old interpretation was flawed. It is a well-entrenched rule that[:]
. . . erroneous application and enforcement of the law by public officers do not block subsequent correct
application of the statute, and that the Government is never estopped by mistake or error on the part of its
agents.199 (Emphasis supplied, citations omitted)
Prolonged practice of the Bureau of Internal Revenue in not collecting the specific tax on stemmed leaf
tobacco cannot validate what is otherwise an erroneous application and enforcement of the law. The
government is never estopped from collecting legitimate taxes because of the error committed by its
agents.200chanrob leslaw
In La Suerte Cigar and Cigarette Factory v. Court of Tax Appeals,201 this court upheld the validity of a
revenue memorandum circular issued by the Commissioner of Internal Revenue to correct an error in a
previous circular that resulted in the non-collection of tobacco inspection fees for a long time and declared
that estoppel cannot work against the government:
. . . the assailed Revenue Memorandum Circular was issued to rectify the error in General Circular No. V-27
and to interpret the phrase tobacco for domestic sale or factory use with the view of arresting huge losses
of tobacco inspection fees which were not collected and imposed since the said Circular (No. V-27) took
effect. Furthermore, the questioned Revenue Memorandum Circular was also issued to apprise those con-
cerned of the construction and interpretation which should be accorded to Act No. 2613, as amended, and
which respondent is duty bound to enforce. It is an opinion on how the law should be construed and there
was no attempt whatsoever to enlarge or restrict the meaning of the law.
The basis for the issuance of said Memorandum Circular was so stated in Resolution No. 2-67 of the Tobacco
Board, wherein petitioners as members of the Manila Tobacco Association, Inc. were duly represented, the
pertinent portions of which read:
. . . .
WHEREAS, this original recommendation of Mr. Hernandez was perfectly in accordance with existing law,
more particularly Sec. 1 of Republic Act No. 31 which took effect since September 25, 1946, but
perhaps thru oversight by the former Commissioners and officers of the Tobacco Inspection Service the
propriety and legality of effecting the inspection of tobacco products for local sales and imported leaf
tobacco for factory usemight have overlooked resulting in huge losses of tobacco inspection fees. . . (Italics
supplied)
....
Tobacco Inspection fees are undoubtedly National Internal Revenue taxes, they being one of the
miscellaneous taxes provided for under the Tax Code. Section 228 (formerly Section 302) of Chapter VII of
the Code specifically provides for the collection and manner of payment of the said inspection fees. It is
within the power and duty of the Commissioner to collect the same, even without inspection, should tobacco
products be removed clandestinely or surreptitiously from the establishment of the wholesaler, manufacturer
or redrying plant and from the customs custody in case of imported leaf tobacco. Errors, omissions or flaws
committed by BIR inspectors and representatives while in the performance of their duties cannot be set up
as estoppel nor estop the Government from collecting a tax legally due. Tobacco inspection fees are levied
and collected for purposes of regulation and control and also as a source of revenue since fifty percentum
(50%) of said fees shall accrue to the Tobacco Inspection Fee Fund created by Sec. 12 of Act No. 2613, as
amended and the other fifty percentum, to the Cultural Center of the Philippines. (Sec. 88, Chapter VII,
NIRC)202 (Emphasis in this paragraph supplied, citation omitted)
Furthermore, the December 12, 1972 ruling of Commissioner Misael P. Vera runs counter to Section 20(a) of
RR No. V-39 in relation to RR No. 17-67, which provides that only transfers of stemmed leaf tobacco
between L-7 permittees are exempt. An implementing regulation cannot be superseded by a ruling which is
a mere interpretation of the law. While opinions and rulings of officials of the government called upon to
execute or implement administrative laws command much respect and weight, courts are not bound to
accept the same if they override, instead of remain consistent and in harmony with, the law they seek to
apply and implement.203 cha nrob leslaw
Double taxation
The contention that the cigarette manufacturers are doubly taxed because they are paying the specific tax
on the raw material and on the finished product in which the raw material was a part is also devoid of merit.
For double taxation in the objectionable or prohibited sense to exist, the same property must be taxed
twice, when it should be taxed but once.204 [B]oth taxes must be imposed on the same property or
subject- matter, for the same purpose, by the same . . . taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or character of tax.205 chanrobles law
At all events, there is no constitutional prohibition against double taxation in the Philippines.206 This court
has explained in Pepsi-Cola Bottling Company of the Philippines, Inc. v. Municipality of Tanauan, Leyte:207
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. The reason is that the State has
exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not
forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some states of the Union. Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity
or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State
and the other by the city or municipality.208 (Emphasis supplied, citations omitted)
It is something not favored, but is permissible, provided some other constitutional requirement is not
thereby violated, such as the requirement that taxes must be uniform.209 chanrob leslaw
Excise taxes are essentially taxes on property210 because they are levied on certain specified goods or
articles manufactured or produced in the Philippines for domestic sale or consumption or for any other
disposition, and on goods imported. In this case, there is no double taxation in the prohibited sense because
the specific tax is imposed by explicit provisions of the Tax Code on two different articles or products: (1) on
the stemmed leaf tobacco; and (2) on cigar or cigarette.211 chan robles law
WHEREFORE, this court:
1. DENIES the petition for review filed by La Suerte Cigar & Cigarette Factory in G.R. No. 125346
and AFFIRMS the questioned decision and resolution of the Court of Appeals in CA-G.R. SP. No.
38107;
2. GRANTS the petition for review filed by the Commissioner of Internal Revenue in G.R. Nos.
13632829 and REVERSES and SETS ASIDE the challenged decision and resolution of the Court of
Appeals in CA-G.R. SP. Nos. 38219 and 40313. Fortune Tobacco Corporation isORDERED to pay the
following taxes:
cha nrob lesvi rtua llawli bra ry
a. P28,938,446.25 as deficiency excise tax for the period covering January 1, 1986 to June 30,
1989, plus 20% interest per annum from November 24, 1989 until fully paid; and
b. P1,989,821.26 as deficiency excise tax for the period covering July 1, 1989 to November 30,
1990, plus 20% interest per annum from March 1, 1991 until fully paid.
3. GRANTS the petition for review filed by the Commissioner of Internal Revenue in G.R. No. 144942
and REVERSES and SETS ASIDE the challenged decision of the Court of Appeals in CA-G.R. SP.
No. 51902. La Suerte Cigar & Cigarette Factorys claim for refund of the amount of P175,909.50
is DENIED.
4. DENIES the petition for review filed by Sterling Tobacco Corporation in G.R. No. 148605
andAFFIRMS the questioned decision and resolution of the Court of Appeals in CA-G.R. SP. No.
38159;
37124; and
50241.
SILKAIR (SINGAPORE) PTE. LTD., vs. COMMISSIONER OF INTERNAL

REVENUE
DECISION
VILLARAMA, JR., J.:
Assailed in this Rule 45 Petition is the Decision dated September 13, 2004 and
1
Resolution dated December 21, 2004 of the Court of Appeals (CA) in CA-G.R. SP
2
No. 82902.
Petitioner Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by the
Securities and Exchange Commission (SEC) to do business in the Philippines as an
on-line international carrier operating the Cebu-Singapore-Cebu and Davao-
Singapore-Davao routes. In the course of its international flight operations, petitioner
purchased aviation fuel from Petron Corporation (Petron) from July 1, 1998 to
December 31, 1998, paying the excise taxes thereon in the sum of P5,007,043.39. The
payment was advanced by Singapore Airlines, Ltd. on behalf of petitioner.
On October 20, 1999, petitioner filed an administrative claim for refund in the amount
of P5,007,043.39 representing excise taxes on the purchase of jet fuel from Petron,
which it alleged to have been erroneously paid. The claim is based on Section 135 (a)
and (b) of the 1997 Tax Code, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and

Exempt Entities or Agencies. Petroleum products sold to the following
are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on
their use or consumption outside the Philippines: Provided, That the
petroleum products sold to these international carriers shall be stored in
a bonded storage tank and may be disposed of only in accordance with
the rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties,

conventions and other international agreements for their use or
consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar
taxes petroleum products sold to Philippine carriers, entities or agencies;
and
x x x x (Emphasis supplied.)
Petitioner also invoked Article 4(2) of the Air Transport Agreement between the
Government of the Republic of the Philippines and the Government of the Republic of
Singapore (Air Transport Agreement between RP and Singapore) which reads:
3
ART. 4
xxxx
2. Fuel, lubricants, spare parts, regular equipment and aircraft

stores introduced into, or taken on board aircraft in the territory of one
Contracting Party by, or on behalf of, a designated airline of the other
Contracting Party and intended solely for use in the operation of the
agreed services shall, with the exception of charges corresponding to the
service performed, be exempt from the same customs duties, inspection
fees and other duties or taxes imposed in the territory of the first
Contracting Party, even when these supplies are to be used on the parts
of the journey performed over the territory of the Contracting Party in
which they are introduced into or taken on board. The materials referred
to above may be required to be kept under customs supervision and
control. 4
Due to the inaction by respondent Commissioner of Internal Revenue,

petitioner filed a petition for review with the Court of Tax Appeals (CTA) on June 30,
2000.
On July 28, 2003, the CTA rendered its decision denying petitioners claim for
5
refund. Said court ruled that while petitioners country indeed exempts from similar
taxes petroleum products sold to Philippine carriers, petitioner nevertheless failed to
comply with the second requirement under Section 135 (a) of the 1997 Tax Code as it
failed to prove that the jet fuel delivered by Petron came from the latters bonded
storage tank. Presiding Justice Ernesto D. Acosta dissented from the majority view
that petitioners claim should be denied, stating that even if the bonded storage tank is
required under Section 135 (a), the claim can still be justified under Section 135 (b) in
view of our countrys existing Air Transport Agreement with the Republic of
Singapore which shows the reciprocal enjoyment of the privilege of the designated
airline of the contracting parties.
Its motion for reconsideration having been denied by the CTA, petitioner elevated the
case to the CA. Petitioner assailed the CTA in not holding that there are distinct and
separate instances of exemptions provided in paragraphs (a), (b) and (c) of Section
135, and therefore the proviso found in paragraph (a) should not have been applied to
the exemption granted under paragraph (b).
The CA affirmed the denial of the claim for tax refund and dismissed the petition. It
ruled that while petitioner is exempt from paying excise taxes on petroleum products
purchased in the Philippines by virtue of Section 135 (b), petitioner is not the proper
party to seek for the refund of the excise taxes paid. Petitioners motion for
reconsideration was likewise denied by the appellate court.
In this appeal, petitioner argues that it is the proper party to file the claim for refund,
being the entity granted the tax exemption under the Air Transport Agreement
between RP and Singapore. It disagrees with respondents reasoning that since excise
tax is an indirect tax it is the direct liability of the manufacturer, Petron, and not the
petitioner, because this puts to naught whatever exemption was granted to petitioner
by Article 4 of the Air Transport Agreement.
Petitioner further contends that respondent is estopped from questioning the

right of petitioner to claim a refund of the excise taxes paid after issuing BIR Ruling
No. 339-92 which already settled the matter. It further points out that the CTA has
consistently ruled in a number of decisions involving the same parties that petitioner
is the proper party to seek the refund of excise taxes paid on its purchases of
petroleum products. Finally, it emphasizes that respondent never raised in issue
petitioners legal personality to seek a tax refund in the administrative level. Citing
this Courts ruling in the case of Commissioner of Internal Revenue v. Court of Tax
Appeals, et al. petitioner asserts that respondent is in estoppel to question petitioners
6
standing to file the claim for refund for its failure to timely raise the issue in the
administrative level, as well as before the CTA.
On the other hand, the Solicitor General on behalf of respondent, maintains that
the excise tax passed on to the petitioner by Petron being in the nature of an indirect
tax, it cannot be the subject matter of an administrative claim for refund/tax credit,
following the ruling in Contex Corporation v. Commissioner of Internal
Revenue. Moreover, assuming arguendothat petitioner falls under any of the
7
enumerated transactions/persons entitled to tax exemption under Section 135 of

the 1997 Tax Code, what the law merely contemplates is exemption from the payment
of excise tax to the seller/manufacturer, in this case Petron, but not an exemption from
payment of excise tax to the BIR, much more an entitlement to a refund from the BIR.
Being the buyer, petitioner is not the person required by law nor the person statutorily
liable to pay the excise tax but the seller, following the provision of Section 130 (A)
(1) (2).
The Solicitor General also asserts that contrary to petitioners argument that
respondent never raised in the administrative level the issue of whether petitioner is
the proper party to file the claim for refund, records would show that respondent
actually raised the matter of whether petitioner is entitled to the tax refund being
claimed in his Answer dated August 8, 2000, in the Joint Stipulation of Facts, and in
his Memorandum submitted before the CTA where respondent categorically averred
that petitioner x x x is not the entity directly liable for the payment of the tax, hence,
not the proper party who should claim the refund of the excise taxes paid. 8
We rule for the respondent.
The core issue presented is the legal personality of petitioner to file an administrative
claim for refund of excise taxes alleged to have been erroneously paid to its supplier
of aviation fuel here in the Philippines.
In three previous cases involving the same parties, this Court has already settled the
issue of whether petitioner is the proper party to seek the refund of excise taxes paid
on its purchase of aviation fuel from a local manufacturer/seller. Following the
principle of stare decisis, the present petition must therefore be denied.
Excise taxes, which apply to articles manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported into
the Philippines, is basically an indirect tax. While the tax is directly levied upon the
9
manufacturer/importer upon removal of the taxable goods from its place of production
or from the customs custody, the tax, in reality, is actually passed on to the end
consumer as part of the transfer value or selling price of the goods, sold, bartered or
exchanged. In early cases, we have ruled that for indirect taxes (such as valued-added
10
tax or VAT), the proper party to question or seek a refund of the tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even
when he shifts the burden thereof to another. Thus, in Contex Corporation v.
11
Commissioner of Internal Revenue, we held that while it is true that petitioner

12
corporation should not have been liable for the VAT inadvertently passed on to it by
its supplier since their transaction is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund. Rather, it is the
petitioners suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter. 13
In the first Silkair case decided on February 6, 2008, this Court categorically
14
declared:
The proper party to question, or seek a refund of, an indirect tax is

the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to another.
Section 130 (A) (2) of the NIRC provides that [u]nless otherwise
specifically allowed, the return shall be filed and the excise tax paid by
the manufacturer or producer before removal of domestic products from
place of production. Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the

tax, the additional amount billed to Silkair for jet fuel is not a tax but part
of the price which Silkair had to pay as a purchaser. (Emphasis
15
supplied.)
Just a few months later, the decision in the second Silkair case was promulgated,
16
reiterating the rule that in the refund of indirect taxes such as excise taxes, the
statutory taxpayer is the proper party who can claim the refund. We also clarified that
petitioner Silkair, as the purchaser and end-consumer, ultimately bears the tax burden,
but this does not transform its status into a statutory taxpayer.
The person entitled to claim a tax refund is the statutory taxpayer.

Section 22(N) of the NIRC defines a taxpayer as any person subject to
tax. In Commissioner of Internal Revenue v. Procter and Gamble Phil.
Mfg. Corp., the Court ruled that:
A person liable for tax has been held to be a

person subject to tax and properly considered a
taxpayer. The terms liable for tax and subject to tax
both connote a legal obligation or duty to pay a tax.
The excise tax is due from the manufacturers of the petroleum

products and is paid upon removal of the products from their refineries.
Even before the aviation jet fuel is purchased from Petron, the excise tax
is already paid by Petron. Petron, being the manufacturer, is the person
subject to tax. In this case, Petron, which paid the excise tax upon
removal of the products from its Bataan refinery, is the person liable for
tax. Petitioner is neither a person liable for tax nor a person subject
to tax. There is also no legal duty on the part of petitioner to pay the
excise tax; hence, petitioner cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the
tax is billed as a separate item in the aviation delivery receipts and
invoices issued to its customers, Petron remains the taxpayer because
the excise tax is imposed directly on Petron as the manufacturer.
Hence, Petron, as the statutory taxpayer, is the proper party that
can claim the refund of the excise taxes paid to the BIR. (Emphasis
17
supplied.)
Petitioners contention that the CTA and CA rulings would put to naught the
exemption granted under Section 135 (b) of the 1997 Tax Code and Article 4 of
the Air Transport Agreement is not well-taken. Since the supplier herein involved is
also Petron, our pronouncement in the second Silkair case, relative to the contractual
undertaking of petitioner to submit a valid exemption certificate for the purpose, is
relevant. We thus noted:
The General Terms & Conditions for Aviation Fuel

Supply (Supply Contract) signed between petitioner (buyer) and Petron
(seller) provide:
11.3 If Buyer is entitled to purchase any Fuel sold

pursuant to the Agreement free of any taxes, duties or
charges, Buyer shall timely deliver to Seller a valid
exemption certificate for such purchase. (Emphasis
supplied)
This provision instructs petitioner to timely submit a valid

exemption certificate to Petron in order that Petron will not pass on the
excise tax to petitioner. As correctly suggested by the CTA, petitioner
should invoke its tax exemption to Petron before buying the aviation jet
fuel. Petron, however, remains the statutory taxpayer on those excise
taxes.
Revenue Regulations No. 3-2008 (RR 3-2008) provides that

subject to the subsequent filing of a claim for excise tax credit/refund or
product replenishment, all manufacturers of articles subject to excise tax
under Title VI of the NIRC of 1997, as amended, shall pay the excise tax
that is otherwise due on every removal thereof from the place of
production that is intended for exportation or sale/delivery to
international carriers or to tax-exempt entities/agencies. The
Department of Finance and the BIR recognize the tax exemption granted
to international carriers but they consistently adhere to the view that
manufacturers of articles subject to excise tax are the statutory taxpayers
that are liable to pay the tax, thus, the proper party to claim any tax
refunds.18
The above observation remains pertinent to this case because the very same provision
in the General Terms and Conditions for Aviation Fuel Supply Contract also appears
in the documentary evidence submitted by petitioner before the CTA. Except for its
19
bare allegation of being placed in a very complicated situation because Petron, for
fear of being assessed by Respondent, will not allow the withdrawal and delivery of
the petroleum products without Petitioners pre-payment of the excise taxes,
petitioner has not demonstrated that it dutifully complied with its contractual
undertaking to timely submit to Petron a valid certificate of exemption so that Petron
may subsequently file a claim for excise tax credit/refund pursuant to Revenue
Regulations No. 3-2008 (RR 3-2008). It was indeed premature for petitioner to assert
that the denial of its claim for tax refund nullifies the tax exemption granted to it
under Section 135 (b) of the 1997 Tax Code and Article 4 of the Air Transport
Agreement.
In the third Silkair case decided last year, the Court called the attention to the
20
consistent rulings in the previous two Silkair cases that petitioner as the purchaser and
end-consumer of the aviation fuel is not the proper party to claim for refund of excise
taxes paid thereon. The situation clearly called for the application of the
doctrine, stare decisis et non quieta movere.Follow past precedents and do not disturb
what has been settled. Once a case has been decided one way, any other case
involving exactly the same point at issue, as in the case at bar, should be decided in
the same manner. The Court thus finds no cogent reason to deviate from those
21
previous rulings on the same issues herein raised.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
September 13, 2004 and Resolution dated December 21, 2004 of the Court of Appeals
in CA-G.R. SP No. 82902 are AFFIRMED.
With costs against the petitioner.
SO ORDERED.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.)

CORPORATION, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated December 18, 2013 and the
Resolution3 dated June 10, 2014 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 924, which
affirmed the Resolution4 dated July 31, 2012 of the CTA Third Division (CTA Division) in CTA Case No. 6967,
granting respondent Nippon Express (Phils.) Corporation's (Nippon) motion to withdraw petition for
review5 (motion to withdraw).
The Facts
Nippon is a domestic corporation duly organized and existing under Philippine laws which is primarily
engaged in the business of freight forwarding, namely, in the international and domestic air and sea freight
and cargo forwarding, hauling, carrying, handling, distributing, loading, and unloading general cargoes and
all classes of goods, wares, and merchandise, and the operation of container depots, warehousing, storage,
hauling, and packing facilities.6 It is a Value-Added Tax (VAT) registered entity with Tax Identification No.
VAT Registration No. 004-669-434-000.7 As such, it filed its quarterly VAT returns for the year 2002 on April
25, 2002, July 25, 2002, October 25, 2002, and January 27, 2003, respectively.8 It maintained that during
the said period it incurred input VAT attributable to its zero-rated sales in the amount of P28,405,167.60,
from which only P3,760,660.74 was applied as tax credit, thus, reflecting refundable excess input VAT in the
amount of P24,644,506.86.9
On April 22, 2004, Nippon filed an administrative claim for refund10 of its unutilized input VAT in the amount
of P24,644,506.86 for the year 2002 before the Bureau of Internal Revenue (BIR).11 A day later, or on April
23, 2004, it filed a judicial claim for tax refund, by way of petition for review,12before the CTA, docketed as
CTA Case No. 6967.13
For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia, that the amounts
being claimed by Nippon as unutilized input VAT were not properly documented, hence, should be denied.14
Proceedings Before the CTA Division
In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's claim for tax refund, and
thereby ordered the CIR to issue a tax credit certificate in the reduced amount of P2,614,296.84,
representing its unutilized input VAT which was attributable to its zero-rated sales.16It found that while
Nippon timely filed its administrative and judicial claims within the two (2)-year prescriptive period,17 it,
however, failed to show that the recipients of its services - which, in this case, were mostly Philippine
Economic Zone Authority registered enterprises - were non-residents "doing business outside the
Philippines." Accordingly, it concluded that Nippon's purported sales therefrom could not qualify as zero-
rated sales, hence, the reduction in the amount of tax credit certificate claimed.18
Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to
withdraw,19 considering that the BIR, acting on its administrative claim, already issued a tax credit
certificate in the amount of P21,675,128.91 on July 27, 2011 (July 27, 2011 Tax Credit Certificate).
Separately, the CIR moved for reconsideration20 of the August 10, 2011 Decision and filed its
comment/opposition21 to Nippon's motion to withdraw, claiming that: (a) the CTA Division had already
resolved the factual issue pertaining to Nippon's entitlement to a tax credit certificate, which, after trial, was
proven to be only in the amount of P2,614,296.84; (b) the issuance of the July 27, 2011 Tax Credit
Certificate was bereft of factual and legal bases, and prejudicial to the interest of the government; and (c)
Nippon's motion to withdraw was "tantamount to [a] withdrawal and abandonment of its [mjotion for
[reconsideration also filed in this case."22
Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on August 16,
2011,23 likewise sought for reconsideration,24 praying that the CTA Division set aside its August 10, 2011
Decision and render judgment ordering the CIR to issue a tax credit certificate in the full amount of
P24,644,506.86, or in the alternative, grant its motion to withdraw.25 cralaw red
In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to withdraw and, thus,
considered the case closed and terminated.27 It found that pursuant to Revenue Memorandum Circular
No. 49-03 (RMC No. 49-03) dated August 15, 2003, Nippon correctly availed of the proper remedy
notwithstanding the promulgation of the August 10, 2011 Decision. It added that in approving the
withdrawal of Nippon's petition for review, it exercised its discretionary authority under Section 3, Rule 50 of
the Rules of Court after due consideration of the reasons proffered by Nippon, namely: (a) that the parties
had already arrived at a reasonable settlement of the issues; (b) further legal and related costs would be
avoided; and (c) the court's time and resources would be saved.28
Aggrieved, the CIR elevated29 its case to the CTA En Banc.
The CTA En Banc Ruling

In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012 Resolution of the CTA
Division granting Nippon's motion to withdraw.31 It debunked the CIR's assertions that Nippon failed to
comply with the requirements set forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that it
agreed with its findings and to file the necessary motion before the CTA Division prior to the promulgation of
its Decision -noting that RMC No. 49-03 did not expressly require a taxpayer to inform the BIR of its assent
nor prescribe a definite period for filing a motion to withdraw. It also observed that the CIR did not deny the
existence and issuance of the July 27, 2011 Tax Credit Certificate. In this regard, the same may be taken
judicial notice of, and the need for its formal offer dispensed with.32
The CIR moved for partial reconsideration33 which was, however, denied by the CTA En Banc in a
Resolution34 dated June 10, 2014; hence, this petition.
The Issue Before the Court
The core issue in this case is whether the CTA properly granted Nippon's motion to withdraw.
The Court's Ruling
The petition is meritorious.
A perusal of the Revised Rules of the Court of Tax Appeals35 (RRCTA) reveals the lack of provisions
governing the procedure for the withdrawal of pending appeals before the CTA. Hence, pursuant to Section
3, Rule 1 of the RRCTA, the Rules of Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall apply suppletorily to
these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules 42, 43, 44,
and 46 of the Rules of Court which are equally adopted in the RRCTA36 - states that when the case is
deemed submitted for resolution, withdrawal of appeals made after the filing of the appellee's brief may still
be allowed in the discretion of the court:
RULE 50
DISMISSAL OF APPEAL
xxxx
Section 3. Withdrawal of appeal. An appeal may be withdrawn as of right at any time before the filing of
the appellee's brief. Thereafter, the withdrawal may be allowed in the discretion of the
court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate, Nippon filed a motion
to withdraw the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid incurring further
legal and related costs, not to mention the time and resources of [the CTA], [Nippon] most respectfully
moves for the withdrawal of its Petition for Review.37
Finding the aforementioned grounds to be justified, the CTA Division allowed the withdrawal of Nippon's
appeal thereby ordering the case closed and terminated, notwithstanding the fact that the said motion was
filed after the promulgation of its August 10, 2011 Decision.
While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the authority
of the foregoing legal provisions, the attendant circumstances in this case should have incited it to act
otherwise.
First, it should be pointed out that the August 10, 2011 Decision was rendered by the CTA Division after a
full-blown hearing in which the parties had already ventilated their claims. Thus, the findings contained
therein were the results of an exhaustive study of the pleadings and a judicious evaluation of the evidence
submitted by the parties, as well as the report of the commissioned certified public accountant. In Reyes v.
Commission on Elections,38 the Court only noted, and did not grant, a motion to withdraw the petition filed
after it had already acted on said petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost upon the instance of
the parties, but continues until the case is terminated. When petitioner filed her Petition
for Certiorari jurisdiction vested in the Court and, in fact, the Court exercised such jurisdiction when it acted
on the petition. Such jurisdiction cannot be lost by the unilateral withdrawal of the petition by petitioner.39
The primary reason, however, that militates against the granting of the motion to withdraw is the fact that
the CTA Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled to
refund the reduced amount of P2,614,296.84 since it failed to prove that the recipients of its services were
non-residents "doing business outside the Philippines"; hence, Nippon's purported sales therefrom could not
qualify as zero-rated sales, necessitating the reduction in the amount of refund claimed. Markedly different
from this is the BIR's determination that Nippon should receiveP21,675,128.91 as per the July 27, 2011
Tax Credit Certificate, which is, in all, P19,060,832.07larger than the amount found due by the CTA
Division. Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De Castro during the
deliberations on this case, the massive discrepancy alone between the administrative and judicial
determinations of the amount to be refunded to Nippon should have already raised a red flag to the CTA
Division. Clearly, the interest of the government, and, more significantly, the public, will be greatly
prejudiced by the erroneous grant of refund - at a substantial amount at that - in favor of Nippon. Hence,
under these circumstances, the CTA Division should not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July
27, 2011 Tax Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the
government cannot be estopped by the mistakes, errors or omissions of its agents for upon it depends the
ability of the government to serve the people for whose benefit taxes are collected.40
Finally, the Court has observed that based on the records, Nippon's administrative claim for the first taxable
quarter of 2002 which closed on March 31, 2002 was already time-barred41 for being filed onApril 22,
2004, or beyond the two (2)-year prescriptive period pursuant to Section 112(A)42 of the National Internal
Revenue Code of 1997. Although prescription was not raised as an issue, it is well-settled that if the
pleadings or the evidence on record show that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.43
All told, the CTA committed a reversible error in granting Nippon's motion to withdraw. The August 10, 2011
Decision of the CTA Division should therefore be reinstated, without prejudice, however, to the right of
either party to appeal the same in accordance with the RRCTA.
WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and the Resolution dated
June 10, 2014 of the Court of Tax Appeals En Banc in CTA EB Case No. 924 are hereby SET ASIDE. The
Decision dated August 10, 2011 of the Court of Tax Appeals Third Division in CTA Case No. 6967
is REINSTATED, without prejudice, however, to the right of either party to appeal the same in accordance
with the Revised Rules of the Court of Tax Appeals.
SO ORDERED. chanroblesvi rtua llawli bra ry
G.R. No. 197525 June 4, 2014
VISAYAS GEOTHERMAL POWER COMPANY, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the February 7, 2011 Decision1 and the June 27, 2011 Resolution2 of the Court of Tax Appeals En
Banc (CTA En Banc) in CTA EB Case Nos. 561 and 562, which reversed and set aside the April 17,
2009 Decision of the CT A Second Division in CTA Case No. 7559.
The Facts:
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited partnership duly
organized and existing under Philippine Laws with its principal office at Milagro, Ormoc City,
Province of Leyte. It is principally engaged in the business of power generation through geothermal
energy and the sale of generated power to the Philippine National Oil Company (PNOC),pursuant to
the Energy Conversion Agreement.
VGPC filed with the Bureau of Internal Revenue (BIR)its Original Quarterly VAT Returns for the first
to fourth quarters of taxable year 2005 on April 25, 2005, July 25, 2005, October 25, 2006, and
January 20, 2006, respectively.
On December 6, 2006, it filed an administrative claim for refund for the amount of 14,160,807.95
with the BIR District Office No. 89 of Ormoc City on the ground that it was entitled to recover excess
and unutilized input VAT payments for the four quarters of taxable year 2005, pursuant to Republic
Act (R.A.) No. 9136,3 which treated sales of generated power subject to VAT to a zero percent (0%)
rate starting June 26, 2001.
Nearly one month later, on January3, 2007, while its administrative claim was pending, VGPC filed
its judicial claim via a petition for review with the CTA praying for a refund or the issuance of a tax
credit certificate in the amount of 14,160,807.95, covering the four quarters of taxable year 2005.
In its April 17, 2009 Decision, the CTA Second Division partially granted the petition as follows:
WHEREFORE, in view of the foregoing considerations, the Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or, in the alternative,
TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the reduced amount of SEVEN
MILLION SIX HUNDRED NINENTY NINE THOUSAND THREE HUNDRED SIXTY SIX PESOS AND
37/100 (P7,699,366.37) representing unutilized input VAT paid on domestic purchases of non-capital
goods and services, services rendered by non-residents, and importations of non-capital goods for
the first to fourth quarters of taxable year 2005.
SO ORDERED.4
The CTA Second Division found that only the amount of 7,699,366.37 was duly substantiated by the
required evidence. As to the timeliness of the filing of the judicial claim, the Court ruled that following
the case of Commissioner of Internal Revenue (CIR) v. Mirant Pagbilao Corporation (Mirant),5 both
the administrative and judicial claims were filed within the two-year prescriptive period provided in
Section 112(A) of the National Internal Revenue Code of 1997 (NIRC),the reckoning point of the
period being the close of the taxable quarter when the sales were made.
In its October 29, 2009 Resolution,6 the CTA Second Division denied the separate motions for partial
reconsideration filed by VGPC and the CIR. Thus, both VGPC and the CIR appealed to the CTA En
Banc.
In the assailed February 7, 2011 Decision,7 the CTA En Banc reversed and set aside the decision
and resolution of the CTA Second Division, and dismissed the original petition for review for having
been filed prematurely, to wit:
WHEREFORE, premises considered:

i. As regards CTA EB Case No. 562, the Petition for Review is hereby DISMISSED; and
ii. As regards CTA EB Case No. 561, the Petition for Review is hereby GRANTED.
Accordingly, the Decision, dated April 17, 2009, and the Resolution, dated October 29, 2009, of the
CTA Former Second Division are hereby REVERSED and SET ASIDE, and another one is hereby
entered DISMISSING the Petition for Review filed in CTA Case No. 7559 for having been filed
prematurely.
SO ORDERED.8
The CTA En Banc explained that although VGPC seasonably filed its administrative claim within the
two-year prescriptive period, its judicial claim filed with the CTA Second Division was prematurely
filed under Section 112(D) of the National Internal Revenue Code (NIRC).Citing the case of CIR v.
Aichi Forging Company of Asia, Inc. (Aichi),9 the CTA En Banc held that the judicial claim filed 28
days after the petitioner filed its administrative claim, without waiting for the expiration of the 120-day
period, was premature and, thus, the CTA acquired no jurisdiction over the case.
The VGPC filed a motion for reconsideration, but the CTA En Banc denied it in the assailed June 27,
2011 Resolution for lack of merit. It stated that the case of Atlas Consolidated Mining v. CIR
(Atlas)10 relied upon by the petitioner had long been abandoned.
Hence, this petition.
ASSIGNMENT OF ERRORS
The CTA En Banc erred in finding that the 120-day and 30-day periods prescribed under Section
112(D) of the 1997 Tax Code are jurisdictional and mandatory in the filing of the judicial claim for
refund. The CTA-Division should take cognizance of the judicial appeal as long as it is filed with the
two-year prescriptive period under Section 229 of the 1997 Tax Code.
II
The CTA En Banc erred in finding that Aichi prevails over and/or overturned the doctrine in Atlas,
which upheld the primacy of the two-year period under Section 229 of the Tax Code. The law and
jurisprudence have long established the doctrine that the taxpayer is duty-bound to observe the two-
year period under Section 229 of the Tax Code when filing its claim for refund of excess and
unutilized VAT.
III
The CTA En Banc erred in finding that Respondent CIR is not estopped from questioning the
jurisdiction of the CTA. Respondent CIR, by her actions and pronouncements, should have been
precluded from questioning the jurisdiction of the CTA-Division.
IV
The CTA En Banc erred in applying Aichi to Petitioner VGPCs claim for refund. The novel
interpretation of the law in Aichi should not be made to apply to the present case for being contrary
to existing jurisprudence at the time Petitioner VGPC filed its administrative and judicial claims for
refund.11
Petitioner VGPC argues that (1) the law and jurisprudence have long established the rule regarding
compliance with the two-year prescriptive period under Section 112(D) in relation to Section 229 of
the 1997 Tax Code; (2) Aichi did not overturn the doctrine in Atlas, which upheld the primacy of the
two-year period under Section 229; (3) respondent CIR is estopped from questioning the jurisdiction
of the CTA and Aichi cannot be indiscriminately applied to all VAT refund cases; (4) applying Aichi
invariably to all VAT refund cases would effectively grant respondent CIR unbridled discretion to
deprive a taxpayer of the right to effectively seek judicial recourse, which clearly violates the
standards of fairness and equity; and (5) the novel interpretation of the law in Aichi should not be
made to apply to the present case for being contrary to existing jurisprudence at the time VGPC filed
its administrative and judicial claims for refund. Aichi should be applied prospectively.
Ruling of the Court
Judicial claim not premature
The assignment of errors is rooted in the core issue of whether the petitioners judicial claim for
refund was prematurely filed.
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A) and (D) and
Section 229, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales.
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.- In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power Corporation
(San Roque),12that it is Section 112 of the NIRC which applies to claims for tax credit certificates and
tax refunds arising from sales of VAT-registered persons that are zero-rated or effectively zero-rated,
which are, simply put, claims for unutilized creditable input VAT.
Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the taxable quarter
when the sales were made, via an administrative claim with the CIR, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales. Under
Section 112(D), the CIR must then act on the claim within 120 days from the submission of the
taxpayers complete documents. In case of (a) a full or partial denial by the CIR of the claim, or (b)
the CIRs failure to act on the claim within 120 days, the taxpayer may file a judicial claim via an
appeal with the CTA of the CIR decision or unacted claim, within 30 days (a) from receipt of the
decision; or (b) after the expiration of the 120-day period.
The 2-year period under Section 229 does not apply to appeals before the CTA in relation to claims
for a refund or tax credit for unutilized creditable input VAT.Section 229 pertains to the recovery of
taxes erroneously, illegally, or excessively collected.13 San Roque stressed that "input VAT is not
excessively collected as understood under Section 229 because, at the time the input VAT is
collected, the amount paid is correct and proper."14 It is, therefore, Section 112 which applies
specifically with regard to claiming a refund or tax credit for unutilized creditable input VAT.15
Upholding the ruling in Aichi,16 San Roque held that the 120+30 day period prescribed under Section
112(D) mandatory and jurisdictional.17 The jurisdiction of the CTA over decisions or inaction of the
CIR is only appellate in nature and, thus, necessarily requires the prior filing of an administrative
case before the CIR under Section 112.18 The CTA can only acquire jurisdiction over a case after the
CIR has rendered its decision, or after the lapse of the period for the CIR to act, in which case such
inaction is considered a denial.19 A petition filed prior to the lapse of the 120-day period prescribed
under said Section would be premature for violating the doctrine on the exhaustion of administrative
remedies.20
There is, however, an exception to the mandatory and jurisdictional nature of the 120+30 day period.
The Court in San Roque noted that BIR Ruling No. DA-489-03, dated December 10, 2003, expressly
stated that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review."21 This BIR Ruling was recognized as
a general interpretative rule issued by the CIR under Section 422 of the NIRC and, thus, applicable to
all taxpayers. Since the CIR has exclusive and original jurisdiction to interpret tax laws, it was held
that taxpayers acting in good faith should not be made to suffer for adhering to such interpretations.
Section 24623 of the Tax Code, in consonance with equitable estoppel, expressly provides that a
reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied
on the BIR regulation or ruling prior to its reversal. Hence, taxpayers can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on December 10, 2003 up to its reversal by this Court in Aichion
October 6, 2010, where it was held that the 120+30 day period was mandatory and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory and jurisdictional from the
effectivity of the 1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims
filed from December 10, 2003 to October 6, 201024 need not wait for the exhaustion of the 120-day
period.
A review of the facts of the present case reveals that petitioner VGPC timely filed its administrative
claim with the CIR on December 6, 2006, and later, its judicial claim with the CTA on January 3,
2007. The judicial claim was clearly filed within the period of exception and was, therefore, not
premature and should not have been dismissed by the CTA En Banc.
In the present petition, VGPC prays that the Court grant its claim for refund or the issuance of a tax
credit certificate for its unutilized input VAT in the amount of P14,160,807.95. The CTA Second
Division, however, only awarded the amount of P7,699,366.37. The petitioner has failed to present
any argument to support its entitlement to the former amount.
In any case, the Court would have been precluded from considering the same as such would require
a review of the evidence, which would constitute a question of fact outside the Courts purview under
Rule 45 of the Rules of Court. The Court, thus, finds that the petitioner is entitled to the refund
awarded to it by the CTA Second Division in the amount of P7,699,366.37.
Atlas doctrine has no relevance

to the 120+30 day period for
filing judicial claim
Although the core issue of prematurity of filing has already been resolved, the Court deems it proper
to discuss the petitioners argument that the doctrine in Atlas, which allegedly upheld the primacy of
the 2-year prescriptive period under Section 229,should prevail over the ruling in Aichi regarding the
mandatory and jurisdictional nature of the 120+30 day period in Section 112.
In this regard, it was thoroughly explained in San Roque that the Atlas doctrine only pertains to the
reckoning point of the 2-year prescriptive period from the date of payment of the output VAT under
Section 229, and has no relevance to the 120+30 day period under Section 112, to wit:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8 June
2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to
the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should
be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned
the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two
year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayers
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies. Such doctrine is basic and elementary.25
[Underscoring supplied]
Thus, Atlas is only relevant in determining when to file an administrative claim with the CIR for
refund or credit of unutilized creditable input VAT, and not for determining when to file a judicial
claim with the CTA. From June 8, 2007 to September 12, 2008, the 2-year prescriptive period to file
administrative claims should be counted from the date of payment of the output VAT tax. Before and
after said period, the 2-year prescriptive period is counted from the close of the taxable quarter when
the sales were made, in accordance with Section 112(A). In either case, the mandatory and
jurisdictional 120+30 day period must be complied with for the filing of the judicial claim with the
CTA, except for the period provided under BIR Ruling No. DA-489-03, as previously discussed.
The Court further noted that Atlas was decided in relation to the 1977 Tax Code which had not yet
provided for the 30-day period for the taxpayer to appeal to the CTA from the decision or inaction of
the CIR over claims for unutilized input VAT. Clearly then, the Atlas doctrine cannot be invoked to
disregard compliance with the 120+30 day mandatory and jurisdictional period.26 In San Roque, it
was written:
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioners
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do
away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file
the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during
the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no
longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to
decide until the expiration of the 120-day period.27
At any rate, even assuming that the Atlas doctrine was relevant to the present case, it could not be
applied since it was held to be effective only from its promulgation on June 8, 2007 until its
abandonment on September 12, 2008 when Mirant was promulgated. The petitioner in this case filed
both its administrative and judicial claims outside the said period of effectivity.
Aichi not applied prospectively
Petitioner VGPC also argues that Aichi should be applied prospectively and, therefore, should not be
applied to the present case. This position cannot be given consideration.
Article 8 of the Civil Code provides that judicial decisions applying or interpreting the law shall form
part of the legal system of the Philippines and shall have the force of law. The interpretation placed
upon a law by a competent court establishes the contemporaneous legislative intent of the law.
Thus, such interpretation constitutes a part of the law as of the date the statute is enacted. It is only
when a prior ruling of the Court is overruled, and a different view adopted, that the new doctrine may
have to be applied prospectively in favor of parties who have relied on the old doctrine and have
acted in good faith.28
Considering that the nature of the 120+30 day period was first settled in Aichi, the interpretation by
the Court of its being mandatory and jurisdictional in nature retro acts to the date the NIRC was
enacted. It cannot be applied prospectively as no old doctrine was overturned.
The petitioner cannot rely either on the alleged jurisprudence prevailing at the time it filed its judicial
claim. The Court notes that the jurisprudence relied upon by the petitioner consists of CTA cases. It
is elementary that CTA decisions do not constitute precedent and do not bind this Court or the
public. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal
system.29
As regards the cases30 which were later decided allegedly in contravention of Aichi, it is of note that
all of them were decided by Divisions of this Court, and not by the Court En Banc. Any doctrine or
1w phi 1
principle of law laid down by the Court, either rendered En Bancor in Division, may be overturned or
reversed only by the Court sitting En Banc.31 Thus, the cases cited by the petitioner could not have
overturned the doctrine laid down in Aichi.
CIR not estopped
The petitioners argument that the CIR should have been estopped from questioning the jurisdiction
of the CTA after actively participating in the proceedings before the CTA Second Division deserves
scant consideration.
It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions
of its agents.32 It has been specifically held that estoppel does not apply to the government,
especially on matters of taxation. Taxes are the nations lifeblood through which government
agencies continue to operate and with which the State discharges its functions for the welfare of its
constituents.33 Thus, the government cannot be estopped from collecting taxes by the mistake,
negligence, or omission of its agents. Upon taxation depends the ability of the government to serve
the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of
government officials entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people.34
Rules on claims for refund or tax credit of unutilized input VAT
For clarity and guidance, the Court deems it proper to outline the rules laid down in San Roque with
regard to claims for refund or tax credit of unutilized creditable input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule Section 112(A) and Mirant Within 2 years from the close of the
taxable quarter when the sales were made.
b. Exception Atlas
Within 2 years from the date of payment of the output VAT, if the administrative claim was filed from
June 8, 2007 (promulgation of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CTA:
a. General rule Section 112(D); not Section 229
i. Within 30 days from the full or partial denial of the administrative claim by
the CIR; or
ii. Within 30 days from the expiration of the 120-day period provided to the
CIR to decide on the claim. This is mandatory and jurisdictional beginning
January L 1998 ( effectivity of 1997 NI RC).
b. Exception - BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was filed from
December 10, 2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of
Aichi).
WHEREFORE, the petition is PARTIALLY GRANTED. The February 7, 2011 Decision and the June
27, 2011 Resolution of the Court of Tax Appeals En Banc, in CT A EB Case Nos. 561 and 562 are
REVERSED and SET ASIDE. The April 17, 2009 Decision and the October 29, 2009 Resolution of
the CTA Former Second Division in CTA Case No. 7559 are REINSTATED.
Public respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX
CREDIT CERTIFICATE, in favor or the petitioner the amount of SEVEN MILLION SIX HUNDRED
NINETY NINE THOUSAND THREE HUNDRED SIXTY SIX PESOS AND 37/100 (P7,699,366.37)
representing unutilized input VAT paid on domestic purchases of non-capital goods and services,
services rendered by nonresidents, and importations of non-capital goods for the first to fourth
quarters of taxable year 2005.
SO ORDERED.
GUALBERTO J. DELA LLANA, Petitioner, v. THE CHAIRPERSON,

COMMISSION ON AUDIT, THE EXECUTIVE SECRETARY and THE
NATIONAL TREASURER, Respondents.
DECISION
SERENO, J.:
This is a Petition for Certiorari under Rule 65 of the Rules of Court with a
prayer for the issuance of a temporary restraining order pursuant to Section 7, Article
IX-D of the 1987 Constitution, seeking to annul and set aside Commission on Audit
(COA) Circular No. 89-299, which lifted its system of pre-audit of government
financial transactions.
Statement of the Facts and the Case
On 26 October 1982, the COA issued Circular No. 82-195, lifting the system
of pre-audit of government financial transactions, albeit with certain exceptions. The
circular affirmed the state policy that all resources of the government shall be
managed, expended or utilized in accordance with law and regulations, and
safeguarded against loss or wastage through illegal or improper disposition, with a
view to ensuring efficiency, economy and effectiveness in the operations of
government. Further, the circular emphasized that the responsibility to ensure
faithful adherence to the policy rested directly with the chief or head of the
government agency concerned. The circular was also designed to further facilitate
or expedite government transactions without impairing their integrity.
After the change in administration due to the February 1986 revolution, grave
irregularities and anomalies in the governments financial transactions were
uncovered. Hence, on 31 March 1986, the COA issued Circular No. 86-257, which
reinstated the pre-audit of selected government transactions. The selective pre-audit
was perceived to be an effective, although temporary, remedy against the said
anomalies.
With the normalization of the political system and the stabilization of
government operations, the COA saw it fit to issue Circular No. 89-299, which
again lifted the pre-audit of government transactions of national government
agencies (NGAs) and government-owned or -controlled corporations (GOCCs). The
rationale for the circular was, first, to reaffirm the concept that fiscal responsibility
resides in management as embodied in the Government Auditing Code of the
Philippines; and, second, to contribute to accelerating the delivery of public services
and improving government operations by curbing undue bureaucratic red tape and
ensuring facilitation of government transactions, while continuing to preserve and
protect the integrity of these transactions. Concomitant to the lifting of the pre-audit
of government transactions of NGAs and GOCCs, Circular No. 89-299 mandated
the installation, implementation and monitoring of an adequate internal control
system, which would be the direct responsibility of the government agency head.
Circular No. 89-299 further provided that the pre-audit activities retained by
the COA as therein outlined shall no longer be a pre-requisite to the implementation
or prosecution of projects and the payment of claims. The COA aimed to henceforth
focus its efforts on the post-audit of financial accounts and transactions, as well as
on the assessment and evaluation of the adequacy and effectivity of the agencys
fiscal control process. However, the circular did not include the financial
transactions of local government units (LGUs) in its coverage.
The COA later issued Circular No. 94-006 on 17 February 1994 and Circular
No. 95-006 on 18 May 1995. Both circulars clarified and expanded the total lifting
of pre-audit activities on all financial transactions of NGAs, GOCCs, and LGUs.
The remaining audit activities performed by COA auditors would no longer be pre-
requisites to the implementation or prosecution of projects, perfection of contracts,
payment of claims, and/or approval of applications filed with the agencies.[1]
It also issued COA Circular No. 89-299, as amended by Circular No. 89-
299A, which in Section 3.2 provides:
3.2 Whenever circumstances warrant, however, such as where the internal control
system of a government agency is inadequate, This Commission may
reinstitute pre-audit or adopt such other control measures, including
temporary or special pre-audit, as are necessary and appropriate to protect
the funds and property of the agency.
On 18 May 2009, COA issued Circular No. 2009-002, which reinstituted the
selective pre-audit of government transactions in view of the rising incidents of
irregular, illegal, wasteful and anomalous disbursements of huge amounts of public
funds and disposals of public property. Two years later, or on 22 July 2011, COA
issued Circular No. 2011-002, which lifted the pre-audit of government transactions
implemented by Circular No. 2009-002. In its assessment, subsequent developments
had shown heightened vigilance of government agencies in safeguarding their
resources.
In the interregnum, on 3 May 2006, petitioner dela Llana wrote to the COA
regarding the recommendation of the Senate Committee on Agriculture and Food
that the Department of Agriculture set up an internal pre-audit service. On 18 July
2006, the COA replied to petitioner, informing him of the prior issuance of Circular
No. 89-299.[2] The 18 July 2006 reply of the COA further emphasized the required
observance of Administrative Order No. 278 dated 8 June 1992, which directed the
strengthening of internal control systems of government offices through the
installation of an internal audit service (IAS).
On 15 January 2008, petitioner filed this Petition for Certiorari under Rule 65. He
alleges that the pre-audit duty on the part of the COA cannot be lifted by a mere
circular, considering that pre-audit is a constitutional mandate enshrined in Section
2 of Article IX-D of the 1987 Constitution.[3] He further claims that, because of the
lack of pre-audit by COA, serious irregularities in government transactions have
been committed, such as the P728-million fertilizer fund scam, irregularities in
the P550-million call center laboratory project of the Commission on Higher
Education, and many others.
On 22 February 2008, public respondents filed their Comment [4] on the
Petition. They argue therein that the Petition must be dismissed, as it is not proper
for a petition for certiorari, considering that (1) there is no allegation showing that
the COA exercised judicial or quasi-judicial functions when it promulgated Circular
No. 89-299; and (2) there is no convincing explanation showing how the
promulgation of the circular was done with grave abuse of discretion. Further, the
Petition is allegedly defective in form, in that there is no discussion of material dates
as to when petitioner received a copy of the circular; there is no factual background
of the case; and petitioner failed to attach a certified true copy of the circular. In any
case, public respondents aver that the circular is valid, as the COA has the power
under the 1987 Constitution to promulgate it.
On 9 May 2008, petitioner filed his Reply[5] to the Comment.
On 17 June 2008, this Court resolved to require the parties to submit their respective
memoranda. On 12 September 2008, public respondents submitted their
Memorandum.[6]On 15 September 2008, Amethya dela Llana-Koval, daughter of
petitioner, manifested to the Court his demise on 8 July 2008 and moved that she be
allowed to continue with the Petition and substitute for him. Her motion for
substitution was granted by this Court in a Resolution dated 7 October 2008. On 5
January 2009, petitioner, substituted by his daughter,[7] filed his Memorandum.[8]
The main issue for our resolution in this Petition is whether or not petitioner is
entitled to the extraordinary writ of certiorari.
Procedural Issues
Technical Defects of the Petition
Public respondents correctly allege that petitioner failed to attach a certified

true copy of the assailed Order, and that the Petition lacked a statement of material
dates. In view, however, of the serious matters dealt with in this Petition, this Court
opts to tackle the merits thereof with least regard to technicalities. A perusal of the
Petition shows that the factual background of the case, although brief, has been
sufficiently alleged by petitioner.
Standing
This Petition has been filed as a taxpayers suit.

A taxpayer is deemed to have the standing to raise a constitutional issue when
it is established that public funds from taxation have been disbursed in alleged
contravention of the law or the Constitution.[9] Petitioner claims that the issuance of
Circular No. 89-299 has led to the dissipation of public funds through numerous
irregularities in government financial transactions. These transactions have allegedly
been left unchecked by the lifting of the pre-audit performed by COA, which,
petitioner argues, is its Constitutional duty. Thus, petitioner has standing to file this
suit as a taxpayer, since he would be adversely affected by the illegal use of public
money.
Propriety of Certiorari
Public respondents aver that a petition for certiorari is not proper in this case, as there
is no indication that the writ is directed against a tribunal, a board, or an officer
exercising judicial or quasi-judicial functions, as required in certiorari
proceedings.[10] Conversely, petitioner for his part claims that certiorari is proper
under Section 7, Article IX-A of the 1987 Constitution, which provides in part:
Section 7. x x x. Unless otherwise provided by this Constitution or by law,
any decision, order, or ruling of each Commission may be brought to the Supreme
Court on certiorari by the aggrieved party within thirty days from receipt of a copy
thereof.
Petitioner is correct in that decisions and orders of the COA are reviewable by the
court via a petition for certiorari. However, these refer to decisions and orders which
were rendered by the COA in its quasi-judicial capacity. Circular No. 89-299 was
promulgated by the COA under its quasi-legislative or rule-making powers. Hence,
Circular No. 89-299 is not reviewable by certiorari.
Neither is a petition for prohibition appropriate in this case. A petition for
prohibition is filed against any tribunal, corporation, board, or person whether
exercising judicial, quasi-judicial, or ministerial functions who has acted without or
in excess of jurisdiction or with grave abuse of discretion, and the petitioner prays
that judgment be rendered, commanding the respondent to desist from further
proceeding in the action or matter specified in the petition.[11] However, prohibition
only lies against judicial or ministerial functions, but not against legislative or quasi-
legislative functions.[12]
Nonetheless, this Court has in the past seen fit to step in and resolve petitions despite
their being the subject of an improper remedy, in view of the public importance of
the issues raised therein.[13] In this case, petitioner avers that the conduct of pre-audit
by the COA could have prevented the occurrence of the numerous alleged
irregularities in government transactions that involved substantial amounts of public
money. This is a serious allegation of a grave deficiency in observing a constitutional
duty if proven correct.
This Court can use its authority to set aside errors of practice or technicalities of
procedure, including the aforementioned technical defects of the Petition, and
resolve the merits of a case with such serious allegations of constitutional breach.
Rules of procedure were promulgated to provide guidelines for the orderly
administration of justice, not to shackle the hand that dispenses it.[14]
Substantive Issues
The 1987 Constitution has made the COA the guardian of public funds,
vesting it with broad powers over all accounts pertaining to government revenues
and expenditures and the use of public funds and property, including the exclusive
authority to define the scope of its audit and examination; to establish the techniques
and methods for the review; and to promulgate accounting and auditing rules and
regulations.[15] Its exercise of its general audit power is among the constitutional
mechanisms that give life to the check and balance system inherent in our form of
government.[16]
Petitioner claims that the constitutional duty of COA includes the duty to
conduct pre-audit. A pre-audit is an examination of financial transactions before
their consumption or payment.[17] It seeks to determine whether the following
conditions are present: (1) the proposed expenditure complies with an appropriation
law or other specific statutory authority; (2) sufficient funds are available for the
purpose; (3) the proposed expenditure is not unreasonable or extravagant, and the
unexpended balance of appropriations to which it will be charged is sufficient to
cover the entire amount of the expenditure; and (4) the transaction is approved by
the proper authority and the claim is duly supported by authentic underlying
evidence.[18] It could, among others, identify government agency transactions that
are suspicious on their face prior to their implementation and prior to the
disbursement of funds.
Petitioner anchors his argument on Section 2 of Article IX-D of the 1987
Constitution, which reads as follows:
Section 2.
1. 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 or 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. (Emphasis supplied)
He claims that under the first paragraph quoted above, government

transactions must undergo a pre-audit, which is a COA duty that cannot be lifted by
a mere circular.
We find for public respondents.
Petitioners allegations find no support in the aforequoted Constitutional
provision. There is nothing in the said provision that requires the COA to conduct a
pre-audit of all government transactions and for all government agencies. The only
clear reference to a pre-audit requirement is found in Section 2, paragraph 1, which
provides that a post-audit is mandated for certain government or private entities with
state subsidy or equity and only when the internal control system of an audited entity
is inadequate. In such a situation, the COA may adopt measures, including a
temporary or special pre-audit, to correct the deficiencies.
Hence, the conduct of a pre-audit is not a mandatory duty that this Court may
compel the COA to perform. This discretion on its part is in line with the
constitutional pronouncement that the COA has the exclusive authority to define the
scope of its audit and examination. When the language of the law is clear and
explicit, there is no room for interpretation, only application.[19] Neither can the
scope of the provision be unduly enlarged by this Court.
WHEREFORE, premises considered, the Petition is DISMISSED.
SO ORDERED.

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LASCONA LAND CO., INC., vs.

Before this Court is a Petition for Review on Certiorari under Rule

On March 27, 1998, the Commissioner of Internal Revenue (CIR)

Consequently, on April 20, 1998, Lascona filed a letter protest, but

Subject: LASCONA LAND CO., INC.

In view of the foregoing, please advise your client to pay

The CIR, however, maintained that Lascona's failure to timely file

On January 4, 2000, the CTA, in its Decision,[7] nullified the subject

If the Commissioner or his duly authorized representative

On March 3, 2000, the CTA denied the CIR's motion for

Dissatisfied, the CIR filed an appeal before the CA.[9]

In the disputed Decision dated October 25, 2005, the Court of

Thus, the instant petition, raising the following issues:

In a nutshell, the core issue to be resolved is: Whether the subject

Petitioner Lascona, invoking Section 3,[11] Rule 4 of the

Section 228 of the NIRC is instructional as to the remedies of a

SEC. 228. Protesting of Assessment. x x x

Within a period to be prescribed by implementing

Within sixty (60) days from filing of the protest, all

If the protest is denied in whole or in part, or is not

Respondent, however, insists that in case of the inaction by the

In RCBC v. CIR,[12] the Court has held that in case the

This is consistent with Section 3 A (2), Rule 4 of the Revised Rules

SEC. 3. Cases within the jurisdiction of the Court in

(a) Exclusive original or appellate jurisdiction to

(1) Decisions of the Commissioner of Internal

(2) Inaction by the Commissioner of Internal

As early as the case of CIR v. Villa,[15] it was already established

In the first place, we believe the respondent court

It must be emphasized, however, that in case of the inaction of the

Accordingly, considering that Lascona opted to await the final

Finally, the CIR should be reminded that taxpayers cannot be left

x x x to adopt the interpretation of the respondent will not

Taxes are the lifeblood of the government and so should be

WHEREFORE, the petition is GRANTED. The Decision

May toll fees collected by tollway operators be subjected to value-

The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol

Petitioners claim that, since the VAT would result in increased

Petitioners allege that the BIR attempted during the

Petitioners hold the view that Congress did not, when it

On August 13, 2010 the Court issued a temporary restraining

The government also argues that petitioners have no right to

In their reply[6] to the governments comment, petitioners

The case presents two procedural issues:

1. Whether or not the Court may treat the petition for

2. Whether or not petitioners Diaz and Timbol have legal

The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding

2. Whether or not the imposition of VAT on tollway operators

The Courts Rulings

A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating

But there are precedents for treating a petition for declaratory

Here, the imposition of VAT on toll fees has far-reaching

Although the petition does not strictly comply with the

B. On the Substantive Issues:

The phrase sale or exchange of services means

Now, do tollway operators render services for a fee? Presidential

1. Lessors of property, whether personal or real;

It does not help petitioners cause that Section 108 subjects

Tollway operators are franchise grantees and they do not

Petitioners of course contend that tollway operators cannot be