Tax Cases.docx

[ G.R. No. L-9408, October 31, 1956 ] EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS. DECISION BAUTISTA ANGELO, J.: On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the basis of said return, an assessment notice demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953. Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his general Circular No. V123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income of petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by petitioner was denied, he filed a petition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming the assessment made by respondent Collector of Internal Revenue. This is an appeal from said decision. It appears that petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a ''business asset" within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. This claim is untenable. To begin with, assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the sa,me would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, "All findings, of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court", (section 113).

It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed to be deducted "in the year the last installment was received with notice that no further payment would be made until the United States Congress makes further appropriation therefor", but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the soundness or validity of such circular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion oi which reads as follows: "Yet it might be argued that war losses were not included as deductions for the year when they were sustained because the taxpayers had prospects that losses would be compensated for by the United States Government; that since only uncompensated losses are deductible, they had to wait until after the determination by the Philippine War Damage Commission as to the compensability in part or in whole of their war losses so that they could exclude from the deductions those compensated for by the said Commission; and that, of necessity, such determination could be complete only much later than in the year 'when the loss was sustained. This contention falls to the ground when it is considered that the Philippine Rehabilitation Act which authorized the payment by the United States Government of war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the property owners had any. conclusive assurance during the years said losses were sustained, that the compensation was to be paid therefor. Whatever assurance they could have had,4 could have been based only on some information less reliable and less conclusive than the passage of the Act itself. Hence, as diligent property owners, they should adopt the safest alternative by considering such losses deductible during the year when they were sustained." In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-I39 which not only revoked and declared void his previous Circular No. V 123 but laid down the rule that losses; of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. We can hardly argue against this opinion. Since we have already stated that the amount claimed does not represent a "business asset" that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year. Petitioner's contention that during the last war and as a consequence of enemy occupation in the Philippines "there was no taxable year" within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. "Furthermore, it is a legal maxim, that excepting that of a political nature, 'Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.' (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131): 'There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or

colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.'" (Co Kim Chan vs. Valdez Tan Keh and Dizon, 75 Phil., 113, 142-143.) It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revoking it and approving in lieu thereof General Circular No. V139. It cannot be denied, however, that; the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.] "When the Commissioner determined in 1937 that the petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the petitioner from tax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710." (Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554), With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been, issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason, is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration. "It seems too clear for serious argument that an administrative officer can not change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due." (Ben Stocker, et al., 12 B. T. A., 1351.) "Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others." (Article 2254, New Civil Code.)

G.R. No. L-59431 July 25, 1984 ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents. Antero Sison for petitioner and for his own behalf. The Solicitor General for respondents.

FERNANDO, C.J.: The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7 The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit. This Court finds such a plea more than justified. The petition must be dismissed. 1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12 2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of

Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.

been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision — as petitioner here alleges — fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm.

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."30

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18 5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19 6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. 9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification,

G.R. No. L-22734

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.

Office of the Solicitor General for petitioner. Manuel B. Pineda for and in his own behalf as respondent.

year 1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from the date the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further appropriate proceedings.1

BENGZON, J.P., J.:

In the Tax Court, the parties submitted the case for decision without additional evidence.

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained from the aforesaid estate proceedings and issued an assessment for the following: 1. Deficiency income tax 1945 P135.83 1946 436.95 1947 1,206.91 Add: 5% surcharge 1% monthly interest from November 30, 1953 to April 15, 1957 Compromise for late filing Compromise for late payment

P1,779.69 88.98 720.77 80.00 40.00

Total amount due

P2,707.44 =========== P14.50 2. Additional residence tax for 1945 =========== 3. Real Estate dealer's tax for the fourth quarter of P207.50 1946 and the whole year of 1947 =========== Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs." After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable years were made within five years therefrom or on October 19, 1953; and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For taxable

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the payment corresponding to his share of the following taxes: Deficiency income tax 1945

P135.8 3 436.95

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

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the estate.1awphîl.nèt Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent of and in proportion to any share he received. He relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate." We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed. Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4 As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder: If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue until paid

with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . . By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action against all the heirs for the collection of the tax. This action rests on the concept that hereditary property consists only of that part which remains after the settlement of all lawful claims against the estate, for the settlement of which the entire estate is first liable.6 The reason why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax. WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

BENGZON, J.P., J.: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which was signed by both parties in Switzerland. The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry therein was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences between the parties under the reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall be construed by the laws of the Philippines. Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the following premiums: 1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71 1954 . . . . . . . . . . . . . . . . . . . . .

721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus: 1953

G.R. No. L-22074

April 30, 1965

Gross premium per investigation . . . . . . . . . .

P768,580.00

Withholding tax due thereon at 24% . . . . . . . .

P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . THE PHILIPPINE GUARANTY CO., INC., petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents. Josue H. Gustilo and Ramirez and Ortigas for petitioner. Office of the Solicitor General and Attorney V.G. Saldajena for respondents.

Compromise for non-filing of withholding income tax return . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL AMOUNT DUE & COLLECTIBLE . . . .

46,114.00 100.00 P230,673.00 ==========

1954 Gross premium per investigation . . . . . . . . . .

P780.880.68

Withholding tax due thereon at 24% . . . . . . . .

P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .

P184,411.00

Compromise for non-filing of withholding income tax return . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL AMOUNT DUE & COLLECTIBLE . . . .

100.00 P234,364.00 ==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was denied and it appealed to the Court of Tax Appeals. On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion: IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs against petitioner. Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers. Petitioner maintain that the reinsurance premiums in question did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here. The reinsurance contracts, however, show that the transactions or activities that constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines the actual cession of the risks and premiums and assumption of the reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance business in the Philippines were payable by the foreign reinsurers when the same were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and management by the latter of the affairs of the former in the Philippines in regard to their reinsurance activities here. Disputes and differences between the parties were subject to arbitration in the City of Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland, the same specifically

provided that its provision shall be construed according to the laws of the Philippines, thereby manifesting a clear intention of the parties to subject themselves to Philippine law. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the income. 1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances. Such undertaking, as explained above, took place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate income tax. The foreign insurers' place of business should not be confused with their place of activity. Business should not be continuity and progression of transactions 2 while activity may consist of only a single transaction. An activity may occur outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but the place of activity that created an income. Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be treated as income from sources within the Philippines but it does not require that other kinds of income should not be considered likewise.1äwphï1.ñët The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner may free if from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax The Government is not estopped from collecting taxes by the mistakes or errors of its agents.3 In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code, suffice it to state that this question has already been answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965. Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.

The pertinent section of the Tax Code States: Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to taxation under this Title not engaged in trade or business within the Philippines and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in Section fifty-three a tax equal to twenty-four per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section. The applicable portion of Section 53 provides: (b) Nonresident aliens. — All persons, corporations and general copartnerships (compañias colectivas), in what ever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income of any nonresident alien individual, not engaged in trade or business within the Philippines and not having any office or place of business therein, shall (except in the case provided for in subsection [a] of this section) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to twelve per centum thereof: Provided That no deductions or withholding shall be required in the case of dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or business within the Philippines or has an office or place of business therein, and (2) more than eighty-five per centum of the gross income of such corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence)was derived from sources within the Philippines as determined under the provisions of section thirty-seven: Provided, further, That the Collector of Internal Revenue may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent. The above-quoted provisions allow no deduction from the income therein enumerated in determining the amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in question, no deduction shall be recognized.

G.R. No. L-28896 February 17, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE COURT OF TAX APPEALS, respondents. CRUZ, J.: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law. We deal first with the procedural question. The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from the date of delinquency to the date of payment, provided that the maximum amount that may be collected as interest shall not exceed the amount corresponding to a period of three (3) years. With costs againsts petitioner.

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur. Makalintal and Zaldivar, JJ., took no part.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. Now for the substantive question. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company. Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16 There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved.18 The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction. We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions — (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22 and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders. 23 The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner. ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs. SO ORDERED. Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur. Lorenzo v. Posadas, 64 Phil 353 (1937) Parties: PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, Petitioner JUAN POSADAS, JR., Collector of Internal Revenue, Respondent Nature of the Case: This is an appeal from the civil action brought to the CFI by Lorenzo as trustee of the estate of Hanley against Posadas, Jr, CIR for the refund of the inheritance tax on the estate of the deceased, and for the collection of interest thereon at the rate of 6 per cent per annum while the defendant set up a counterclaim alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court. Facts of the Case:  On May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides that: “all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my

 





death, and that the same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley.” CFI appointed a trustee, Moore who acted as trustee for 8 years till his resignation and Lorenzo was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. The defendant filed a motion in the testamentary proceedings pending before the CFI Zamboanga praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. The plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount.

Petitioner's contention: The lower court erred in holding:  that the real property of deceased passed to his instituted heir from the moment of the death of the former, and that from the time, the latter became the owner thereof;  that there was delinquency in the payment of inheritance tax due on the estate of said deceased;  that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years;  In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate Respondent's contention: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. Issues of the Case: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been delinquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate?

Ruling of the Court: (a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid: (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. (b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's death. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. "The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or depreciation is immaterial." (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, the judicial expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax. (d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. Of course, a tax statute may be made retroactive in its operation. But legislative intent that a tax statute should operate retroactively should be perfectly clear. "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect." The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their . Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. (e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinquent until and unless the entire period has elapsed within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for failure to pay his taxes within the prescribed period." The defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of

the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax (sec. 1578, Revised Administrative Code). ". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public." The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory, and neither the Collector of Internal Revenue or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.

Tolentino vs. Secretary of Finance, (235 SCRA 630) August 25, 1994 Facts: 1.

These are various suits challenging the constitutionality of RA 7716 on various grounds. The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code.

2.

The issues in this case is divided into two: the procedural and substantive issue

A.

Procedural:

Petitioners contend that by enacting RA 7716, the Congress violated the Constitution. House Bill No. 11197 (H. No. 1997) was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first reading, it was referred to the Senate Ways and Means Committee which thereafter passed and approved Senate Bill No. 1630 (S. No. 1630). Consequently, the 2 bills were referred to the Conference Committee from which RA 7716 was created. Hence, RA 7716 did not originate exclusively in the HR as required by Art. VI. Sec. 24 of the Constitution. They also sustained the view that to be considered as having originated to HR, RA 7716 must retain the essence of H.No 11197. “Art. VI. SECTION 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively

in the House of Representatives, but the Senate may propose or concur with amendments.” Issue: W/N, the enactment of RA 7716 is not in accordance with the requirement as provided in the Constitution. Held: NO. It is not the law but the revenue bill which is required by the Constitution to “originate exclusively” from HR. A bill originating from the latter may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. What the Constitution simply means is that initiative of the passage of a revenue bill, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the HR. This is based on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the logical needs and problems. On the other hand, the Senators who are elected at large are expected to approach the same problems from the national perspective.

B.

Substantive: B1. Claims of Press Freedom, Freedom of Thought and Religious Freedom

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of newspaper publishers established for the improvement of journalism in the Philippines. On the other hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing and distribution of bibles and other religious articles. Both petitioners claim violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the enactment of the VAT Law. PPI questions the law insofar as it has withdrawn the exemption previously granted to the press under § 103 (f) of the NIRC. Although the exemption was subsequently restored by administrative regulation with respect to the circulation income of newspapers, the PPI presses its claim because of the possibility that the exemption may still be removed by mere revocation of the regulation of the Secretary of Finance. § 103 of the NIRC contains list of transactions exempted from VAT. (f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is devoted principally to the publication of advertisements. Through the enactment of Republic Act No. 7716, it amended § 103 by deleting (f) with the result that print media became subject to the VAT with respect to all aspects of their operations. Later, however, based on a memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media pursuant to § 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment of freedom of the press, among others." The exemption of "circulation income" has left income from advertisements still subject to the VAT. PBS questions the Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance has no power to grant tax exemption because this is vested in Congress and requires for its exercise the vote of a majority of all its members and (2) the Secretary's duty is to execute the law.

Issue: W/N, there has been a violation of press freedom. Held: NO. The Press is not immune from the general regulation of the State. The PPI's claim is simply that, as applied to newspapers, the law abridges press freedom. Even with due recognition of its high estate and its importance in a democratic society, however, the press is not immune from general regulation by the State. It has been held that the publisher of a newspaper has no immunity from the application of general laws. He has no special privilege to invade the rights and liberties of others. He must answer for libel. He may be punished for contempt of court. Like others, he must pay equitable and nondiscriminatory taxes on his business. On the contention that by withdrawing the exemption previously granted to print media transactions involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has singled out the press for discriminatory treatment and that within the class of mass media the law discriminates against print media by giving broadcast media favored treatment. Based on careful examination, the court was unable to find a differential treatment of the press by the law, much less any censorial motivation for its enactment. If the press is now required to pay a value-added tax on its transactions, it is not because it is being singled out, much less targeted, for special treatment but only because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all that is involved in these cases. Other transactions, likewise previously granted exemption, have been delisted as part of the scheme to expand the base and the scope of the VAT system. The law would perhaps be open to the charge of discriminatory treatment if the only privilege withdrawn had been that granted to the press. But that is not the case. The argument that RA 7716 subjects the press to discriminatory taxation by imposing a VAT only on print media is without merit. It has not been shown that as a result the class subject to tax has been unreasonably narrowed. The fact is that this limitation is does not apply to press alone but to all sales. The press is taxed on its transaction involving printing and publication, which are different from the transaction of the broadcast media On the contention of PBS that said removal of exemption of printing, publication or importation of books and religious articles violates freedom of though and conscience. As held in Jimmy Swaggart Ministries v. Board of Equalization, it was held that the Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and use tax on sale of religious materials by a religious organization. B2. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment of Contracts Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R. 115754 contends that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision that "No law impairing the obligation of contracts shall be passed." Held: It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. The Contract Clause has never been thought as

a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration.

G.R. No. 99886 March 31, 1993 JOHN H. OSMEÑA, petitioner, vs. OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents. Nachura & Sarmiento for petitioner. The Solicitor General for public respondents. NARVASA, C.J.: The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the Rules of Court,2upon the following posited grounds, viz.:3 1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended, "said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;4 2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5 3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund,6 because it contravenes § 8, paragraph 2 (2) of P. D. 1956, as amended; and 4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the pump prices and petroleum products to the levels prevailing prior to the said Order. It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7 and ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with the earnings from such placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents — Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept, process and pay claims not authorized under P.D. 1956."9 The petition further avers that the creation of the trust fund violates § 29(3), Article VI of the Constitution, reading as follows: (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another government objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created." 11 He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI of the Constitution, viz.: (2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government; and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." 12 The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct. To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its holding in Valmonte v. Energy Regulatory Board, et al. 14 — The foregoing arguments suggest the presence of misconceptions about the nature and functions of the OPSF. The OPSF is a "Trust Account" which was established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust Account may be funded from any of the following sources: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy: c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment of persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy. xxx xxx xxx The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum products from sources of supply to the Philippines may also vary from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other convertible foreign currencies also changes from day to day. These fluctuations in world market prices and in tanker rates and foreign exchange rates would in a completely free market translate into corresponding adjustments in domestic prices of oil and petroleum products with sympathetic frequency. But domestic prices which vary from day to day or even only from week to week would result in a chaotic market with unpredictable effects upon the country's economy in general. The OPSF was established precisely to protect local consumers from the adverse consequences that such frequent oil price adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for increases

in, as well as underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any given time. To the extent that some tax revenues are also put into it, the OPSF is in effect a device through which the domestic prices of petroleum products are subsidized in part. It appears to the Court that the establishment and maintenance of the OPSF is well within that pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police power of the State. The stabilization, and subsidy of domestic prices of petroleum products and fuel oil — clearly critical in importance considering, among other things, the continuing high level of dependence of the country on imported crude oil — are appropriately regarded as public purposes. Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of the sugar stabilization fees and explained their nature and character, viz.: The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra). xxx xxx xxx The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose — that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market." The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). 17 The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent. With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D. 1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund. What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. The interplay and constant fluctuation of the various factors involved in the determination of the price of oil and petroleum products, and the frequently shifting need to either augment or exhaust the Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices to guide the delegate in the exercise of the delegated power, taking account of the circumstances under which it is to be exercised. For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard — limits of which are sufficiently determinate or determinable — to which the delegate must conform. 20 . . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the legislature itself determines matters of principle and lays down fundamental policy. Otherwise, the charge of complete abdication may be hard to repel. A standard thus defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is to be effected. It is the criterion by which the legislative purpose may be carried out. Thereafter, the executive or administrative office designated may in pursuance of the above guidelines promulgate supplemental rules and regulations. The standard may either be express or implied. If the former, the non-delegation objection is easily met. The standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act considered as a whole. 21 It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. By the same token, the proper exercise of the delegated power may be tested with ease. It seems obvious that what the law intended was to permit the additional imposts for as long as there exists a need to protect the general public and the petroleum industry from the adverse consequences of pump rate fluctuations. "Where the standards set up for the guidance of an administrative officer and the action taken are in fact recorded in the orders of such officer, so that Congress, the courts and the public are assured that the orders in the judgment of such officer conform to the legislative standard, there is no failure in the performance of the legislative functions." 22 This Court thus finds no serious impediment to sustaining the validity of the legislation; the express purpose for which the imposts are permitted and the general objectives and purposes of the fund are readily discernible, and they constitute a sufficient standard upon which the delegation of power may be justified. In relation to the third question — respecting the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2 (2) of P.D. 1956, amended 23 — the Court finds for the petitioner. The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in § 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used in § 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the reduction of domestic prices of petroleum products." 26 The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision." This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.: The rule of ejusdem generis states that "[w]here words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of the same kind or class as those specifically mentioned." 28 A reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows the cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of § 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic prices of petroleum products. Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher price. Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate, doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the Petroleum Price Standby Fund, § 2 of which specifically authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation." Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the socalled overpayment refunds. To be sure, the absence of any argument for or against the validity of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis upon which to nullify the same. Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels below even those prayed for in the petition. WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects. SO ORDERED. Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo, Campos, Jr., and Quiason, JJ., concur. Gutierrez, Jr., J., is on leave.

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

Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue / special / regulatory

Ponente: Davide, Jr. J. DOCTRINE:A taxpayer may not offset taxes due from the claims that he may have against the government. FACTS: The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO 137 for the purpose of minimizing frequent price changes brought about by exchange rate adjustments. It will be used to reimburse the oil companies for cost increase and possible cost underrecovery incurred due to reduction of domestic prices. COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an early release of its reimbursement certificates which the latter denied. COA disallowed recover of financing charges, inventory losses and sales to marcopper and atlas but allowed the recovery of product sale or those arising from export sales. Petitioner’s Contention:

G.R. No. 76778 June 6, 1990 FRANCISCO I. CHAVEZ, petitioner, vs. JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor. MEDIALDEA, J.: The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows (78 O.G. 5861): EXECUTIVE ORDER No. 73

Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting.Amounts due do not arise as a result of taxation since PD 1956 did not create a source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax.

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED

Respondent’s Contention:

WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978 revised values obsolete;

Based on Francia v. IAC, there’s no offsetting of taxes against the the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. ISSUE: WON Caltex is entitled to offsetting DECISION: NO. COA AFFIRMED HELD: 

 

 

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Technically, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in reality, passed unto the end-users – the consuming public. Their primary obligation is to account for and remit the taxes collection to the administrator of the OPSF. There is not merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation.

WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue; WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order: SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this Executive Order. SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive Order are hereby repealed or modified accordingly. SEC. 5. This Executive Order shall take effect immediately. On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73 until June 30, 1987. The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property brought about by the revision of real property values and assessments would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession. The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; that the General Revision of Assessments does not meet the requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax. The Office of the Solicitor General argues against the petition. The petition is not impressed with merit. Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that: SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. (emphasis supplied) The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which provides, as follows: SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a calendar year 1978, the provincial or city general revision of real property assessments in the province or city to take effect January 1, 1979, and once every

five years thereafter: Provided; however, That if property values in a province or city, or in any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in the province or city, or in any municipality before the fifth year from the effectivity of the last general revision. Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be questioned: SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal. xxx xxx xxx SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of Assessment Appeals shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision rendered must be based on substantial evidence presented at the hearing or at least contained in the record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate to support the conclusion. In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth withoutnecessarily adhering to technical rules applicable in judicial proceedings. The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.

Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the Chairman thereof. xxx xxx xxx

people, including real property owners, as a result of temporary economic difficulties. (emphasis supplied) The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows:

SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment Appeals shall have jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision by the appellant. In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and issue subpoenas and subpoenas duces tecum. The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the conduct of its business. Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date of receipt of the decision. Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654). The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes. Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows: SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection and assessment provided herein and in order to alleviate the condition of the

WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue; WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; (emphasis supplied) xxx xxx xxx The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279). We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED. SO ORDERED. G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY, defendants-appellants. Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendantsappellants. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and Solicitor Ceferino Padua, for plaintiff-appellee.

REGALA, J.: This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632. Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation created for the following purposes and objectives: (a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production, increase and improve the industrialization of the byproducts of sugar cane, and achieve greater efficiency in the industry; (b) To improve existing methods of raising sugar cane and of sugar manufacturing; (c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local consumption and exportation;

Sec. 3. Specific and General Powers. — For carrying out the purposes mentioned in the preceding section, the PHILSUGIN shall have the following powers: (a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central experiment station and such number of regional experiment stations in any part of the Philippines as may be necessary to undertake extensive research in sugar cane culture and manufacture, including studies as to the feasibility of merchandising sugar cane farms, the control and eradication of pests, the selected and propagation of high-yielding varieties of sugar cane suited to Philippine climatic conditions, and such other pertinent studies as will be useful in adjusting the sugar industry to a position independent of existing trade preference in the American market; (b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute successfully such researches and experimental work; (c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual benefits to consumers and producers, and to promote and maintain a sufficient general production of sugar and its by-products by an efficient coordination of the component elements of the sugar industry of the country;

(d) To establish and maintain such balanced relation between production and consumption of sugar and its by-products, and such marketing conditions therefor, as well insure stabilized prices at a level sufficient to cover the cost of production plus a reasonable profit;

(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment, materials, merchant vessels, rails, railroad lines, and any other means of transportation, warehouses, buildings, and any other equipment and material to the production, manufacture, handling, transportation and warehousing of sugar and its byproducts;

(e) To promote the effective merchandising of sugar and its by-products in the domestic and foreign markets so that those engaged in the sugar industry will be placed on a basis of economic security; and

(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;

(f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual and effective correction of the inequalities existing in the industry. (Section 2, Rep. Act 632)

(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its purposes with any person, firm, or public or private corporation, with the Government of the Philippines or of the United States, or any state, territory, or persons therefor, or with any foreign government and, in general, to do everything directly or indirectly necessary or incidental to, or in furtherance of, the purposes of the corporation;

To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide: Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of this Act and the purposes of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts. Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of the corporation. All the income and receipts derived from the special fund herein created shall accrue to, and form part of the said fund to be available solely for the use of the corporation. The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit:

(g) To do all such other things, transact all such business and perform such functions directly or indirectly necessary, incidental or conducive to the attainment of the purposes of the corporation; and (h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar as they are not inconsistent with the provisions of this Act. The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted by the appellants, are the following: x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 19531954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay

Milling Company has paid P251,812.43 but left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao made a payment of P49,897.78 but left unpaid balance of P48,059.77. There is no question regarding the correctness of the amounts paid and the amounts that remain unpaid. From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar tax to be collected, under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an examination of the statements of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting general manager of PHILSUGIN and at present technical consultant of said entity, presented by the defendants as witnesses, it has been shown that the operation of the Insular Sugar Refinery has consumed 70% of the thinking time and effort of the PHILSUGIN management. x x x . Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants refused to continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which establishes a "Special assessments." Adverting to the finding of the lower court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue that they should not only be released from their obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid thereunder. The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment ceases. On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law, Republic Act 632, upon the following considerations: First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate machineries, equipment, merchant vessels, etc., and any other equipment and material for the production, manufacture, handling, transportation and warehousing of sugar and its by-products. It was, therefore, authorized to purchase and operate a sugar refinery. Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors composed of 5 members, 3 of whom shall be appointed upon recommendation of the National Federation of Sugar Cane Planters and 2 upon recommendation of the Philippine Sugar Association.

(Sec. 4, Rep. Act 632). It has not been shown that this particular provision was not observed in this case. Therefore, the appellants herein may not rightly claim that there had been a misapplication of the Philsugin funds when the same was used to procure the Insular Sugar Refinery because the decision to purchase the said refinery was made by a board in which the applicants were fully and duly represented, the appellants being members of the Philippine Sugar Association. Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be presumed to have passed upon the legality and prudence of the disbursements of the Fund. Additionally, other offices of the Government review such transactions as reflected in the annual report obliged of the Philsugin to prepare. Among those offices are the Office of the President of the Philippines, the Administrator of Economic Coordination and the Presiding Officers of the two chambers of Congress. With all these safeguards against any imprudent or unauthorized expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its legality and propriety. Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their contribution to the Fund for that conduct is no different "from the case of an ordinary taxpayer who refuses to pay his taxes on the ground that the money is being misappropriated by Government officials." This is taking the law into their own hands. Against the above ruling of the trial court, the appellants contend: First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been committed by Philsugin solely because its charter incorporates so many devices or safeguards to preclude such abuse. This reasoning of the lower court does not reconcile with that actually happened in this case. Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when it purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at all to acquire the said refinery. The appellants deny that Philsugin is possessed of any such authority because what it is empowered to purchase is not a "sugar refinery but a central experiment station or perhaps at the most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that — We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a large mill that makes sugar out of the cane brought from a wide surrounding territory," or a sugar mill which manufactures sugar for a number of plantations. The term "sugar central" could not have been intended by Congress to refer to all sugar mills or sugar factories as contended by respondent. If respondent's interpretation is to be followed, even sugar mills run by animal power (trapiche) would be considered sugar central. We do not think Congress ever intended to place owners of (trapiches) in the same category as operators of sugar centrals. That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470 (Assessment Law). In prescribing the principle governing valuation and assessment of real property. Section 4 of said Act provides — "Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be assessed."

This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar refineries." Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment. Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special assessment upon property owners who receive no benefit from such assessment amounts to a denial of due process. Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid down that — As already indicated, the principle underlying special assessments to meet the cost of public improvements is that the property upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in fact, pay anything in excess of what they received by reason of such improvement. unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In other words, the assessment is violative of the due process guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241). We find for the appellee. The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise — a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. (Sec. 3).1äwphï1.ñët Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." It then proceeds to enumerate the said purposes, among which are "to place the sugar industry in a position to maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might continue profitably to engage therein; to limit the production of sugar to areas more economically suited to the production thereof; and to afford laborers employed in the industry a living wage and to improve their living and working conditions.

The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said: The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one, of the important sources to foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence, it was competent for the Legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the law-making body could provide that the distribution of benefits therefrom be readjusted among its components, to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121) As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida — "The protection of a large industry constituting one of the great source of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign." (128 So. 857). Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production, ..., and achieve greater efficiency in the industry." This provision, first of all, more than justifies the acquisition of the refinery in question. The case dispute that the operation of a sugar refinery is a phase of sugar production and that from such operation may be learned methods of reducing the cost of sugar manufactured no less than it may afford the opportunity to discover the more effective means of achieving progress in the industry. Philsugin's experience alone of running a refinery is a gain to the entire industry. That the operation resulted in a financial loss is by no means an index that the industry did not profit therefrom, as other farms of a different nature may have been realized. Thus, from its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems of management faced by sugar centrals. It could have understood more clearly the difficulties of marketing sugar products. It could have known with better intimacy the precise area of the industry in need of the more help from the government. The view of the appellants herein, therefore, that they were not benefited by the unsuccessful operation of the refinery in question is not entirely accurate. Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save through the actual operation of a refinery. Quite obviously, the most practical or realistic approach to the problem of what "practices or processes" might most effectively cut the cost of production is to experiment on production itself. And yet, how can such an experiment be carried out without the tools, which is all that a refinery is? In view of all the foregoing, the decision appealed from is hereby affirmed, with costs. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Makalintal, J., took no part. G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma,plaintiff-appellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

REYES, J.B L., J.: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the TydingsMcDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise — a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. According to section 6 of the law — SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field — so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the

estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida — The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893). Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of byproducts and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400). The decision appealed from is affirmed, with costs against appellant. So ordered. G.R. No. L-75697 VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs. VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents. Nelson Y. Ng for petitioner. The City Legal Officer for respondents City Mayor and City Treasurer. MELENCIO-HERRERA, J.: This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette. On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax. On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the

case, over petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention. The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows: 1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues; 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms; 6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER and the same is not germane to the subject matter thereof; 2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution; 3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by Amendment No. 6; 4. There is undue delegation of power and authority; 5. The Decree is an ex-post facto law; and 6. There is over regulation of the video industry as if it were a nuisance, which it is not. We shall consider the foregoing objections in seriatim. 1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2An act having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather than technical construction. 5 Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit. That section reads, inter alia: Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. xxx

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The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply one of the regulatory and

control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the DECREE. 7 2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10 The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. 11 It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power.13 At bottom, the rate of tax is a matter better addressed to the taxing legislature. 3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question raised at the proper time. 4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law. 5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in providing that: All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition. raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law. The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15 ... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts proved

and the ultimate facts presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common experience". 16 Applied to the challenged provision, there is no question that there is a rational connection between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only after a fortyfive-day period counted from its effectivity and is, therefore, neither retrospective in character. 6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17 The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed. In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern. Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18 In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. WHEREFORE, the instant Petition is hereby dismissed. Commissioner of Internal Revenue vs. Central Luzon Drug Corporation GR No. 159647, April 15, 2005

Facts:

Respondent is a domestic corporation engaged in the retailing of medicines and other pharmaceutical products. In 1996 it operated six (6) drugstores under the business name and style “Mercury Drug.” From January to December 1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines pursuant to RA 7432. For said period respondent granted a total of ₱ 904,769. On April 15, 1997, respondent filed its annual ITR for taxable year 1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱ 904,769.00 alledgedly arising from the 20% sales discount. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the CTA via Petition for Review. CTA dismissed the same but on MR, CTA reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there are other situations which may warrant a tax credit/refund. CA affirmed CTA decision reasoning that RA 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private property for public use. ISSUE: W/N respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit. RULING Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on their purchase of medicine from any private establishment in the country. The latter may then claim the cost of the discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss. A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an “allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the government. A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is subtraction “from income for tax purposes,” or an amount that is “allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due.” In other words, whereas a tax credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable income. Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be applied. Without that liability, any tax credit application will be useless. There will be no reason for deducting the latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While the grant is mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability against which any tax credit can be applied. For the establishment to choose the immediate availment of a tax credit will be premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted without conditions a tax credit benefit to all

covered establishments. However, for the losing establishment to immediately apply such credit, where no tax is due, will be an improvident usance.

In addition, while a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been previously paid. Petition is denied. G.R. No. L-18330

July 31, 1963

JOSE DE BORJA, petitioner-appellee, vs. VICENTE G. GELLA, ET AL., respondents-appellants. David Guevara for petitioner-appellee. Office of the Solicitor General for respondent-appellant Treasurer of the Philippines. Assistant City Fiscal H. A. Avendano for respondent-appellant Treasurer of Pasay City. BAUTISTA ANGELO, J.: Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the City of Manila and Pasay City and has offered to pay them with two negotiable, certificates of indebtedness Nos. 3064 and 3065 in the amounts of P793.40 and P717.69, respectively. Borja was, however, a mere assignee of the aforesaid negotiable certificates, the applicants for backpay rights covered by them being respectively Rafael Vizcaya and Pablo Batario Luna. The offers to pay the estate taxes in question were rejected by the city treasurers of both Manila and Pasay cities on the ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800, and in the case of the city treasurer of Manila on the further ground that he was ordered not to accept them by the city mayor, for which reason Borja was prompted to bring the question to the Treasurer of the Philippines who opined, among others, that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only or the original applicant himself, but not his assignee. In his letter of April 29, 1960 to the Treasurer of the Philippines, however, Borja entertained hope that the certificates would be accepted for payment in view of the fact that they are already long past due and redeemable, but his hope was frustrated. So on June 30, 1960, Borja filed an action against the treasurers of both the City of Manila and Pasay City, as well as the Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires them to perform, to wit: to accept the above-mentioned certificates of indebtedness considering that they were already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to the government thru such means. Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates, and after the requisite trial was held, the court a quo rendered judgment the dispositive part of which reads:

WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in their behalf are hereby enjoined from including petitioner's properties in the payment of real estate, taxes, and to sell them at public auction and respondent Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness Nos. 3064 and 3065 in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the City of Manila and Pasay City, respectively, without costs. Respondents took this appeal on purely questions of law.1äwphï1.ñët Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has appellee the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities the certificates of indebtedness he holds while appellants have the correlative legal duty to accept the certificates in payment of said taxes?; (b) can compensation be invoked to extinguish appellee's real estate tax liability between the latter's obligation and the credit represented by said certificates of indebtedness? Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as amended by Republic Act No. 800, which in part reads: SEC. 2. The Treasurer of the Philippines shall, upon application, and within one year from the approval of this Act, and under such rules and regulations as may be promulgated by the Secretary of Finance, acknowledge and file requests for the recognition of the right to the salaries and wages as provided in section one hereof, and notice of such acknowledgment shall be issued to the applicant which shall state the total amount of such salaries or wages due to the applicant, and certify that it shall be redeemed by the Government of the Philippines within ten years from the date of their issuance without interest: Provided, that upon application . . . a certificate of indebtedness may be issued by the Treasurer of the Philippines covering the whole or part of the total salaries or wages the right to which has been duly acknowledged and recognized, provided that the face value of such certificate of indebtedness shall not exceed the amount that the applicant may need for the payment of (1) obligations subsisting at the time of the approval of this Act for which the applicant may directly be liable to the Government or to any of its branches or instrumentalities, or the corporations owned or controlled by the Government, or to any citizen of the Philippines, who may be willing to accept the same for such settlement; (2) his taxes; . . . and Provided, also, That any person who is not an alien, bank or other financial institution at least sixty per centum of whose capital is owned by Filipinos may, notwithstanding any provision of its charter, articles of incorporation, by-laws, or rules and regulations to the contrary, accept or discount at not more than three and one-half per centum per annum for ten years a negotiable certificate of indebtedness which shall be issued by the Treasurer of the Philippines upon application by a holder of a back pay acknowledgment. . . . . To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent years. The law is explicit that in order that a certificate may be used in payment of an obligation the same must be subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be contended that appellee can compel the government to accept the alleged certificates of indebtedness in payment of his real estate taxes under proviso No. 2

abovequoted also for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself . This is the correct implication that may be drawn from the use by the law of the words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations. Here appellee is not himself the applicant of the certificate, in question. He is merely an assignee thereof, or a subsequent holder whose right is at most to have it discounted upon maturity — or to negotiate it in the meantime. A fortiori, it may be included that, not having the right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in the present petition for mandamus. As a consequence, we cannot but hold that mandamus does not lie against appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty, nor have they unlawfully excluded appellee from the use or enjoyment of a right to which be is entitled.1 We are aware of the cases2 cited by the court a quo wherein the government banking institutions were ordered to accept the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here in point because in the cases mentioned the petitioners were applicants and original holders of the corresponding backpay certificates. Here appellee is not.

they are redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on June 18, 1948 but "within ten years from the date of issuance" of the certificates. There is no certainty, therefore, when the certificates are really redeemable within the meaning of the law. Since the requisites for the accomplishment of legal compensation cannot be fulfilled, the latter cannot take place with regard to the two obligations as found by the court a quo. WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The injunction issued against respondents-appellants is hereby lifted. No costs. G.R. No. 109289 October 3, 1994 RUFINO R. TAN, petitioner, vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 109446 October 3, 1994

With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are concerned, Articles 1278 and 1279 of the new Civil Code provide: ART. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. ART. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners, vs. RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents. Rufino R. Tan for and in his own behalf. Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446 VITUG, J.:

(4) That they two liquidated and demandable;

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and, in G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

(3) That the two debts be due;

It is clear from the above legal provisions that compensation cannot be effected with regard to the two obligations in question. In the first place, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the City of Manila and Pasay City while the debtor is the appellee. It appears, therefore, that each one of the obligors concerning the two obligations is not at the same time the principal creditor of the other. It cannot also be said for certain that the certificates are already due. Although on their faces the certificates issued to appellee state that

In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following provisions of the Constitution: Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws. In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships. The Solicitor General espouses the position taken by public respondents. The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective memoranda. G.R. No. 109289 Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

Over P30,000 P2,100 + 15% but not over P120,00 of excess over P30,000 Over P120,000 P15,600 + 20% but not over P350,000 of excess over P120,000 Over P350,000 P61,600 + 30% of excess over P350,000 Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of profession, only the following direct costs shall be allowed as deductions: (a) Raw materials, supplies and direct labor; (b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their profession;

The full text of the title actually reads: An Act Adopting the Simplified Net Income Taxation Scheme For The SelfEmployed and Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended.

(c) Telecommunications, electricity, fuel, light and water; (d) Business rentals; (e) Depreciation;

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken areas declared by the President; and

Sec. 21. Tax on citizens or residents. — xxx xxx xxx (f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. — A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual whether a citizen of the Philippines or an alien residing in the Philippines who is selfemployed or practices his profession herein, determined in accordance with the following schedule: Not over P10,000 3% Over P10,000 P300 + 9% but not over P30,000 of excess over P10,000

(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business. For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the case may be. On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well provided under the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the subjects of legislation.1 The above objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be to require a virtual compendium of the law which could not have been the intendment of the constitutional mandate.

Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long been the prevailing rule even prior to Republic Act No. 7496.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned implementing regulation of public respondents following the effectivity of the law, thusly:

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52). What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach2 in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been reached within any appreciable distance in this controversy before us. Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us. G.R. No. 109446 The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. The questioned regulation reads:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak here of individuals who are earning, I mean, who earn through business enterprises and therefore, should file an income tax return? MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to individuals. (See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours). Other deliberations support this position, to wit: MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is intended to increase collections as far as individuals are concerned and to make collection of taxes equitable? MR. PEREZ. That is correct, Mr. Speaker. (Id. at 6:40 P.M.; Emphasis ours). In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is categorically stated, thus: This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with respect to individuals and professionals. (Emphasis ours) The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions and partners

in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

"taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the payment of income tax.

Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes. A general professional partnership is such an example.4 Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits. In the determination of the tax liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.

(b) In determining his distributive share in the net income of the partnership, each partner — (1) Shall take into account separately his distributive share of the partnership's income, gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this Code, and (2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions. There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership. WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. SO ORDERED. Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ., concur. Padilla and Bidin, JJ., are on leave.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income). Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as

[G.R. No. 119252. August 18, 1997]

COMMISIONER OF INTERNAL REVENUE and COMMISIONER OF CUSTOMS, petitioners, vs. HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS, INC., respondents. DECISION HERMOSISIMA, JR., J.:

Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff & Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise unconstitutional? If it can, under what circumstances? In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal of the Decision,[1] dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City. The following facts, concisely related in the petition[2] of the Office of the Solicitor General, appear to be undisputed: "1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the manufacture of jewelers (sic) and allied undertakings. Among its members are Hans Brumann, Inc., Miladay Jewels Inc., Mercelles, Inc., Solid Gold International Traders inc., Diagem Trading Corporation, and Private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President of the Guild. 2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported articles of Hans Brumann, Inc., and place the same under preventive embargo. The duration of the mission was from August 8 to August 20, 1988 (Exhibit 1; Exhibit A). 3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR officers proceeded to the establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they were going to make an inventory of the articles involved to see if the proper taxes thereon have been paid. They then made an inventory of the articles displayed in the cabinets with the assistance of an employee of the establishment. They listed down the articles, which list was signed by the assistant employee. They also requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles (pp, 10-15, TSN April 12,1993, Exhibits 2, 2-A, 3, 3-a).

inventory (stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and make available to the BIR the documents indicated therein (Exhibit 'D'). 8. Hans Brumann, inc., did not produce the documents requested by the BIR.[6] 9. Similar Letters of Authority were issued to BIR officers to examine the books of accounts ans other accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibit E, G and N) and Diagem Trading Corporation[7] for stocktaking/investigation for excise tax pirpose for the period January 1, 1988 to present. 10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in the implementation of the Letters of Authority. 11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the articles in the establishment.[8] The same is true with respect to Diagem Traders Corporation.[9] 12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed with the Regional Trial Court, National Capital Judicial Region, Pasig City, Meto Manila, a petition for declaratory relief with writ of preliminary injunction and/or temporary restraining order against herein petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying that Sections 126, 127(a) and (b) and 150 (a) of the National Internal Revenue Code and Hdg. No 71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. x x x 13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x 14. On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. x x x

4. The BIR officers requested the establishment not to sell the articles until it can be proven that the necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment, signed a receipt for Goods, Articles, and Things Seized under Authority of the National Internal Revenue Code (dated August 17, 1988), acknowledging that the articles inventoried have been seized and left in his possession, and promising not to dispose of the same without authority of the Commissioner of Internal Revenue pending investigation.[3]

15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.

5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted and a computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition.[4]

1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg, 71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%) percent tariff and customs duty on natural and cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned.

6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive embargo of the articles.[5] 7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D. Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann, Inc., for stocktaking investigation for excise tax purposes for the period January 1, 1988 to present (Exhibit C). In a latter dated October 27, 1988, in connection with the physical count of the

16. On February 16, 1995, public respondent rendered a decision, the dispositive portion of which reads: 'In view of the foregoing reflections, judgment is hereby rendered, as follows:

2. Enforcement of the same is hereby enjoined. No cost.

SO ORDERED. Section 150 (a) of Executive Order No. 273 reads: SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20% based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs duties; net of the excise tax and value-added tax, of the following goods: (a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silverplated wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The term imitation thereof shall include platings and alloys of such metals. Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163 (a) of the Tax Code of 1986 which provided that: SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected, once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the article herein below enumerated a tax equivalent to 50% of the gross value in money of the articles so sold, bartered. Exchanged or transferred, such tax to be paid by the manufacturer or producer: (a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silverplated wares, frames or mounting for spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The term imitations thereof shall include platings and alloys of such metals; Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974. It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69. Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995. Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the court a quo. In support of their petition before the lower court, the private respondents submitted a position paper purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied on the same in the Philippines.[10]

The following issues were thus raised therein: "1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition. 2. Whether the petition states a cuase of action or whether the petition alleges a justiciable controversy between the parties. 3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and Customs Code are unconstitutional. 4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal. In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take cognizance of the petition since jurisdiction over the nature of the suit is conferred by law and it is detemine[d] through the allegations in the petition, and that the Court of Tax Appeals ha no jurisdiction to declare a statute unconstitutional much less issue writs of certiorari and prohibition in order to correct acts of respondents allegedly committed with grave abuse of discretion amounting to lack of jurisdiction. As to the second issue, the public respondent, made the holding that there exist a justiciable controversy between the parties, agreeing with the statements made in the position paper presented by the private respondents, and considering these statements to be factual evidence, to wit: Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric cost of taxation is killing the local manufacturing jewelry industry because they cannot compete with the neighboring and other countries where importation and manufacturing of jewelry is not taxed heavily, if not at all; that while government incentives and subsidies exist, local manufacturers cannot avail of the same because officially many of them are unregistered and are unable to produce the required official documents because they operate underground, outside the tariff and tax structure; that local jewelry manufacturing is under threat of extinction, otherwise discouraged, while domestic trading has become more attractive; and as a consequence, neighboring countries, such as Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors supplying the Philippine market either through local channels or through the black market for smuggled goods are the ones who are getting business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are constantly subjected to bureaucratic harassment instead of being given by the government the necessary support in order to survive and generate revenue for the government, and most of all fight competitively not only in the domestic market but in the arena of world market where the real contest is. Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds that the petition states a cause of action and there exist a justiciable controversy between the parties which would require determination of constitutionality of laws imposing excise tax and customs duty on jewelry.[11] (emphasis ours) The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their position paper, the lower court stated:

The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore. The court elaborates further on the experience of other countries in their treatment of the jewelry sector. MALAYSIA Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in 1984. They were removed to encouraged the development of Malaysias jewelry manufacturing industry and to increase exports of jewelry. THAILAND Gems and jewelry are Thailands ninth most important export earner. In the past, the industry was overlooked by successive administrations much to the dismay of those involved in developing trade. Prohibitive import duties and sales tax on precious gemstones restricted the growth (sic) of the industry, resulting in most of the business being unofficial. It was indeed difficult for a government or businessman to promote an industry which did not officially exist. Despite these circumstances, Thailands Gem business kept growing up in (sic) businessmen began to realize its potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in gemstones and jewelry would increase local manufacturing and exports or if it would mean more foreign made jewelry pouring into Thailand. However, as time progressed, there were indications that local manufacturing was indeed being encouraged and the economy was earning more from exports. The government soon removed the 3% sales tax too. Putting Thailand at par with Hongkong and Singapore. In these countries, there are no more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit M. The Center for Research and Communication in cooperation with the Guild of Philippine Jewelers, Inc., June 1986). To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and other percious and semi-precious stones compared to other neighboring countries, to wit: Tariff on imported Jewelry and (MANUFACTURING) Sales Tax 10% (VAT) Precious stones Excise Tax Philippines 3% to 10% to be 20% 10% VAT applied in stages Malaysia None None None Thailand None None None

Singapore None None None Hongkong None None None In this connection, the present tariff and tax structure increases manufacturing costs and renders the local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading. Because of the prohibitive cast(sic) of taxation, most manufacturers source from black market for smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits from the (manufacturing) excise tax, they have no documents to present when filing this exemption because, as pointed out earlier, most of them source their raw materials from the black market, and since many of them do not legally exist or operate onofficially(sic), or underground, again they have no records (receipts) to indicate where and when they will utilize such tax credits. (Cited in Exhibit M Buencamino Report). Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if only to be able to compete even ineffectively, or cease manufacturing activities and instead engage in the tradinf (sic) of smuggled finished jewelry. Worthy of not is the fact that indeed no evidence was adduced by respondents to disprove the foregoing allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in violation of Section 1, Article III of the Constitution which states, as follows: No person shall be deprived of the life, liberty, or property without due process of law x x x.[12] Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his opinion, the same has been rendered moot and academic by the aforementioned pronouncement.[13] The petitioners now assail the decision rendered by the public respondent, contending that the latter has no authority to pass judgment upon the taxation policy of the government. In addition, the petitioners impugn the decision in question by asserting that there was no showing that the tax laws on jewelry are confiscatory and desctructive of private respondents proprietary rights. We rule in favor of the petitioners. It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind his limitations under the law as a trial judge, did not go so far as to declare the laws in question to be unconstitutional. However, therein he declared the laws to be inoperative and without force and effect insofar as the private respondents are concerned. But, respondent judge, in the body of his decision, unequivocally but wrongly declared the said provisions of law to be violative of Section 1, Article III of the Constitution. In fact, in their Supplemental Comment on the Petition for Review, [14] the private respondents insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted within his authority in passing upon the issues, to wit: A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment on the soundness or wisdom of the governments tax policy on jewelry. True, public respondent, in his questioned decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential item, and therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and renders the local jewelry manufacturers uncompetitive against other

countries even before they start manufacturing and trading; that many of the local manufacturers do not legally exist or operate unofficially or underground; and that the manufacturers have no recourse but to the back door for smuggled goods if only to be able to compete even if ineffectively or cease manufacturing activities. BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised before, and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the National Internal Revenue Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the Tariff and Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory provisions affect the constitutional right of private respondents to engage in business. It is submitted that public respondent confined himself on this issue which is clearly a judicial question. We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that private respondents can still persist in their argument that the former did not overreach the restrictions dictated upon him by law. There is no doubt in the Courts mind, despite protestations to the contrary, that respondent judge encroached upon matters properly falling within the province of legislative functions. In citing as basis for his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this country, and these reasons, deliberate upon by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority:[15] The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain, this presumption is based on the doctrine of separation of powers which enjoins upon each department a becoming respect for the acts of the other departments.The theory is that as the joint act of Congress and the President of the Philippines, a law has been carefully studied and determined to be in accordance with the fundamental law before it was finally enacted. (emphasis ours) What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not competent to rule.[16] As Cooley observed: Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.[17] In Angara vs. Electoral Commission,[18] Justice Laurel made it clear that the judiciary does not pass upon question of wisdom, justice or expediency of legislation. And fittingly so, for in the exercise of judicial power, we are allowed only to settle actual controversies involving rights which are legally demandable and enfoceable, and may not annul an act of the political departments simply because we feel it is unwise or impractical. [19] This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J. M. Tuason and Co. v. Court of Appeals[20] we said that [p]lainly the Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue. this authority of lower courts to decide questions of constitutionality in the first instance was reaffirmed in Ynos v. Intermediate Court of Appeals.[21] But this authority does not extend to deciding questions which pertain to legislative policy.

The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial Courts can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendo that the private respondents may have provided convincing arguments why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment.[22] As succinctly put in Lim vs. Pacquing:[23] Where a controversy may be settled an a platform other than one involving constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional question. As judges, we can only interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it.[24] The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is meant to convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries should be used as a yardstick in determining what may be the proper subjects of taxation in our own country. It should be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the legislative and executive branches, is exercising its sovereign prerogative. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from singling out of one particular class for taxation, or exemption, infringe no constitutional limitation.[25] WHEREFORE, premises considered, the petition is hereby GRANTED, and the DECISION in Civil Case No. 56736 is hereby REVERSED and SET ASIDE. No costs. SO ORDERED Padilla, (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

G.R. No. L-67649 June 28, 1988 ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.: The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name. The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.

I RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. II

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.

III

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering: (a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled. (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal)

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law. A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

xxx xxx xxx

Hence, this petition for review.

(3) that the two debts be due.

Francia prefaced his arguments with the following assignments of grave errors of law:

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..." We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx ... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied) There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that: [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... . We quote the following testimony of the petitioner on cross-examination, to wit: Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this letter? A. I just signed it because I was not able to read the same. It was just sent by mail carrier. Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read the contents of it? A. Yes, sir, as I was in a hurry. Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails. Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: ... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale."

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny the petition. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed. SO ORDERED. Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concu G.R. No. L-17725

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369). In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555): Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their own neglect.

February 28, 1962

Office of the Solicitor General for plaintiff-appellee. Arthur Tordesillas for defendants-appellants. BARRERA, J.: From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay to plaintiff Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from the date of the filing of the complaint until fully paid, plus costs, defendant Mambulao Lumber Company interposed the present appeal.1 The facts of the case are briefly stated in the decision of the trial court, to wit: . The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause of action, for forest charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability of P587.37, which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for Mambulao Lumber Company, jointly and severally in character, on July 29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both defendants admitted a joint and

several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint and several liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate to P4,802.37. If the liability of defendants in favor of plaintiff in the amount already mentioned is admitted, then what is the defense interposed by the defendants? The defense presented by the defendants is quite unusual in more ways than one. It appears from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the director of forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of watersheds, denuded areas ... and other public forest lands, which upon investigation, are found needing reforestation or afforestation .... The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. In line with this thought, defendant Mambulao Lumber Company wrote the director of forestry, on February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant requested "that our account with your bureau be credited with all the reforestation charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...". This letter of defendant Mambulao Lumber Company was answered by the director of forestry on March 12, 1957, marked Exh. 2, in which the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no discretion to extend the time for paying the reforestation charges and also explained why not all denuded areas are being reforested. The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendantappellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it as forest charges.1äwphï1.ñët We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides: SECTION 1. There shall be collected, in addition to the regular forest charges provided for under Section two hundred and sixty-four of Commonwealth Act Numbered Four Hundred Sixty-six, known as the National Internal Revenue Code, the amount of fifty centavos on each cubic meter of timber for the first and second groups and forty centavos for the third and fourth groups cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources (commerce), for reforestation and afforestation of watersheds, denuded areas and cogon and open lands within forest reserves, communal forest, national parks, timber lands, sand dunes, and other public forest lands,

which upon investigation, are found needing reforestation or afforestation, or needing to be under forest cover for the growing of economic trees for timber, tanning, oils, gums, and other minor forest products or medicinal plants, or for watersheds protection, or for prevention of erosion and floods and preparation of necessary plans and estimate of costs and for reconnaisance survey of public forest lands and for such other expenses as may be deemed necessary for the proper carrying out of the purposes of this Act. All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the sale of barks, medical plants and other products derived from plantations as herein provided shall constitute a fund to be known as Reforestation Fund, to be expended exclusively in carrying out the purposes provided for under this Act. All provincial or city treasurers and their deputies shall act as agents of the Director of Forestry for the collection of the revenues or incomes derived from the provisions of this Act. (Emphasis supplied.) Under this provision, it seems quite clear that the amount collected as reforestation charges from a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon investigation, are found to be needing reforestation or afforestation. Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee's area may or may not be reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code2 is applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this point, the trial court correctly observed: . Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors and debtors of each other. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government, they are in the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to mutual debts. .. And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be the subject of set-off or compensation. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who

is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S. 73-74. ) . The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion. (47 Am. Jur. 766-767.) WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with costs against the defendant-appellant. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon and De Leon, JJ., concur. G.R. No. L-18994

June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents. Office of the Solicitor General and Atty. G. H. Mantolino for petitioner. Benedicto and Martinez for respondents. LABRADOR, J.: This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960) The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960) The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus: . . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively". It was, as the ordinance itself states, enacted pursuant to the taxing power conferred by Commonwealth Act 472. By Section 1 of the Ordinance: "Any person, corporation or other forms of companies, operating sugar central or engage[d] in the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax, payable quarterly, to wit: . . ." Section 1 referred to prescribes a wide range of schedule. It starts with a sugar central with mill having an annual output capacity of not less than 50,000 piculs of centrifugal sugar, in which case an annual municipal license tax of P1,000.00 is provided. Depending upon the annual output capacity the schedule of taxes continues with P2,000.00 progressively upward in twelve other grades until an output capacity of 1,500,001 piculs or more shall have been reached. For this, the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar rates. It also starts with P1,000.00 for a refinery with mill having an annual output capacity of not less than 25,000 bags of 100 lbs. of refined sugar. Then, it continues with the second bracket of from 25,001 bags to 75,000 bags of 100 lbs. Here, the municipal license tax is P1,500.00. Then follow the other rates in the graduated scale with the ceiling placed at a capacity of 1,750,001 bags or more. The annual municipal license tax for the last mentioned output capacity is P40,000.00. Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar refineries with specific reference to the maximum annual license tax, viz: Section No. 1 — Any person, corporation or other forms of Companies, operating Sugar Central or engage[d] in the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax, payable quarterly, to wit:

The petition is, therefore, dismissed, without costs. Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part. G.R. No. L-21183

the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity.

September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant, vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-appellant. Hilado & Hilado for plaintiff-appellant. The Provincial Fiscal of Negros Occidental for defendant-appellant SANCHEZ, J.: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance was approved by the municipal Council of Victorias on September 22, 1956 by way of an amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals 1 and sugar refineries. 2 The changes were: with respect to sugar centrals, by increasing

xxx

xxx

xxx

(m) Sugar Central with mill having a capacity of producing an annual output of from 1,500,001 piculs or more shall be required to pay an annual municipal license tax of — P40,000.00. Section No. 2 — Any person, corporation or other forms of Companies shall be required to pay an annual municipal license tax for the operation of Sugar Refinery Mill at the following rates: xxx

xxx

xxx

(m) Sugar Refinery with mill having a capacity of producing an annual output of from 1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal license tax of — P40,000.00. For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items in the schedule. Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and void; ordering the refund of all license taxes paid and to be paid under protest; directing the officials of

Victorias and the Province of Negros Occidental to observe, during the pendency of the action, the provisions of section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 edition, 5 regarding the treatment of license taxes paid under protest by virtue of a disputed ordinance; and other reliefs. 6 The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the national government has preempted the field of taxation with respect to sugar centrals or refineries. Upon the complaint as supplemented and amended, and the answer thereto, and following hearing on the merits, the trial court rendered its judgment. After declaring that "[t]here is no doubt that" the ordinance in question refers to license taxes or fees," and that "[i]t is settled that a license tax should be limited to the cost of licensing, regulating and surveillance," 7 the trial court ruled that said license taxes in dispute are unreasonable, 8 and held that: "If the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal legislation, but not in the guise of a license tax." 9 The court added: "The Court is not, however, prepared to order the refund of all the license taxes paid by the plaintiff under protest and amounting, up to the second quarter of 1960, to P280,000.00, considering that the plaintiff appears to have agreed to the payment of the license taxes at the rates fixed prior to Ordinance No. 1, series of 1956; that the defendant had evidently not complied with the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the defendant and its appropriate officials to carry out said provisions; that the financial position of the defendant would surely be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or forget what it had already parted with". 10 It disposes of the suit in the following manner: WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of 1956, of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all officials of the defendant to observe the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, with particular reference to any license taxes paid by the plaintiff under said Ordinance No. 1, series of 1956, after notice of this decision; and (c) ordering the defendant to refund to the plaintiff any and all such license taxes paid under protest after notice of this decision. 11 Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision denying the refund of the license taxes paid under protest in the amount of P280,000 covering the period from the first quarter of 1957 to the second quarter of 1960; and balked at the court's order limiting refund to "any and all such license taxes paid under protest after notice of this decision." Defendant, upon the other hand, challenges the correctness of the court's decision invalidating Ordinance No. 1, series of 1956.

revenue — in the guise of a police or a regulatory measure. Our finding, however, is the other way.1awphîl.nèt The ordinance itself recites that its source of taxing power emanates from Commonwealth Act 472, Section 1 of which reads: Section 1. A municipal council or municipal district council shall have authority to impose municipal license taxes upon persons engaged in any occupation or business, or exercising privileges in the municipality or municipal district, by requiring them to secure licenses at rates fixed by the municipal council, or municipal district council, and to collect fees and charges for services rendered by the municipality or municipal district and shall otherwise have power to levy for public local purposes, and for school purposes, including teachers' salaries, just and uniform taxes other than percentage taxes and taxes on specified articles. Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to impose three kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises; and (3) license for revenue. 12 The first two easily fall within the broad police power granted under the general welfare clause. 13 The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by statute upon the municipality. 14 It is so granted under Commonwealth Act 472. To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of Ordinance No. 18, series of 1947, in reference to refineries, and Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on persons, firms or corporations operating refinery mills in this municipality." 15Ordinance No. 25 speaks of municipal taxes "relative to the output of the sugar centrals." 16 What are these taxes for? Resolution No. 60 of the municipal council of Victorias, 17 adopted also on September 22, 1956 in conjunction with Ordinance No. 1, series of 1956, furnishes a ready answer. It reads in part: WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of the Municipality and the heavy obligations which confront it because of the implementation of Minimum Wage Law on the salaries and wages it pays to its municipal employees and laborers thus greatly draining the Municipal Treasury; WHEREAS, this local administration is committed to the plan of ameliorating the deplorable situation existing in the barrios, sitios and rural areas by giving them essential and necessary facilities calculated to improve conditions thereat thru improvements of roads and feeder roads;

The questions raised in the appeals will be discussed in their proper sequence. 1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure? The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question did exceed the cost of licensing, regulating and surveillance, and that defendant cannot impose a tax — for

WHEREAS, one of the causes of the municipality's financial difficulty is low rates of municipal taxes imposed by some of the ordinances enacted by the local legislative body; WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953, dealing on the operation of Sugar Central, and Ordinance No. 18, Series of 1947, which exclusively deals with the operation of Sugar Refinery Mill, the rates so given are rates suggested and

determined by the Provincial Circular No. 12-A, dated February 27, 1940 issued by the Department of Finance as regards to Sugar Centrals; WHEREAS, the Municipal Council has come to the conclusion that the rates provided for in such ordinances are no longer adequate if made in keeping with the present high cost of living; WHEREAS, the Municipal Council has also taken cognizance of the fact that the price of sugar per picul today is more than twice its pre-war average price; . . . . 18 Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.1awphîl.nèt We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not necessarily connote the idea that the tax is imposed — as the lower court would want it — to mean a revenue measure in the guise of a license tax. For really, this runs counter to the declared purpose to make money. Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to designate impositions exacted for the exercise of various privileges." 19 It does not refer solely to a license for regulation. In many instances, it refers to "revenue-raising exactions on privileges or activities." 20 On the other hand, license feesare commonly called taxes. But, legally speaking, the latter are "for the purpose of raising revenues," in contrast to the former which are imposed "in the exercise of police power for purposes of regulation." 21 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. 22 Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any standard set for the applicant 23 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." 24 Precisely because of these considerations the present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial pronouncements which have gained foothold in this jurisdiction. In Standard Vacuum vs. Antigua, 25 this Court had occasion to pass upon a similar ordinance. In categorical terms, we there stated: "We are satisfied that the graduated license tax imposed by the ordinance in question is an occupation tax, imposed not under the police or regulatory power of the municipality but by virtue of its taxing power for purposes of revenue, and is in accordance with the last part of Section 1 of Commonwealth Act No. 472. It is, therefore, valid." 26

The present case is not to be analogized with Panaligan vs. City of Tacloban cited in the decision below. 27 For there, the inspection fee sought to be collected — upon every head of specified animals to be transported out of the City of Tacloban (P2.00 per hog, P10.00 per cow and 20.00 per carabao) — was in reality an export tax specifically withheld from municipal taxing power under Section 2287 of the Revised Administrative Code. So also do we say that the cases of Pacific Commercial Co. vs. Romualdez, 28 Lacson vs. City of Bacolod, 29 and Santos vs. Municipal Government of Caloocan, 30 used by plaintiff as references, are entirely inopposite. In Pacific Commercial, the tax involved — on frozen meat — was nullified because tax measures on cold stores were not then within the legislative grant to the City of Manila. In Lacson, the City of Bacolod taxed every admission ticket sold in the moviehouses. And justification for this imposition was moored to the general welfare clause of the city charter. This Court held the ordinance ultra vires for the reason that the authority to tax cannot be derived from the general welfare clause. In Santos, the taxes in controversy were internal organs fees, meat inspection fees and corral fees, separate from the slaughter or slaughterhouse fees. In annulling the taxes there questioned, this Court declared: "[W]hen the Council ordained the payment of internal organs fees, meat inspection fees and corral fees, aside from the slaughter or slaughterhouse fees, it overstepped the limits of its statutory grant [Sec. 1, C.A. 655]. Only one fee was allowed by that law to be charged and that was slaughter or slaughterhouse fees." In the cases cited then, the tax ordinances did not find plain and clear statutory prop. Such infirmity is not present here. We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the exercise of the municipality's regulatory power but as a revenue measure — a tax on occupation or business. The authority to impose such tax is backed by the express grant of power in Section 1 of Commonwealth Act 472. 2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance required in paragraph 2, Section 4, of Commonwealth Act 472. This legal provision necessitates such approval "[w]henever the rate of fixed municipal license taxes on businesses not excepted in this Act or otherwise covered by the preceding paragraph and subject to the fixed annual tax imposed in section one hundred eighty-two of the National Internal Revenue Law, is in excess of fifty pesos per annum; . . . ." The ordinance here challenged was recommended by the Provincial Board of Negros Occidental in its resolution (No. 1864) of October 26, 1956. 31 And, the Undersecretary of Finance in his letter to the municipal council of Victorias on December 18, 1956 approved said ordinance. But considering that it is amendatory in nature, that approval was coupled with the mandate that the ordinance "should take effect at the beginning of the ensuing calendar year [1957] pursuant to Section 2309 of the Revised Administrative Code." 32 3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in question because the national government "had preempted it from entering the field of taxation of sugar centrals and sugar refineries." 33 Plaintiff seeks refuge in Section 189 of the National Internal Revenue Code which subjects proprietors or operators of sugar centrals or sugar refineries to percentage tax. The implausibility of this position is at once apparent. We are not dealing here with percentage tax. Rather, we are concerned with a tax specifically for operators of sugar centrals and sugar refineries. The rates imposed are based on the maximum annual output capacity. Which is not a percentage. Because it

is not a share. Nor is it a tax based on the amount of the proceeds realized out of the sale of sugar, centrifugal or refined. 34 What can be said at most is that the national government has preempted the field of percentage taxation. Section 1 of Commonwealth Act 472, while granting municipalities power to levy taxes, expressly removes from them the power to exact "percentage taxes". It is correct to say that preemption in the matter of taxation simply refers to an instance where the national government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. This doctrine primarily rests upon the intention of Congress. 35 Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies, then the doctrine of preemption will not apply. In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically allows municipal councils to tax persons engaged in "the same businesses or occupation" on which "fixed internal revenue privilege taxes" are "regularly imposed by the National Government." With certain exceptions specified in Section 3 of the same statute. Our case does not fall within the exceptions. It would therefore be futile to argue that Congress exclusively reserved to the national government the right to impose the disputed taxes. We rule that there is no preemption.

Not that defendant municipality was without reason. On February 27, 1940, the Secretary of Finance, later President, Manuel A. Roxas, issued Provincial Circular 12-A. In that circular, the then Finance Secretary stated that his "Department has reached the conclusion that a tax on the basis of one centavo for every picul of annual output capacity of sugar centrals ... would be just and reasonable." At that time, the price of sugar was around P6.00 per picul. Sixteen years later — 1956 — when Ordinance No. 1 was approved, the market quotation for export sugar ranged from P12.00 to P15.00 per picul. 41 And yet, since then the rate per output capacity of a sugar central in Ordinance No. 1 was merely from one centavo to two centavos. There is a statement in the municipality's brief 42that thereafter the price of sugar had never gone below P16.00 per picul; instead it had gone up. The reasonableness of the ordinance may not be disputed. It is not confiscatory. There was misapprehension in the decision below in its statement that the increase of rates for refineries was 2,000%. We should not overlook the fact that the original maximum rate covering refineries in Ordinance No. 18, series of 1947, was P2,000.00; but that was only for a refinery with an output capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1, series of 1956, where the refineries have an output capacity of from 75,001 bags to 100,000 bags, the tax remains at P2,000.00. From here on, the ordinance provides for ten more scales for the graduation of the tax depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00, P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, P35,000.00 and P40,000.00). But it is only where a refinery has an output capacity of 1,750,001 or more bags that the present ordinance imposes a tax of P40,000.00. The happenstance that plaintiff's refinery is in the last bracket calling upon it to pay P40,000.00 per annum does not make the ordinance in question unreasonable.

4. Petitioner advances the theory that the ordinance is excessive. 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. 36 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. 37 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 that the municipality has adequate funds for the alleged purposes as evidenced by the municipality's cash surplus for the fiscal year ending 1956. The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs of regulation, it is a tax." 38 And if it is, and it is validly imposed, as in this case, "the rule that license fees for regulation must bear a reasonable relation to the expense of the regulation has no application." 39 And then, a cash surplus alone cannot stop a municipality from enacting a revenue ordinance increasing license taxes in anticipation of municipal needs. Discretion to determine the amount of revenue required for the needs of the municipality is lodged with the municipal authorities. Again, judicial intervention steps in only when there is a flagrant, oppressive and excessive abuse of power by said municipal authorities. 40

Neither may we tag the ordinance with excessiveness if we consider the capital invested by plaintiff in both its sugar central and sugar refinery and its annual income from both. Plaintiff's capital investment in the sugar central and sugar refinery is more or less P26,000,000.00. 43 And here are its annual net income: for the year 1956 — P3,852,910; for the year 1957 — P3,854,520; for the year 1958 — P7,230,493; for the year 1959 — P5,951,187; and for the year 1960 — P7,809,250. 44 If these figures mean anything at all, they show that the ordinance in question is neither confiscatory nor unjust and unreasonable. 5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of a sugar central and sugar refinery, plaintiff now presses its argument that Ordinance No. 1, series of 1956, is discriminatory. The ordinance does not single out Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. Argument along the same lines was rejected in Shell Co. of P.I., Ltd. vs. Vaño, 45 this Court holding that the circumstance "that there is no other person in the locality who exercises" the occupation designated as installation manager "does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation." And in Ormoc Sugar Company, Inc. vs. Municipal Board of Ormoc City, 46 declaratory relief was sought to test the validity of a municipal ordinance which provides a city tax of twenty centavos per picul of centrifugal sugar and one per centum on the gross sale of its derivatives and by-products "produced by the Ormoc Sugar Company, Incorporated, or by any other sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this Court, declared that the ordinance did not suffer "from a constitutional or statutory infirmity." And yet, in Ormoc, it is to be observed that Section 1 of the ordinance spelled out Ormoc Sugar Company, Incorporated specifically by name. Not even the name of plaintiff herein was ever mentioned in the ordinance now disputed.

No discrimination exists. 6. As infirm is plaintiff's stand that its business is not confined to the Municipality of Victorias. It suffices that plantiff engages in a business or occupation subject to an exaction by the municipality — within the territorial boundaries of that municipality. Plaintiff's sugar central and sugar refinery are located within the Municipality of Victorias. In this central and refinery, plaintiff manufactures centrifugal sugar and refined sugar, respectively. But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly performed within the territorial limits of Victorias. According to plaintiff, transportation of canes from plantation to the mill site, operation and maintenance of telephone system, inspection of crop progress and other related activities, are conducted not only in defendant's municipality but also in the municipalities of Cadiz, Manapla, Sagay and Saravia as well. 47 We fail to see the relevance of these facts. Because, if we follow plaintiff's ratiocination, neither Victorias nor any of the municipalities just adverted to would be able to impose the tax. One thing certain, of course, is that the tax is imposed upon the business of operating a sugar central and a sugar refinery. And the situs of that business is precisely the Municipality of Victorias.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles, Fernando and Capistrano, JJ., concur. G.R. No. L-53961 NATIONAL DEVELOPMENT COMPANY, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. CRUZ, J.: We are asked to reverse the decision of the Court of Tax Appeals on the ground that it is erroneous. We have carefully studied it and find it is not; on the contrary, it is supported by law and doctrine. So finding, we affirm. Reduced to simplest terms, the background facts are as follows.

7. Plaintiff finally impleads double taxation. Its reason is that in computing the amount of taxes to be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not deducted; ergo, plaintiff is taxed twice on the raw sugar. Double taxation has been otherwise described as "direct duplicate taxation." 48 For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once." 49 Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the same thing." 50 As stated in Manila Motor Company, Inc. vs. Ciudad de Manila, 51 there is double taxation "cuando la misma propiedad se sujeta a dos impuestos por la misma entidad o Gobierno, para el mismo fin y durante el mismo periodo de tiempo." With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's argument on double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different from the other. Second. The disputed taxes are imposed on occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of taxation here were the sugar it produces, not the business of producing it. There is no double taxation. For the reasons given — The judgment under review is hereby reversed; and Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series of 1956, of the Municipality of Victorias, Province of Negros Occidental; and (b) dismissing plaintiff's complaint as supplemented and amended. Costs against plaintiff. So ordered.

The national Development Company entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve ocean-going vessels. 1 The purchase price was to come from the proceeds of bonds issued by the Central Bank. 2 Initial payments were made in cash and through irrevocable letters of credit. 3Fourteen promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. 4 Pursuant thereto, the remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. The vessels were eventually completed and delivered to the NDC in Tokyo. 5 The NDC remitted to the shipbuilders in Tokyo the total amount of US$4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed but failed. The BIR thereupon served on the NDC a warrant of distraint and levy to enforce collection of the claimed amount. 6 The NDC went to the Court of Tax Appeals. The BIR was sustained by the CTA except for a slight reduction of the tax deficiency in the sum of P900.00, representing the compromise penalty. 7 The NDC then came to this Court in a petition for certiorari. The petition must fail for the following reasons. The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the Tax Code, thus: SEC. 37. Income from sources within the Philippines. — (a) Gross income from sources within the Philippines. — The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interest. — Interest derived from sources within the Philippines, and interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise;

xxx

xxx

xxx

The petitioner argues that the Japanese shipbuilders were not subject to tax under the above provision because all the related activities — the signing of the contract, the construction of the vessels, the payment of the stipulated price, and their delivery to the NDC — were done in Tokyo. 8 The law, however, does not speak of activity but of "source," which in this case is the NDC. This is a domestic and resident corporation with principal offices in Manila.

the Philippines subject to income tax under the then Section 24(b)(1) of the National Internal Revenue Code. 9 There is no basis for saying that the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code, reading as follows: SEC. 29. Gross Income. — xxxx xxx xxx xxx

As the Tax Court put it: It is quite apparent, under the terms of the law, that the Government's right to levy and collect income tax on interest received by foreign corporations not engaged in trade or business within the Philippines is not planted upon the condition that 'the activity or labor — and the sale from which the (interest) income flowed had its situs' in the Philippines. The law specifies: 'Interest derived from sources within the Philippines, and interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise.' Nothing there speaks of the 'act or activity' of non-resident corporations in the Philippines, or place where the contract is signed. The residence of the obligor who pays the interest rather than the physical location of the securities, bonds or notes or the place of payment, is the determining factor of the source of interest income. (Mertens, Law of Federal Income Taxation, Vol. 8, p. 128, citing A.C. Monk & Co. Inc. 10 T.C. 77; Sumitomo Bank, Ltd., 19 BTA 480; Estate of L.E. Mckinnon, 6 BTA 412; Standard Marine Ins. Co., Ltd., 4 BTA 853; Marine Ins. Co., Ltd., 4 BTA 867.) Accordingly, if the obligor is a resident of the Philippines the interest payment paid by him can have no other source than within the Philippines. The interest is paid not by the bond, note or other interest-bearing obligations, but by the obligor. (See mertens, Id., Vol. 8, p. 124.) Here in the case at bar, petitioner National Development Company, a corporation duly organized and existing under the laws of the Republic of the Philippines, with address and principal office at Calle Pureza, Sta. Mesa, Manila, Philippines unconditionally promised to pay the Japanese shipbuilders, as obligor in fourteen (14) promissory notes for each vessel, the balance of the contract price of the twelve (12) ocean-going vessels purchased and acquired by it from the Japanese corporations, including the interest on the principal sum at the rate of five per cent (5%) per annum. (See Exhs. "D", D-1" to "D-13", pp. 100-113, CTA Records; par. 11, Partial Stipulation of Facts.) And pursuant to the terms and conditions of these promisory notes, which are duly signed by its Vice Chairman and General Manager, petitioner remitted to the Japanese shipbuilders in Japan during the years 1960, 1961, and 1962 the sum of $830,613.17, $1,654,936.52 and $1,541.031.00, respectively, as interest on the unpaid balance of the purchase price of the aforesaid vessels. (pars. 13, 14, & 15, Partial Stipulation of Facts.) The law is clear. Our plain duty is to apply it as written. The residence of the obligor which paid the interest under consideration, petitioner herein, is Calle Pureza, Sta. Mesa, Manila, Philippines; and as a corporation duly organized and existing under the laws of the Philippines, it is a domestic corporation, resident of the Philippines. (Sec. 84(c), National Internal Revenue Code.) The interest paid by petitioner, which is admittedly a resident of the Philippines, is on the promissory notes issued by it. Clearly, therefore, the interest remitted to the Japanese shipbuilders in Japan in 1960, 1961 and 1962 on the unpaid balance of the purchase price of the vessels acquired by petitioner is interest derived from sources within

(b) Exclusion from gross income. — The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx

xxx

xxx

(4) Interest on Government Securities. — Interest upon the obligations of the Government of the Republic of the Philippines or any political subdivision thereof, but in the case of such obligations issued after approval of this Code, only to the extent provided in the act authorizing the issue thereof. (As amended by Section 6, R.A. No. 82; emphasis supplied) The law invoked by the petitioner as authorizing the issuance of securities is R.A. No. 1407, which in fact is silent on this matter. C.A. No. 182 as amended by C.A. No. 311 does carry such authorization but, like R.A. No. 1407, does not exempt from taxes the interests on such securities. It is also incorrect to suggest that the Republic of the Philippines could not collect taxes on the interest remitted because of the undertaking signed by the Secretary of Finance in each of the promissory notes that: Upon authority of the President of the Republic of the Philippines, the undersigned, for value received, hereby absolutely and unconditionally guarantee (sic), on behalf of the Republic of the Philippines, the due and punctual payment of both principal and interest of the above note.10 There is nothing in the above undertaking exempting the interests from taxes. Petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. 11 Any doubt concerning this question must be resolved in favor of the taxing power. 12 Nowhere in the said undertaking do we find any inhibition against the collection of the disputed taxes. In fact, such undertaking was made by the government in consonance with and certainly not against the following provisions of the Tax Code: Sec. 53(b). Nonresident aliens. — All persons, corporations and general co-partnership (companies colectivas), in whatever capacity acting, including lessees or mortgagors of real or personal capacity, executors, administrators, receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the Philippines having control, receipt, custody; disposal or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or categorical gains, profits and income of any nonresident alien

individual, not engaged in trade or business within the Philippines and not having any office or place of business therein, shall (except in the cases provided for in subsection (a) of this section) deduct and withhold from such annual or periodical gains, profits and income a tax to twenty (now 30%) per centum thereof: ... Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to taxation under this Title not engaged in trade or business within the Philippines and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in section fifty-three a tax equal to thirty (now 35%) per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section:....

The petitioner was remiss in the discharge of its obligation as the withholding agent of the government an so should be held liable for its omission. WHEREFORE, the appealed decision is AFFIRMED, without any pronouncement as to costs. It is so ordered. Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayno, Padilla, Bidin, Sarmiento and Cortez, JJ., concur

[G.R. No. L-19337. September 30, 1969.]

Manifestly, the said undertaking of the Republic of the Philippines merely guaranteed the obligations of the NDC but without diminution of its taxing power under existing laws.

ASTURIAS SUGAR CENTRAL, INC., Petitioner, v. COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, Respondents.

In suggesting that the NDC is merely an administrator of the funds of the Republic of the Philippines, the petitioner closes its eyes to the nature of this entity as a corporation. As such, it is governed in its proprietary activities not only by its charter but also by the Corporation Code and other pertinent laws.

Laurea, Laurea & Associates for Petitioner.

The petitioner also forgets that it is not the NDC that is being taxed. The tax was due on the interests earned by the Japanese shipbuilders. It was the income of these companies and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code, thus: Section 53(c). Return and Payment. — Every person required to deduct and withhold any tax under this section shall make return thereof, in duplicate, on or before the fifteenth day of April of each year, and, on or before the time fixed by law for the payment of the tax, shall pay the amount withheld to the officer of the Government of the Philippines authorized to receive it. Every such person is made personally liable for such tax, and is indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provisions of this section. (As amended by Section 9, R.A. No. 2343.) In Philippine Guaranty Co. v. The Commissioner of Internal Revenue and the Court of Tax Appeals, 13 the Court quoted with approval the following regulation of the BIR on the responsibilities of withholding agents: In case of doubt, a withholding agent may always protect himself by withholding the tax due, and promptly causing a query to be addressed to the Commissioner of Internal Revenue for the determination whether or not the income paid to an individual is not subject to withholding. In case the Commissioner of Internal Revenue decides that the income paid to an individual is not subject to withholding, the withholding agent may thereupon remit the amount of a tax withheld. (2nd par., Sec. 200, Income Tax Regulations). "Strict observance of said steps is required of a withholding agent before he could be released from liability," so said Justice Jose P. Bengson, who wrote the decision. "Generally, the law frowns upon exemption from taxation; hence, an exempting provision should be construed strictissimi juris." 14

Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor Sumilang V . Bernardo for Respondents. SYLLABUS 1. POLITICAL LAW; TARIFF AND CUSTOMS LAWS; ADMINISTRATIVE CONSTRUCTION, WEIGHT OF. — Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions of our Tariff and Customs Code, the construction placed by It should be given controlling weight. 2. ID.; ID.; PERIOD PRESCRIBED TO EXPORT, NON-EXTENDIBLE AND MANDATORY. — In the light of the well established rule that exemptions from taxation are not favored, and that tax statutes are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, the court is of the opinion that the one-year period with which to export imported containers prescribed in Section 23 of the Philippine Tariff Act of 1909 is non-extendible; compliance therewith is mandatory. 3. ID.; ID.; JUTE BAGS WITHIN THE MEANING OF THE WORD "CONTAINERS." — The words "jute bags" are included in the phrase "cylinders and other containers" mentioned in Administrative Order No. 389, for the reason that the Philippine Tariff Act of 1909 and the Tariff and Customs Code, speak of "containers" in general, and the enumeration following said word merely serves to give example of containers and do not specify the particular kinds thereof. DECISION CASTRO, J.: This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which denied recovery of the sum of P28,629.42, paid by the petitioner, under protest, in the concept of customs duties and special import tax, as well as the petitioner’s alternative remedy to recover the said amount minus one per cent thereof by way of a drawback under sec. 106(b) of the Tariff and Customs Code.

The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal sugar for export, the sugar so produced being placed in containers known as jute bags. In 1957 it made two importations of jute bags. The first shipment consisting of 44,800 jute bags and declared under entry 48 on January 8, 1957, entered free of customs duties and special import tax upon the petitioner’s filing of Re-exportation and Special Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50. conditioned upon the exportation of the jute bags within one year from the date of importation. The second shipment consisting of 75,200 jute bags and declared under entry 243 on February 8, 1957, likewise entered free of customs duties and special import tax upon the petitioner’s filing of Reexportation and Special Import Tax Bond no. 6 in the amounts of P42,112 and P7,984.44, with the same conditions as stated in bond no. 1. Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the date of importation as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry 243, only 25,000 were exported within the said period of one year. In other words, of the total number of imported jute bags only 33,647 bags were exported within one year after their importation. The remaining 86,353 bags were exported after the expiration of the one-year period but within three years from their importation. On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the Commissioner of Customs for a week’s extension of Re-exportation and Special Import Tax Bond no. 6 which was to expire the following day, giving the following as the reasons for its failure to export the remaining jute bags within the period of one year: (a) typhoons and severe floods; (b) picketing of the Central railroad line from November 6 to December 21, 1957 by certain union elements in the employ of the Philippine Railway Company, which hampered normal operations; and (c) delay in the arrival of the vessel aboard which the petitioner was to ship its sugar which was then ready for loading. This request was denied by the Commissioner per his letter of April 15, 1958. Due to the petitioner’s failure to show proof of the exportation of the balance of 86,353 jute bags within one year from their importation, the Collector of Customs of Iloilo, on March 17, 1958, required it to pay the amount of P28,629.42 representing the customs duties and special import tax due thereon, which amount the petitioner paid under protest. In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the refund of the amount it had paid, on the ground that its request for extension of the period of one year was filed on time, and that its failure to export the jute bags within the required one-year period was due to delay in the arrival of the vessel on which they were to be loaded and to the picketing of the Central railroad line. Alternatively, the petitioner asked for refund of the same amount in the form of a drawback under section 106(b) in relation to section 105(x) of the Tariff and Customs Code. After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for refund. From his action, appeal was taken to the Commissioner of Customs who upheld the decision of the Collector. Upon a petition for review the Court of Tax Appeals affirmed the decision of the Commissioner of Customs.

"3. In not declaring that the petitioner is entitled to a refund by way of a drawback under the provisions of section 106, par. (b), of the Tariff and Customs Code."cralaw virtua1aw library 1. The basic issue tendered for resolution is whether the Commissioner of Customs is vested, under the Philippine Tariff Act of 1909, the then applicable law, with discretion to extend the period of one year provided for in section 23 of the Act. Section 23 reads:jgc:chanrobles.com.ph "SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in the opinion of the collector of customs, of such a character as to be readily identifiable may be delivered to the importer thereof upon identification and the giving of a bond with sureties satisfactory to the collector of customs in an amount equal to double the estimated duties thereon, conditioned for the exportation thereof or payment of the corresponding duties thereon within one year from the date of importation, under such rules and regulations as the Insular Collector of Customs shall provide." 1 To implement the said section 23, Customs Administrative Order 389 dated December 6, 1940 was promulgated, paragraph XXVIII of which provides that "bonds for the re-exportation of cylinders and other containers are good for 12 months without extension," and paragraph XXXI, that "bonds for customs brokers, commercial samples, repairs and those filed to guarantee the re-exportation of cylinders and other containers are not extendible."cralaw virtua1aw library And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated August 25, 1948 was issued, prescribing rules and regulations governing the importation, exportation and identification thereof under section 23 of the Philippine Tariff Act of 1909. Said administrative order provides:jgc:chanrobles.com.ph "That importation of jute bags intended for use as containers of Philippine products for exportation to foreign countries shall be declared in a regular import entry supported by a surety bond in an amount equal to double the estimated duties, conditioned for the exportation or payment of the corresponding duties thereon within one year from the date of importation."cralaw virtua1aw library It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of the Tariff and Customs Code, while fixing at one year the period within which the containers therein mentioned must be exported, are silent as to whether the said period may be extended. It was surely by reason of this silence that the Bureau of Customs issued Administrative Orders 389 and 66, already adverted to, to eliminate confusion and provide a guide as to how it shall apply the law, 2 and, more specifically, to make officially known its policy to consider the one-year period mentioned in the law as non-extendible. Considering that the statutory provisions in question have not been the subject of previous judicial interpretation, then the application of the doctrine of "judicial respect for administrative construction," 3 would, initially, be in order. "Only where the court of last resort has not previously interpreted the statute is the rule applicable that courts will give consideration to construction by administrative or executive departments of the state." 4

The petitioner imputes three errors to the Court of Tax Appeals, namely:jgc:chanrobles.com.ph "1. In not declaring that force majeure and/or fortuitous event is a sufficient justification for the failure of the petitioner to export the jute bags in question within the time required by the bonds. "2. In not declaring that it is within the power of the Collector of Customs and/or the Commissioner of Customs to extend the period of one (1) year within which the jute bags should be exported.

"The formal or informal interpretation or practical construction of an ambiguous or uncertain statute or law by the executive department or other agency charged with its administration or enforcement is entitled to consideration and the highest respect from the courts, and must be accorded appropriate weight in determining the meaning of the law, especially when the construction or interpretation is long continued and uniform or is contemporaneous with the first workings of the statute, or when the enactment of the statute was suggested by such agency." 5

The administrative orders in question appear to be in consonance with the intention of the legislature to limit the period within which to export imported containers to one year, without extension, from the date of importation. Otherwise, in enacting the Tariff and Customs Code to supersede the Philippine Tariff Act of 1909, Congress would have amended section 23 of the latter law so as to overrule the long- standing view of the Commissioner of Customs that the one-year period therein mentioned is not extendible. "Implied legislative approval by failure to change a long- standing administrative construction is not essential to judicial respect for the construction but is an element which greatly increases the weight given such construction." 6 "The correctness of the interpretation given a statute by the agency charged with administering its provision is indicated where it appears that Congress, with full knowledge of the agency’s interpretation, has made significant additions to the statute without amending it to depart from the agency’s view." 7 Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions of our Tariff and Customs Code, the construction placed by it thereon should be given controlling weight. "In applying the doctrine or principle of respect for administrative or practical construction, the courts often refer to several factors which may be regarded as bases of the principle, as factors leading the courts to give the principle controlling weight in particular instances, or as independent rules in themselves. These factors are the respect due the governmental agencies charged with administration, their competence, expertness, experience, and informed judgment and the fact that they frequently are the drafters of the law they interpret; that the agency is the one on which the legislature must rely to advise it as to the practical working out of the statute, and practical application of the statute presents the agency with unique opportunity and experiences for discovering deficiencies, inaccuracies, or improvements in the statute; . . ." 8 If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 10 then we are hard put to sustain the petitioner’s stand that it was entitled to an extension of time within which to export the jute bags and, consequently, to a refund of the amount it had paid as customs duties. In the light of the foregoing, it is our considered view that the one-year period prescribed in section 23 of the Philippine Tariff Act of 1909 is non-extendible and compliance therewith is mandatory. The petitioner’s argument that force majeure and/or fortuitous events prevented it from exporting the jute bags within the one-year period cannot be accorded credit, for several reasons. In the first place, in its decision of November 20, 1961, the Court of Tax Appeals made absolutely no mention of or reference to this argument of the petitioner, which can only be interpreted to mean that the court did not believe that the "typhoons, floods and picketing" adverted to by the petitioner in its brief were of such magnitude or nature as to effectively prevent the exportation of the jute bags within the required one-year period. In point of fact nowhere in the record does the petitioner convincingly show that the so-called fortuitous events or force majeure referred to by it precluded the timely exportation of the jute bags. In the second place, assuming, arguendo, that the one- year period is extendible, the jute bags were not actually exported within the one-week extension the petitioner sought. The record shows that although of the remaining 86,353 jute bags 21,944 were exported within the period of one week after the request for extension was filed, the rest of the bags, amounting to a total of 64,409, were actually exported only during the period from February 16 to May 24, 1958, long after the expiration of the one week extension sought by the petitioner. Finally, it is clear from the record that the typhoons and floods which, according to the petitioner, helped render impossible the fulfillment of its obligation to export within the one- year period, assuming that they may be placed in the category of fortuitous events or force majeure, all

occurred prior to the execution of the bonds in question, or prior to the commencement of the one-year period within which the petitioner was in law required to export the jute bags. 2. The next argument of the petitioner is that granting that Customs Administrative Order 389 is valid and binding, yet "jute bags" cannot be included in the phrase "cylinders and other containers" mentioned therein. It will be noted, however, that the Philippine Tariff Act of 1909 and the Tariff and Customs Code, which Administrative Order 389 seeks to implement, speak of "containers" in general. The enumeration following the word "containers" in the said statutes serves merely to give examples of containers and not to specify the particular kinds thereof. Thus, sec. 23 of the Philippine Tariff Act states, "containers such as casks, large metals, glass or other receptacles," and sec. 105(x) of the Tariff and Customs Code mentions "large containers," giving as examples "demijohn, cylinders, drums, casks and other similar receptacles of metal, glass or other materials." (Emphasis supplied) There is, therefore, no reason to suppose that the customs authorities had intended, in Customs Administrative Order 389 to circumscribe the scope of the word "container," any more than the statutes sought to be implemented actually intended to do. 3. Finally, the petitioner claims entitlement to a drawback of the duties it had paid, by virtue of section 106 (b) of the Tariff and Customs Code, 11 which reads:jgc:chanrobles.com.ph "SEC. 106. Drawbacks: . . . "b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof. — Upon the exportation of articles manufactured or produced in the Philippines, including the packing, covering, putting up, marking or labeling thereof, either in whole or in part of imported materials, or from similar domestic materials of equal quantity and productive manufacturing quality and value, such question to be determined by the Collector of Customs, there shall be allowed a drawback equal in amount to the duties paid on the imported materials so used or where similar domestic materials are used, to the duties paid on the equivalent imported similar materials, less one per cent thereof: Provided That the exportation shall be made within three years after the importation of the foreign material used or constituting the basis for drawback . . ."cralaw virtua1aw library The petitioner argues that not having availed itself of the full exemption granted by sec. 105 (x) of the Tariff and Customs Code due to its failure to export the jute bags within one year, it is nevertheless, by authority of the above-quoted provision, entitled to a 99% drawback of the duties it had paid, averring further that sec. 106 (b) does not presuppose immediate payment of duties and taxes at the time of importation. The contention is palpably devoid of merit. The provision invoked by the petitioner (to sustain his claim for refund) offer two options to an importer. The first under sec. 105 (x), gives him the privilege of importing, free from import duties, the containers mentioned therein as long as he exports them within one year from the date of acceptance of the import entry, which period, as shown above, is not extendible. The second, presented by sec. 106(b), contemplates a case where import duties are first paid. subject to refund to the extent of 99% of the amount paid, provided the articles mentioned therein are exported within three years from importation. It would seem then that the Government would forego collecting duties on the article mentioned in section 105 (x) of Tariff and Customs Code as long as it is assured, by the filing of a bond, that the same shall be exported within the relatively short period of one year from the date of acceptance of the import entry. Where an importer cannot provide such assurance, then the Government, under sec. 106(b) of said Code, would require payment of the corresponding duties first. The basic purpose of the two provisions is the same which is, to enable a local manufacturer to compete in foreign markets, by

relieving him of the disadvantages resulting from having to pay duties on imported merchandise, thereby building up export trade and encouraging manufacture in the country. 12 But there is a difference, and it is this: under section 105(x) full exemption is granted to an importer who justifies the grant of exemption by exporting within one year. The petitioner, having opted to take advantage of the provisions of section 105(x), may not, after having failed to comply with the conditions imposed thereby, avoid the consequences of such failure by being allowed a drawback under section 106 (b) of the same Act without having complied with the conditions of the latter section. For it is not to be supposed that the legislature had intended to defeat compliance with the terms of section 105 (x) thru a refuge under the provisions of section 106(b). A construction should be avoided which affords an opportunity to defeat compliance with the terms of a statute. 13 Rather courts should proceed on the theory that parts of a statute may be harmonized and reconciled with each other. "A construction of a Statute which creates an inconsistency should be avoided when a reasonable interpretation can be adopted which will not do violence to the plain words of the act and will carry out the intention of Congress. "In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general principle, embodied in the maxim, ‘ut res magis valeat quam pereat,’ that the courts should, if reasonably possible to do so without violence to the spirit and language of an act, so interpret the statute to give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided, under which a statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory." 14 ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at petitioner’s cost. Concepcion, C.J., Dizon, Saldivar, Fernando, Capistrano, Teehankee and Barredo, JJ., did not take part. Makalintal and Sanchez, JJ., did not take part. Reyes, J.B.L., J., is on official leave. [G.R. No. 153866. February 11, 2005] COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent. Business companies registered in Special Economic Zone in Naga, Cebu -- are entities exempt from AIRT, including the VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002 Decision[2] of the CA. The Facts The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows: 1.

Seagate

-

-

is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office address at theNaga, Cebu; engaged in the manufacture of recording components primarily used in computers for export April 2, 1997 – VAT-registered June 6, 1997 - registered with the PEZA April 1, 1998 to June 30, 1999 – filed VAT returns October 4, 1999 – filed a claim for refund of VAT input – P P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review) – RDO 83 – Talisay, Cebu BIR no action July 21, 2000 – Seagate elevated the case to CTA by way of Petition for review in order to toll the running of prescriptive period

2. Special and Affirmative Defenses of the BIR: - the claim for tax refund/credit is subject to administrative routinary investigation/examination by the BIR. - Since ‘taxes are presumed to have been collected in accordance with laws and regulations,’ the [respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected; - Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer. This is due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax.; - Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to VAT. As such, the capital goods and services it purchased are considered not used in VAT taxable business. Thus, it is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. - [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax.’ 3. CTA - July 19, 2001 - granted the claim for refund in the reduced amount of P12,122,922.66. This sum represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. ISSUE: WON Seagate, a VAT-Registered PEZA Enterprise is entitled to the refund. RULING: YES. Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. It is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the

transactions involving such tax are not exempt, petitioner as a VAT-registered person,[28] however, is entitled to their credits. “WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit.”[3] a PEZA-reg. enterprise w/n a special economic zone is entitled to the fiscal incentives and benefits [8] provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227[11] and 7844.[12]Respondent benefits under RA 7844 from negotiable tax credits[24] for locally-produced materials used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also enjoys preferential credit facilities[25] and exemption from PD 1853.[26]

VAT is a uniform levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.[32] As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. [33] In either case, though, the same conclusion is arrived at. If at the end of a taxable quarter the output taxes [38] charged by a seller[39] are equal to the input taxes[40] passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid.[41] If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters.[42] Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods,[43] any excess over the output taxes shall instead be refunded[44] to the taxpayer or credited[45] against other internal revenue taxes.[46] Zero-Rated vs. Effectively Zero-Rated Transactions (in effect – similar ; As to source – different)

In effect

Effective zero rating

intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales

intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.

In both, there is total relief for the purchaser from the burden of the tax

Exempt Transaction vs. Exempt Party

Nature of the VAT and the Tax Credit Method

As to source

Automatic Zero-rating

Zero-rated transactions

Effectively Zero-rated transactions

export sale of goods and supply of services.[47] The tax rate is set at zero.[48]

sale of goods[50] or supply of services[51] to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate

results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax,[49] but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.

The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction.[59] exempt transaction

exempt party

involves goods or services which are expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of the party to the transaction

person or entity granted VAT exemption under the Tax Code, a special law or an international agreement

such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.

Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.

Tax Refund as Tax Exemption To be sure, statutes that grant tax exemptions are construed strictissimi juris[102] against the taxpayer[103] and liberally in favor of the taxing authority.[104] Tax refunds are in the nature of such exemptions. VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund Registration is an indispensable requirement under our VAT law.[131] Petitioner alleges that respondent did register for VAT purposes with the appropriate Revenue District Office. However, it is now too late in the day for petitioner to challenge the VAT-registered status of respondent, given the latter’s prior representation before the lower courts and the mode of appeal taken by petitioner before this Court. Tax Refund or Credit in Order Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order.

Zero Rating and Exemption (In terms of the VAT computation – same; the extent of relief – different)

Compliance with All Requisites for VAT Refund or Credit

As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or credit.[150] First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which this Court held that the petitioner therein was registered as a non-VAT taxpayer.[151] Hence, for being merely VAT-exempt, the petitioner in that case cannot claim any VAT refund or credit. Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not been offset against any output taxes. Summary To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.

A “customs territory” means the national territory of the Philippines outside of the proclaimed boundaries of the ecozones, except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports. §2.g, Rule 1, Part I of the “Rules and Regulations to Implement Republic Act No. 7916, otherwise known as ‘The Special Economic Zone Act of 1995.’” This circular is an example of an agency statement of general applicability that takes the form of a revenue tax issuance “bearing on internal revenue tax rules and regulations.” Commissioner of Internal Revenue v. CA, 329 Phil. 987, 1009, August 29, 1996, per Vitug, J., citing RMC 10-86. See §2(2), Chapter 1, Book VII of Executive Order No. (EO) 292, otherwise known as the “Administrative Code of 1987” dated July 25, 1987. [77]

An “export processing zone” is a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production, and may be contained in an ecozone. §4(a) and (d), Chapter I of RA 7916.

[87]

A “restricted area” is a specific area within an ecozone that is classified and/or fenced-in as an export processing zone. §2.h, Rule I, Part I of the “Rules and Regulations to Implement Republic Act No. 7916, otherwise known as ‘The Special Economic Zone Act of 1995.’”

[88]

A “registered export enterprise” is one that is registered with the PEZA, and that engages in manufacturing activities within the purview of the PEZA law for the exportation of its production. §2.i, Rule I, Part I of the “Rules and Regulations to Implement Republic Act No. 7916, otherwise known as ‘The Special Economic Zone Act of 1995.’”

WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs. G.R. No. L-66653 June 19, 1986 [7]

Referred to as ecozone, it is a selected area with highly developed, or which has the potential to be developed into, agro-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers. §4(a), Chapter I of RA 7916, otherwise known as “The Special Economic Zone Act of 1995.”

[28]

A “VAT-registered person” is a taxable person who has registered for VAT purposes under §236 of the Tax Code. Deoferio and Mamalateo

[38]

“Output taxes” refer to the VAT due on the sale or lease of taxable goods, properties or services by a VAT-registered or VAT-registrable person. See last paragraph of §110(A)(3) and §236 of the Tax Code.

[39]

Presumed to be VAT-registered.

[40]

By “input taxes” is meant the VAT due from or paid by a VAT-registered person in the course of trade or business on the importation of goods or local purchases of goods or services, including the lease or use of property from a VAT-registered person. See penultimate paragraph of §110(A)(3) of the Tax Code.

[43]

These are goods or properties with estimated useful lives greater than one year and which are treated as depreciable assets under §34(F) [formerly §29(f)] of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services. 3rd paragraph of §4.106-1(b) of RR 7-95.

[53]

Under this principle, goods and services are taxed only in the country where these are consumed. Thus, exports are zero-rated, but imports are taxed. Id., p. 43.

[54]

In business parlance, “automatic zero rating” refers to the standard zero rating as provided for in the

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents. Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent. PARAS, J.: Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue" which ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit remittance tax. Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila. Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows:

Amount applied for remittance................................ P7,647,058.00

deducting the 15% profit remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the aforementioned amount of P172,058.90.

Deduct: 15% branch profit remittance tax ..............................................1,147,058.70 Net amount actually remitted.................................. P6,499,999.30 Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows: Profits actually remitted .........................................P6,499,999.30 Remittance tax rate .......................................................15% Branch profit remittance taxdue thereon ......................................................P 974,999.89 Branch profit remittance tax paid .............................................................Pl,147,058.70 Less: Branch profit remittance tax as above computed................................................. 974,999.89 Total amount refundable........................................... P172,058.81

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states: Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow quoted as follows: In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out of which the remittance is to be made. Please be guided accordingly. Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89, computed as follows Profits actually remitted......................................... P6,499,999.30

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

Remittance tax rate.............................................................. 15%

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads—

Remittance tax due................................................... P974,999.89

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs. SO ORDERED. Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as amended, is the amount applied for remittance on the profit actually remitted after

is well-taken. As correctly held by respondent Court in its assailed decisionRespondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits of

P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90. Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states— Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad.

This petition for review assails the Resolution[1] of the Court of Appeals dated September 22, 1993, affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits, and disposing as follows: IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto. SO ORDERED.[4] The Court of Tax Appeals earlier ruled as follows:

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which providesSec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period.The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit. SO ORDERED.[5] The facts on record show the antecedent circumstances pertinent to this case. Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBComs tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00, respectively.

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as to costs.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

SO ORDERED. [G.R. No. 112024. January 28, 1999] PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondents. DECISION QUISUMBING, J.:

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA).The petition was docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications vs. Commissioner of Internal Revenue. The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

Net Income (Loss) Tax Due Quarterly tax Payments Made Tax Withheld at Source Excess Tax Payments

1985 (P25,317,228.00)

1986 (P14,129,602.00)

NIL

NIL

5,016,954.00 282,795.50

--234,077.69

P5,299,749.50*==============

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN TO: All Internal Revenue Officers and Others Concerned Sections 85 and 86 of the National Internal Revenue Code provide:

P234,077.69============== xxxxxxxxx

*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo difference was noted. On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioners claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs decision but the same was denied due course for lack of merit.[6] Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in totothe CTAs resolution dated July 20, 1993. Hence this petition now before us. The issues raised by the petitioner are: I. Whether taxpayer PBCom -- which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments -- can be prejudiced by the subsequent BIR rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10).[7] II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBComs claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year.[8] Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioners reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years? Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985.The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads: REVENUE MEMORANDUM CIRCULAR NO. 7-85

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide: xxxxxxxxx It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit. It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this. In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit within the two-year period.As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). [9] (Emphasis supplied.) Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax Appeals[10] petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer. Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rule as follows:

Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue;

In any case, no such suit or proceeding shall be begun after the expiration of two 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. (Italics supplied)

b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based;

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

c) where the taxpayer acted in bad faith.

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,[15] this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the twoyear prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit: ACCRA Investments Corp. vs. Court of Appeals, et al.,[11] and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al..[12]Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioners cause of action. After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal.[13] Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.[14] From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.: Sec. 230. 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, or of any sum alleged to have been excessive 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.

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. x x x As we have earlier said in the TMX Sales case, Sections 68,[16] 69,[17]and 70[18] on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it.[19] When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous.[20] Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.[21] In the case of People vs. Lim,[22] it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter. Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. No. 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. x x x In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case.[23] Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents.[24] As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in

harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. As aptly stated by respondent Court of Appeals: It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and the corresponding petition for review within the two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioners claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute.[25] Article 8 of the Civil Code[26] recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same.[27] Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed instrictissimi juris against the taxpayer.[28] On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTAs decision denying its claim for refund of P 234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987. Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. As stated by respondent Court of Appeals: Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that

petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.[30] That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon.[31] WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the petitioner. SO ORDERED. [G.R. No. 137621. February 6, 2002] HAGONOY MARKET VENDOR ASSOCIATION, petitioner, vs. MUNICIPALITY OF HAGONOY, BULACAN, respondent. DECISION PUNO, J.: Laws are of two (2) kinds: substantive and procedural. Substantive laws, insofar as their provisions are unambiguous, are rigorously applied to resolve legal issues on the merits. In contrast, courts generally frown upon an uncompromising application of procedural laws so as not to subvert substantial justice. Nonetheless, it is not totally uncommon for courts to decide cases based on a rigid application of the so-called technical rules of procedure as these rules exist for the orderly administration of justice.Interestingly, the case at bar singularly illustrates both instances, i.e., when procedural rules are unbendingly applied and when their rigid application may be relaxed. This is a petition for review of the Resolution[1] of the Court of Appeals, dated February 15, 1999, dismissing the appeal of petitioner Hagonoy Market Vendor Association from the Resolutions of the Secretary of Justice for being formally deficient. The facts: On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted an ordinance, Kautusan Blg. 28,[2] which increased the stall rentals of the market vendors in Hagonoy. Article 3 provided that it shall take effect upon approval. The subject ordinance was posted from November 4-25, 1996.[3] In the last week of November, 1997, the petitioners members were personally given copies of the approved Ordinance and were informed that it shall be enforced in January, 1998. On December 8, 1997, the petitioners President filed an appeal with the Secretary of Justice assailing the constitutionality of the tax ordinance. Petitioner claimed it was unaware of the posting of the ordinance. Respondent opposed the appeal. It contended that the ordinance took effect on October 6, 1996 and that the ordinance, as approved, was posted as required by law.Hence, it was pointed out that petitioners appeal, made over a year later, was already time-barred. The Secretary of Justice dismissed the appeal on the ground that it was filed out of time, i.e., beyond thirty (30) days from the effectivity of the Ordinance on October 1, 1996, as prescribed under Section 187 of the 1991 Local Government Code. Citing the case of Taada vs. Tuvera,[4] the Secretary of Justice held that the date of effectivity of the subject ordinance retroacted to the date of its approval in October 1996, after the required publication or posting has been complied with, pursuant to Section 3 of said ordinance.[5]

After its motion for reconsideration was denied, petitioner appealed to the Court of Appeals. Petitioner did not assail the finding of the Secretary of Justice that their appeal was filed beyond the reglementary period. Instead, it urged that the Secretary of Justice should have overlooked this mere technicality and ruled on its petition on the merits. Unfortunately, its petition for review was dismissed by the Court of Appeals for being formally deficient as it was not accompanied by certified true copies of the assailed Resolutions of the Secretary of Justice.[6] Undaunted, the petitioner moved for reconsideration but it was denied.[7] Hence, this appeal, where petitioner contends that: I THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN ITS STRICT, RIGID AND TECHNICAL ADHERENCE TO SECTION 6, RULE 43 OF THE 1997 RULES OF COURT AND THIS, IN EFFECT, FRUSTRATED THE VALID LEGAL ISSUES RAISED BY THE PETITIONER THAT ORDINANCE (KAUTUSAN) NO. 28 WAS NOT VALIDLY ENACTED, IS CONTRARY TO LAW AND IS UNCONSTITUTIONAL, TANTAMOUNT TO AN ILLEGAL EXACTION IF ENFORCED RETROACTIVELY FROM THE DATE OF ITS APPROVAL ON OCTOBER 1, 1996. II THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN DENYING THE MOTION FOR RECONSIDERATION NOTWITHSTANDING PETITIONERS EXPLANATION THAT ITS FAILURE TO SECURE THE CERTIFIED TRUE COPIES OF THE RESOLUTIONS OF THE DEPARTMENT OF JUSTICE WAS DUE TO THE INTERVENTION OF AN ACT OF GOD TYPHOON LOLENG, AND THAT THE ACTUAL COPIES RECEIVED BY THE PETITIONER MAY BE CONSIDERED AS SUBSTANTIAL COMPLIANCE WITH THE RULES. III PETITIONER WILL SUFFER IRREPARABLE DAMAGE IF ORDINANCE/KAUTUSAN NO. 28 BE NOT DECLARED NULL AND VOID AND IS ALLOWED TO BE ENFORCED RETROACTIVELY FROM OCTOBER 1, 1996, CONTRARY TO THE GENERAL RULE, ARTICLE 4 OF THE CIVIL CODE, THAT NO LAW SHALL HAVE RETROACTIVE EFFECT. The first and second assigned errors impugn the dismissal by the Court of Appeals of its petition for review for petitioners failure to attach certified true copies of the assailed Resolutions of the Secretary of Justice. The petitioner insists that it had good reasons for its failure to comply with the rule and the Court of Appeals erred in refusing to accept its explanation. We agree. In its Motion for Reconsideration before the Court of Appeals,[8] the petitioner satisfactorily explained the circumstances relative to its failure to attach to its appeal certified true copies of the assailed Resolutions of the Secretary of Justice, thus: x x x (D)uring the preparation of the petition on October 21, 1998, it was raining very hard due to (t)yphoon Loleng. When the petition was completed, copy was served on the Department of Justice at about (sic) past 4:00 p.m. of October 21, 1998, with (the) instruction to have the Resolutions of the Department of Justice be stamped as certified true copies. However, due to bad weather, the person

in charge (at the Department of Justice) was no longer available to certify to (sic) the Resolutions. The following day, October 22, 1998, was declared a non-working holiday because of (t)yphoon Loleng. Thus, petitioner was again unable to have the Resolutions of the Department of Justice stamped certified true copies. In the morning of October 23, 1998, due to time constraint(s), herein counsel served a copy by personal service on (r)espondents lawyer at (sic) Malolos, Bulacan, despite the flooded roads and heavy rains. However, as the herein counsel went back to Manila, (official business in) government offices were suspended in the afternoon and the personnel of the Department of Justice tasked with issuing or stamping certified true copies of their Resolutions were no longer available. To avoid being time-barred in the filing of the (p)etition, the same was filed with the Court of Appeals as is. We find that the Court of Appeals erred in dismissing petitioners appeal on the ground that it was formally deficient. It is clear from the records that the petitioner exerted due diligence to get the copies of its appealed Resolutions certified by the Department of Justice, but failed to do so on account of typhoon Loleng. Under the circumstances, respondent appellate court should have tempered its strict application of procedural rules in view of the fortuitous event considering that litigation is not a game of technicalities.[9] Nonetheless, we hold that the petition should be dismissed as the appeal of the petitioner with the Secretary of Justice is already time-barred. The applicable law is Section 187 of the 1991 Local Government Code which provides: SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. - The procedure for the 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 receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and 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. The aforecited law requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within thirty (30) days from effectivity of the ordinance and even during its pendency, the effectivity of the assailed ordinance shall not be suspended. In the case at bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its appeal only in December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the Secretary of Justice correctly dismissed it for being time-barred. At this point, it is apropos to state that the 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.[10]Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals. 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.[11] Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. In a last ditch effort to justify its failure to file a timely appeal with the Secretary of Justice, the petitioner contends that its period to appeal should be counted not from the time the ordinance took effect in 1996 but from the time its members were personally given copies of the approved ordinance in November 1997. It insists that it was unaware of the approval and effectivity of the subject ordinance in 1996 on two (2) grounds: first, no public hearing was conducted prior to the passage of the ordinance and, second, the approved ordinance was not posted. We do not agree. Petitioners bold assertion that there was no public hearing conducted prior to the passage of Kautusan Blg. 28 is belied by its own evidence. In petitioners two (2) communications with the Secretary of Justice,[12] it enumerated the various objections raised by its members before the passage of the ordinance in several meetings called by the Sanggunian for the purpose. These show beyond doubt that petitioner was aware of the proposed increase and in fact participated in the public hearings therefor. The respondent municipality likewise submitted the Minutes and Report of the public hearings conducted by the Sangguniang Bayans Committee on Appropriations and Market on February 6, July 15 and August 19, all in 1996, for the proposed increase in the stall rentals.[13] Petitioner cannot gripe that there was practically no public hearing conducted as its objections to the proposed measure were not considered by the Sangguniang Bayan. To be sure, public hearings are conducted by legislative bodies to allow interested parties to ventilate their views on a proposed law or ordinance. These views, however, are not binding on the legislative body and it is not compelled by law to adopt the same. Sanggunian members are elected by the people to make laws that will promote the general interest of their constituents. They are mandated to use their discretion and best judgment in serving the people. Parties who participate in public hearings to give their opinions on a proposed ordinance should not expect that their views would be patronized by their lawmakers. On the issue of publication or posting, Section 188 of the Local Government Code provides: Section 188. Publication of Tax Ordinance 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) The records is bereft of any evidence to prove petitioners negative allegation that the subject ordinance was not posted as required by law. In contrast, the respondent Sangguniang Bayan of the Municipality of Hagonoy, Bulacan, presented evidence which clearly shows that the procedure for the enactment of the assailed ordinance was complied with. Municipal Ordinance No. 28 was enacted by the Sangguniang Bayan of Hagonoy on October 1, 1996. Then Acting Municipal Mayor Maria Garcia Santos approved the Ordinance on October 7, 1996. After its approval, copies of the Ordinance were given to the Municipal Treasurer on the same day. On November 9, 1996, the Ordinance was approved by the Sangguniang Panlalawigan. The Ordinance was posted during the period from November 4 - 25, 1996 in three (3) public places, viz: in front of the municipal building, at the bulletin board of the Sta. Ana Parish Church and on the front door of the Office of the Market Master in the public market.[14]Posting was validly made in lieu of publication as there was no newspaper of local circulation in the municipality of Hagonoy. This fact was known to and admitted by petitioner. Thus, petitioners ambiguous and unsupported claim that it was only sometime in November 1997 that the

Provincial Board approved Municipal Ordinance No. 28 and so the posting could not have been made in November 1996[15] was sufficiently disproved by the positive evidence of respondent municipality. Given the foregoing circumstances, petitioner cannot validly claim lack of knowledge of the approved ordinance. The filing of its appeal a year after the effectivity of the subject ordinance is fatal to its cause. Finally, even on the substantive points raised, the petition must fail. Section 6c.04 of the 1993 Municipal Revenue Code and Section 191 of the Local Government Code limiting the percentage of increase that can be imposed apply to tax rates, not rentals. Neither can it be said that the rates were not uniformly imposed or that the public markets included in the Ordinance were unreasonably determined or classified. To be sure, the Ordinance covered the three (3) concrete public markets: the twostorey Bagong Palengke, the burnt but reconstructed Lumang Palengke and the more recent Lumang Palengke with wet market. However, the Palengkeng Bagong Munisipyo or Gabaldon was excluded from the increase in rentals as it is only a makeshift, dilapidated place, with no doors or protection for security, intended for transient peddlers who used to sell their goods along the sidewalk.[16] IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to costs. SO ORDERED.