G.R. Nos.

L-31776-78

October 21, 1993

THE COMMISSIONER OF CUSTOMS, petitioner,

vs.
MANILA STAR FERRY, INC., UNITED NAVIGATION & TRANSPORT
CORPORATION, CEABA SHIPPING AGENCY, INC., and THE COURT' OF TAX
APPEALS, respondents.
QUIASON, J.:

This is a petition for review under Rule 44 of the Revised Rules of Court filed by
the Commissioner of Customs to set aside the consolidated Decision dated
September 30, 1969 of the Court of Tax Appeals in C.T.A. Cases Nos. 1836, 1837
and 1839, modifying his decision by ordering only the payment of a fine, in lieu of
the forfeiture of private respondents vessels used in the smuggling of foreignmade cigarettes and other goods.
Private respondents Manila Star Ferry, Inc. and the United Navigation & Transport
Corporation are domestic corporations engaged in the lighterage business and
are the owners and operators, respectively, of the tugboat Orestes and the bargelighter UN-L-106. Private respondent Ceaba Shipping Agency, Inc. (Ceaba) is the
local shipping agent of the Chiat Lee Navigation Trading Co. of Hongkong, the
registered owner and operator of the S/S Argo, an ocean-going vessel.
On June 12, 1966, the S/S Argo, the Orestes and the UN-L-106, as well as two
wooden bancas of unknown ownership, were apprehended for smuggling by a
patrol boat of the Philippine Navy along the Explosives Anchorage Area of Manila
Bay. the patrol boat caught the crew of the S/S Argo in the act of unloading
foreign-made goods onto the UN-L-106, which was towed by the Orestes and
escorted by the two wooden bancas. The goods of 330 cases of foreign-made
cigarettes, assorted ladies' wear, clothing material and plastic bags, all of which
were not manifested and declared by the vessel for discharge in Manila. No
proper notice of arrival of the S/S Argo was given to the local customs authorities.
Thereafter, seizure and forfeiture proceedings were separately instituted before
the Collector of Customs for the Port of Manila against the S/S Argo (Seizure

1 | t a x 2 fi n a l s

Identification Case No. 10009, Manila) and its cargo (S.I. No. 10009-C, Manila), the
Orestes (S.I. No. 10009-A, Manila), the UN-L-106 (S.I. No. 1009-B, Manila) and the
two bancas (S.I. No. 10009-D, Manila), charging them with violations of Section
2530 (a), (b) and (c) of the Tariff and Customs Code. Criminal charges were
likewise filed against the officers and crew of said vessels and watercraft.
In the seizure and forfeiture proceedings, the Collector of Customs rendered a
consolidated decision dated December 27, 1966, declaring the forfeiture of said
vessels and watercraft in favor of the Philippine government by virtue of Section
2530 (a) and (b) of the Tariff and Customs Code.
All respondents therein, except the owner of the two wooden bancas, separately
appealed the consolidated decision of the Collector of Customs for the Port of
Manila to the Commissioner of Customs. In his Decision dated February 1, 1967,
the Acting Commissioner of Customs found the Collector's decision to be in order
and affirmed the same accordingly.
The same respondents separately elevated the matter to the Court of Tax Appeals
(C.T.A. Cases Nos. 1836, 1837 and 1839), which in a consolidated decision dated
September 30, 1989, substantially modified the decision of the Commissioner of
Customs, stating thus:
IN VIEW OF THE FOREGOING, the Manila Star Ferry, Inc., petitioner
in C.T.A. Case No. 1836, and the United Navigation & Transport
Corporation, petitioner in C.T.A. Case No. 1837, are each hereby
ordered to pay a fine of five thousand pesos (P5,000.00) and Ceaba
Shipping Agency, Inc., petitioner in C.T.A. Case No. 1839, a fine of
ten thousand pesos (P10,000.00), within thirty days from the date
this decision becomes final (Rollo, p., 100).
It is this decision of the Court of Tax Appeals that is being questioned by the
Commissioner of Customs before this Court.
On February 7, 1978, petitioner filed a Motion to Allow Sale of the Vessel (S/S
Argo), informing this Court that the said vessel was deteriorating and depreciating
in value, and was congesting the Cavite Naval Base where it was berthed.
Petitioner prayed that it be allowed to sell the S/S Argo at the best possible price.
The Court granted petitioner's motion.

An Urgent Motion for Modification was filed by respondent Ceaba, praying that it,
instead of petitioner, be allowed to sell the S/S Argo through a negotiated sale
and not a public sale. In a resolution dated May 12, 1978, this Court granted
respondent Ceaba's motion, ordering it, however, to first pay the fine of
P10,000.00 stated in the decision of the Commissioner of Customs and then
"deposit the proceeds of the sale with a reputable commercial bank in an interest
bearing account in trust for whosoever will prevail in the cases at bar" (Rollo, p.
317). A manager's check in the amount of P10,000.00 was made payable to the
Commissioner of Customs and was delivered y the respondent Ceaba to the
Cashier of the Supreme Court. In the Resolution of July 9, 1978, this payment was
accepted, subject to the Court's decision in the case (Rollo, p. 327). The S/S Argo
was sold, with this Court's approval, for P125,000.00 to one Severino Caperlac.
The proceeds were subjected to the charging lien of respondent Ceaba's
attorneys in the amount of P315,000.00 (Rollo, p. 402).

(c) Any vessel or aircraft into which shall be transferred cargo

unladen contrary to law prior to the arrival of the importing vessel
or aircraft at her port of destination.
The penalty of forfeiture is imposed on any vessel, engaged in smuggling if the
conditions enumerated in Section 2530 (a) are compresent.
These conditions are:
(1) The vessel is "used unlawfully in the importation or exportation of articles into
or from" the Philippines;
(2) The articles are imported or exported into or from "any Philippine port or
place, except a port of entry;" or

The petition for review posits the theory that the subject vessels and watercraft
were engaged in smuggling, and that the S/S Argo should be forfeited under
Section 2530 (a), while the barge UN-L-106 and tugboat Orestes should be
forfeited under Section 2530 (c) of the Tariff and Customs Code.

(3) If the vessel has a capacity of less than 30 tons and is "used in the importation
of articles into any Philippine Port or place other than a port of the Sulu Sea,
where importation in such vessel may be authorized by the Commissioner, with
the approval of the department head."

Section 2530 (a) and (c) of said law reads as follows:

There is no question that the vessel S/S Argo was apprehended while unloading
goods of foreign origin onto the barge UN-L-106 and the tugboat Orestes, without
the necessary papers showing that the goods were entered lawfully though a port
of entry and that taxes and duties on said goods had been paid. The claim that
the S/S Argo made an emergency call at the Port of Manila for replacement of
crew members and had to stop at the Explosives Anchorage Area because it was
carrying nitric acid, a dangerous cargo, cannot be upheld, much less given
credence by this Court. The facts found by the Court of Tax Appeals are in
consonance with the findings of the Collector of Customs, and the Commissioner
of Customs. Absent a showing of any irregularity, or arbitrariness, the findings of
fact of quasi-judicial and administrative bodies are entitled to great weight:, and
are conclusive and binding on this Court. (Feeder International Line, Pte., Ltd. v.
Court of Appeals, 197 SCRA 842 [1991]; Jaculina v. National Police Commission,
200 SCRA 489 [1991]). Moreover, the Collector of Customs in S.I. No. 10009-C,
Manila, ordered on July 28, 1966 the forfeiture of the subject cargo after finding
that they were, in truth and in fact, smuggled articles (Rollo, p. 7). Respondent
Ceaba did not appeal from said order and the same has become final.

Sec. 2530. Property Subject to Forfeiture under Tariff and Customs

Laws. Any vessel or aircraft, cargo, articles and other objects
shall, under the following conditions, be subject to forfeiture:
(a) Any vessel or aircraft, including cargo, which shall, be used
unlawfully in the importation or exportation of articles into or from
any Philippine port or place except a port of entry; and any vessel
which, being of less than thirty tons capacity shall be used in the
importation of articles into any Philippine port or place except into
a port of the Sulu sea where importation in such vessel may be
authorized by the Commissioner, with the approval of the
department head.
xxx xxx xxx

2 | t a x 2 fi n a l s

In its decision, the Court of Tax Appeals held that while the S/S Argo was caught
unloading smuggled goods in Manila Bay, the said vessel and the goods cannot
be forfeited in favor of the government because the Port of Manila is a port of
entry (R.A. 1937, Sec. 701).
The Commissioner of Customs argues that the phrase "except a port of entry"
should mean "except a port of destination," and inasmuch as there is no showing
that the Port of Manila was the port of destination of the S/S Argo, its forfeiture
was in order.
We disagree.
Section 2530(a) in unmistakable terms provides that a vessel engaged in
smuggling "in a port of entry" cannot be forfeited. This is the clear and plain
meaning of the law. It is not within the province of the Court to inquire into the
wisdom of the law, for indeed, we are bound by the words of the statute. Neither
can we put words in the mouths of the lawmaker. A verba legis non est
recedendum.
It must be noted that the Revised Administrative Code of 1917 from which the
Tariff and Customs Code is based, contained in Section 1363(a) thereof almost
exactly the same provision in Section 2530(a) of the Tariff and Customs Code,
including the phrase "except a port of entry." If the lawmakers intended the term
"port of entry" to mean "port of destination," they could have expressed facilely
such intention when they adopted the Tariff and Customs Code in 1957. Instead
on amending the law, Congress reenacted verbatim the provision of Section
1363(a) of the Revised Administrative Code of 1917. Congress, in the very same
Article 2530 of the Tariff and Customs Code, used the term "port of destination" in
subsections (c) and (d) thereof. This is a clear indication that Congress is aware of
the distinction between the two wordings.
It was only in 1972, after this case was instituted, when the questioned exception
("except a port of entry") in Section 2530(a) of the Tariff and Customs Code was
deleted by P.D. No. 74.
Nevertheless, although the vessel cannot be forfeited, it is subject to a fine of not
more than P10,000.00 for failure to supply the requisite manifest for the unloaded
cargo under Section 2521 of Code, which reads as follows:

3 | t a x 2 fi n a l s

Sec. 2521. Failure to Supply Requisite Manifests. If any vessel or

aircraft enters or departs from a port of entry without submitting
the proper manifest to the customs authorities, or shall enter or
depart conveying unmanifested cargo other than as stated in the
next preceding section hereof, such vessel or aircraft shall be fined
in a sum not exceeding ten thousand pesos.
xxx xxx xxx
The barge-lighter UN-L-106 and the tugboat Orestes, on the other hand, are
subject to forfeiture under paragraph (c) of Section 2530 of the Tariff and Customs
Code. The barge-lighter and tugboat fall under the term "vessel" which includes
every sort of boat, craft or other artificial contrivance used, or capable of being
used, as a means of transportation on water (R.A. No. 1937, Section 3514). Said
section 2530 (c) prescribes the forfeiture of' any vessel or aircraft into which shall
be transferred cargo unladen contrary to law before the arrival of the vessel or
aircraft at her port of destination Manila was not the port of destination, much
less a port of call of the S/S Argo, the importing vessel. The S/S Argo left
Hongkong and was bound for Jesselton, North Borneo, Djakarta and Surabaja,
Indonesia; and yet it stopped at the Port of Manila to unload the smuggled goods
onto the UN-L-106 and the Orestes.
Forfeiture proceedings are proceedings in rem (Commissioner of Customs v. Court
of Tax Appeals, 138 SCRA 581 [1985] citing Vierneza v. Commissioner of Customs,
24 SCRA 394 [1968]) and are directed against the res. It is no defense that the
owner of the vessel sought to be forfeited had no actual knowledge that his
property was used illegally. The absence or lack of actual knowledge of such use
is a defense personal to the owner himself which cannot in any way absolve the
vessel from the liability of forfeiture Commissioner of Customs v. Court of
Appeals, supra; U.S. v. Steamship "Rubi.", 32 Phil. 228, 239 [1915]).
WHEREFORE, the consolidated Decision dated September 30, 1969 of respondent
Court of Tax Appeals in C.T.A. Cases Nos. 1836, I837 and 1839 is MODIFIED as
follows: (1) that the S/S Argo through respondent Ceaba Shipping Agency, Inc. is
ordered to pay a fine of P10,000.00, to be satisfied from the deposit of the same
amount by respondent Ceaba to the Cashier of this Court per Resolution of July 9,
1978; (2) that the Cashier of this Court is ordered to release the said amount for
payment to the Commissioner of Customs, within thirty (30) days from the date
this decision becomes final; and 3) the tugboat Orestes and the barge-lighter UN-

L-106 of respondents Manila Star Ferry, Inc. and the United Navigation &
Transport. Corporation respectively, are ordered forfeited in favor of the Philippine
Government.
SO ORDERED.

respectively, in CTA EB Nos. 121 and 122 which reversed the decision of the CTA
First Division dated April 5, 2005 in CTA Case No. 6358.
Petitioner Chevron Philippines, Inc. 4 is engaged in the business of importing,
distributing and marketing of petroleum products in the Philippines. In 1996, the
importations subject of this case arrived and were covered by eight bills of lading,
summarized as follows:
PRODUCT
66,229,960 liters
Nan Hai Crude Oil

ARRIVAL
DATE
3/8/1996

Ex MT
Bona Spray

6,990,712 liters
Reformate

3/18/1996

Ex MT
Orient Tiger

16,651,177 liters
FCCU Feed Stock

3/21/1996

Ex MT
Probo Boaning

236,317,862 liters
Oman/Dubai Crude Oil

3/26/1996

Ex MT
Violet

51,878,114 liters
Arab Crude Oil

G.R. No. 178759

August 11, 2008
CHEVRON PHILIPPINES, INC., petitioner,
vs. COMMISSIONER OF THE BUREAU OF CUSTOMS, respondent.
CORONA, J.:
This is a petition for review on certiorari1 of the decision2 and resolution3 of the
Court of Tax Appeals (CTA) en banc dated March 1, 2007 and July 5, 2007,

4 | t a x 2 fi n a l s

VESSEL

Ex MT
4/10/1996

Crown Jewel5

The shipments were unloaded from the carrying vessels onto petitioners oil tanks
over a period of three days from the date of their arrival. Subsequently, the
import entry declarations (IEDs) were filed and 90% of the total customs duties
were paid. The import entry and internal revenue declarations (IEIRDs) of the
shipments were thereafter filed on the following dates:
ENTRY
PRODUCT
ARRIVAL
IED
IEIRD
NO.
DATE
606-96
66,229,960 liters
3/8/1996 3/12/1996 5/10/199
Nan Hai Crude Oil
6
604-96
6,990,712 liters
3/18/1996 3/26/1996 5/10/199
Reformate
6
605-96
16,651,177 liters
3/21/1996 3/26/1996 5/10/199
FCCU Feed Stock
6
600-96
236,317,862 liters
3/26/1996 3/28/1996 5/10/199
601-96
Oman/Dubai Crude Oil
6
602-96
603-96
818-96
51,878,114 liters
4/10/1996 4/10/1996 6/21/199
Arab Crude Oil
6

The importations were appraised at a duty rate of 3% as provided under RA

81806 and petitioner paid the import duties amounting to P316,499,021.7 Prior to
the effectivity of RA 8180 on April 16, 1996, the rate of duty on imported crude oil
was 10%.
Three years later, then Finance Secretary Edgardo Espiritu received a letter (with
annexes) dated June 10, 1999 from a certain Alfonso A. Orioste denouncing the
deliberate concealment, manipulation and scheme employed by petitioner and
Pilipinas Shell in the importation of crude oil, thereby resulting in huge losses of
revenue for the government. This letter was endorsed to the Bureau of Customs
(BOC) for investigation on July 19, 1999.8
On January 28, 2000, petitioner received a subpoena duces tecum/ad
testificandum from Conrado M. Unlayao, Chief of the Investigation and
Prosecution Division, Customs Intelligence and Investigation Service (IPD-CIIS) of
the BOC, to submit pertinent documents in connection with the subject shipments
pursuant to the investigation he was conducting thereon. It appeared, however,
that the Legal Division of the BOC was also carrying out a separate investigation.
Atty. Roberto Madrid (of the latter office) had gone to petitioners Batangas
Refinery and requested the submission of information and documents on the
same shipments. This prompted petitioner to seek the creation of a unified team
to exclusively handle the investigation.9
On August 1, 2000, petitioner received from the District Collector of Customs of
the Port of Batangas (District Collector) a demand letter requiring the immediate
settlement of the amount of P73,535,830 representing the difference between the
10% and 3% tariff rates on the shipments. In response, petitioner wrote the
District Collector to inform him of the pending request for the creation of a unified
team with the exclusive authority to investigate the matter. Furthermore,
petitioner objected to the demand for payment of customs duties using the 10%
duty rate and reiterated its position that the 3% tariff rate should instead be
applied. It likewise raised the defense of prescription against the assessment
pursuant to Section 1603 of the Tariff and Customs Code (TCC). Thus, it prayed
that the assessment for deficiency customs duties be cancelled and the notice of
demand be withdrawn.10
In a letter petitioner received on October 12, 2000, respondent Commissioner of
the BOC11 stated that it was the IPD-CIIS which was authorized to handle the
investigation, to the exclusion of the Legal Division and the District Collector. 12
The IPD-CIIS, through Special Investigator II Domingo B. Almeda and Special
Investigator III Nemesio C. Magno, Jr., issued a finding dated February 2, 2001
that the import entries were filed beyond the 30-day non-extendible period
prescribed under Section 1301 of the TCC. They concluded that the importations
were already considered abandoned in favor of the government. They also found
that fraud was committed by petitioner in collusion with the former District
Collector.13

5 | t a x 2 fi n a l s

Thereafter, respondent14 wrote petitioner on October 29, 2001 informing it of the

findings of irregularity in the filing and acceptance of the import entries beyond
the period required by customs law and in the release of the shipments after the
same had already been deemed abandoned in favor of the government. Petitioner
was ordered to pay the amount of P1,180,170,769.21 representing the total
dutiable value of the importations.15
This prompted petitioner to file a petition for review in the CTA First Division on
November 28, 2001, asking for the reversal of the decision of respondent. 16
In a decision promulgated on April 5, 2005, the CTA First Division ruled that
respondent was correct when he affirmed the findings of the IPD-CIIS on the
existence of fraud. Therefore, prescription was not applicable. Ironically, however,
it also held that petitioner did not abandon the shipments. The shipments should
be subject to the 10% rate prevailing at the time of their withdrawal from the
custody of the BOC pursuant to Sections 204, 205 and 1408 of the TCC. Petitioner
was therefore liable for deficiency customs duties in the amount
of P105,899,569.05.17
Petitioner sought reconsideration of the April 5, 2005 decision while respondent
likewise filed his motion for partial reconsideration. Both motions were denied in a
resolution dated September 9, 2005.18
After both respondent and petitioner had filed their petitions for review with the
CTA en banc, docketed as CTA EB No. 121 and CTA EB No. 122, respectively, the
petitions were consolidated.
In a decision dated March 1, 2007, the CTA en banc held that it was the filing of
the IEIRDs that constituted entry under the TCC. Since these were filed beyond
the 30-day period, they were not seasonably "entered" in accordance with Section
1301 in relation to Section 205 of the TCC. Consequently, they were deemed
abandoned under Sections 1801 and 1802 of the TCC. It also ruled that the notice
required under Customs Memorandum Order No. 15-94 (CMO 15-94) was not
necessary in view of petitioners actual knowledge of the arrival of the shipments.
It likewise agreed with the CTA Divisions finding that petitioner committed fraud
when it failed to file the IEIRD within the 30-day period with the intent to "evade
the higher rate." Thus, petitioner was ordered to pay respondent the total
dutiable value of the oil shipments amounting to P893,781,768.21.19
Hence this petition.
There are three issues for our resolution:
1. whether "entry" under Section 1301 in relation to Section 1801 of the
TCC refers to the IED or the IEIRD;
2. whether fraud was perpetrated by petitioner and
3. whether the importations can be considered abandoned under Section
1801.

"ENTRY" IN SECTIONS 1301 AND 1801 OF THE TCC REFERS TO BOTH THE
IED AND IEIRD
Under Section 1301 of the TCC, imported articles must be entered within a nonextendible period of 30 days from the date of discharge of the last package from
a vessel. Otherwise, the BOC will deem the imported goods impliedly abandoned
under Section 1801. Thus:
Section 1301. Persons Authorized to Make Import Entry. - Imported
articles must be entered in the customhouse at the port of entry
within thirty (30) days, which shall not be extendible from date of
discharge of the last package from the vessel or aircraft either (a) by
the importer, being holder of the bill of lading, (b) by a duly licensed
customs broker acting under authority from a holder of the bill or (c) by a
person duly empowered to act as agent or attorney-in-fact for each holder:
Provided, That where the entry is filed by a party other than the importer,
said importer shall himself be required to declare under oath and under
the penalties of falsification or perjury that the declarations and
statements contained in the entry are true and correct: Provided, further,
That such statements under oath shall constitute prima facieevidence of
knowledge and consent of the importer of violation against applicable
provisions of this Code when the importation is found to be unlawful.
(Emphasis supplied)
Section 1801. Abandonment, Kinds and Effect of. - An imported article
is deemed abandonedunder any of the following circumstances:
xxx xxx xxx
b. When the owner, importer, consignee or interested party after due
notice, fails to file an entry within thirty (30) days, which shall not
be extendible, from the date of discharge of the last package from
the vessel or aircraft, or having filed such entry, fails to claim his
importation within fifteen (15) days, which shall not likewise be extendible,
from the date of posting of the notice to claim such importation. (Emphasis
supplied)
Petitioner argues that the IED is an entry contemplated by these sections.
According to it, the congressional deliberations on RA 7651 which amended the
TCC to provide a non-extendible 30-day period show the legislative intent to
expedite the procedure for declaring importations as abandoned. Filing an entry
serves as notice to the BOC of the importers willingness to complete the
importation and to pay the proper taxes, duties and fees. Conversely, the nonfiling of the entry within the period connotes the importers disinterest and
enables the BOC to consider the goods as abandoned. Since the IED is a BOC
form that serves as basis for payment of advance duties on importation as
required under PD 1853,20 it suffices as an entry under Sections 1301 and 1801 of
the TCC.21

6 | t a x 2 fi n a l s

We disagree.
The term "entry" in customs law has a triple meaning. It means (1) the
documents filed at the customs house; (2) the submission and acceptance of the
documents and (3) the procedure of passing goods through the customs house. 22
The IED serves as basis for the payment of advance duties on importations
whereas the IEIRD evidences the final payment of duties and taxes. The question
is: was the filing of the IED sufficient to constitute "entry" under the TCC?
The law itself, in Section 205, defines the meaning of the technical term "entered"
as used in the TCC:
Section 205. Entry, or Withdrawal from Warehouse, for Consumption.
- Imported articles shall be deemed "entered" in the Philippines
for consumption when the specified entry form is properly filed
and accepted, together with any related documents regained by the
provisions of this Code and/or regulations to be filed with such form at the
time of entry, at the port or station by the customs official designated to
receive such entry papers and any duties, taxes, fees and/or other lawful
charges required to be paid at the time of making such entry have been
paid or secured to be paid with the customs official designated to receive
such monies, provided that the article has previously arrived within the
limits of the port of entry.
xxx xxx xxx
(Emphasis supplied)
Clearly, the operative act that constitutes "entry" of the imported articles at the
port of entry is the filing and acceptance of the "specified entry form" together
with the other documents required by law and regulations. There is no dispute
that the "specified entry form" refers to the IEIRD. Section 205 defines the precise
moment when the imported articles are deemed "entered."
Moreover, in the old case of Go Ho Lim v. The Insular Collector of Customs,23 we
ruled that the word "entry" refers to the regular consumption entry (which, in our
current terminology, is the IEIRD) and not the provisional entry (the IED):
It is disputed by the parties whether the application for the special permit.
Exhibit A, containing the misdeclared weight of the 800 cases of eggs,
comes within the meaning of the word "entry" used in section 1290 of the
Revised Administrative Code, or said word "entry" means only the
"original entry and importer's declaration." The court below reversed the
decision of the Insular Collector of Customs on the ground that the
provisions of section 1290 of the Revised Administrative Code refer to
the regular consumption entry and not to a provisional
declaration made in an application for a special permit, as the one filed
by the appellee, to remove the cases of eggs from the customhouse.

This court is of the opinion that certainly the application, Exhibit A, cannot
be considered as a final regular entry of the weight of the 800 cases of
eggs imported by the appellee, taking into account the fact that said
application sought the delivery of said 800 cases of eggs "from the pier
after examination," and the special permit granted, Exhibit E, provided for
"delivery to be made after examination by the appraiser." All the
foregoing, together with the circumstance that the appellee had to file the
regular consumption entry which he bound himself to do, as shown by the
application, Exhibit A, logically lead to the conclusion that the declaration
of the weight of the 800 cases of eggs made in said application, is merely
a provisional entry, and as it is subject to verification by the customhouse
examiner, it cannot be considered fraudulent for the purpose of imposing a
surcharge of customs duties upon the importer.24 (Emphasis supplied)
The congressional deliberations on House Bill No. 4502 which was enacted as RA
765125 amending the TCC lay down the policy considerations for the nonextendible 30-day period for the filing of the import entry in Section 1301:
MR. JAVIER (E.).
xxx xxx xxx
Under Sections 121026 and 1301 of the [TCC], Mr. Speaker, import entries for
imported articles must be filed within five days from the date of discharge of the
last package from the vessel. The five-day period, however, Mr. Speaker, is
subject to an indefinite extension at the discretion of the collector of
customs, which more often than not stretches to more than three months,
thus resulting in considerable delay in the payment of duties and taxes.
This bill, Mr. Speaker, seeks to amend Sections 1210 and 1301 by extending the
five-day period to thirty days, which will no longer be extendible, within
which import entries must be filed for imported articles. Moreover, to give the
importer reasonable time, the bill prescribes a period of fifteen days which may
not be extended within which to claim his importation from the time he filed the
import entry. Failure to file an import entry or to claim the imported articles within
the period prescribed under the proposed measure, such imported articles will be
treated as abandoned and declared as ipso facto the property of the government
to be sold at public auction.
Under this new procedure, Mr. Speaker, importers will be constrained under
the threat of having their importation declared as abandoned and
forfeited in favor of the government to file import entries and claim their
importation as early as possible thus accelerating the collection of
duties and taxes. But providing for a non-extendible period of 30 days within
which to file an import entry, an appeal of fifteen days within which to claim the
imported article, the bill has removed the discretion of the collector of Customs to
extend such period thus minimizing opportunity for graft. Moreover, Mr. Speaker,
with these non-extendible periods coupled with the threat of declaration of

7 | t a x 2 fi n a l s

abandonment of imported articles, both the [BOC] and the importer are under
pressure to work for the early release of cargo, thus decongesting all ports of
entry and facilitating the release of goods and thereby promoting trade and
commerce.
Finally, Mr. Speaker, the speedy release of imported cargo coupled with the
sanctions of declaration of abandonment and forfeiture will minimize the pilferage
of imported cargo at the ports of entry.27 (Emphasis supplied)
The filing of the IEIRDs has several important purposes: to ascertain the value of
the imported articles, collect the correct and final amount of customs duties and
avoid smuggling of goods into the country.28 Petitioners interpretation would have
an absurd implication: the 30-day period applies only to the IED while no deadline
is specified for the submission of the IEIRD. Strong issues of public policy militate
against petitioners interpretation. It is the IEIRD which accompanies the final
payment of duties and taxes. These duties and taxes must be paid in full before
the BOC can allow the release of the imported articles from its custody.
Taxes are the lifeblood of the nation. Tariff and customs duties are taxes
constituting a significant portion of the public revenue which enables the
government to carry out the functions it has been ordained to perform for the
welfare of its constituents.29 Hence, their prompt and certain availability is an
imperative need30 and they must be collected without unnecessary
hindrance.31 Clearly, and perhaps for that reason alone, the submission of the
IEIRD cannot be left to the exclusive discretion or whim of the importer.
We hold, therefore, that under the relevant provisions of the TCC, 32 both the IED
and IEIRD should be filed within 30 days from the date of discharge of the last
package from the vessel or aircraft. As a result, the position of petitioner, that the
import entry to be filed within the 30-day period refers to the IED and not the
IEIRD, has no legal basis.
THE EXISTENCE OF FRAUD WAS ESTABLISHED
Petitioner also denies the commission of fraud. It maintains that it had no
predetermined and deliberate intention not to comply with the 30-day period in
order to evade the payment of the 10% rate of duty. Its sole reason for the
delayed filing of IEIRDs was allegedly due to the late arrival of the original copies
of the bills of lading and commercial invoices which its suppliers could send only
after the latter computed the average monthly price of crude oil based on
worldwide trading. It claims that the BOC required these original documents to be
attached to the IEIRD.
Petitioners arguments lack merit.
Fraud, in its general sense, "is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of legal
or equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of

another."33 It is a question of fact and the circumstances constituting it must be

alleged and proved in the court below. 34 The finding of the lower court as to the
existence or non-existence of fraud is final and cannot be reviewed here unless
clearly shown to be erroneous. 35 In this case, fraud was established by the IPDCIIS of the BOC. Both the CTA First Division and en banc agreed completely with
this finding.
The evidence showed that petitioner bided its time to file the IEIRD so as to avail
of a lower rate of duty. (At or about the time these developments were taking
place, the bill lowering the duty on these oil products from 10% to 3% was
already under intense discussion in Congress.) There was a calculated and
preconceived course of action adopted by petitioner purposely to evade the
payment of the correct customs duties then prevailing. This was done in collusion
with the former District Collector, who allowed the acceptance of the late IEIRDs
and the collection of duties using the 3% declared rate. A clear indication of
petitioners deliberate intention to defraud the government was its non-disclosure
of discrepancies on the duties declared in the IEDs (10%) and IEIRDs (3%)
covering the shipments.36
It was not by sheer coincidence that, by the time petitioner filed its IEIRDs way
beyond the mandated period, the rate of duty had already been reduced from
10% to 3%. Both the CTA Division and en banc found the explanation of petitioner
(for its delay in filing) untruthful. The bills of lading and corresponding invoices
covering the shipments were accomplished immediately after loading onto the
vessels.37 Notably, the memorandum of a district collector cited by petitioner as
basis for its assertion that original copies were required by the BOC was dated
October 30, 2002.38 There is no showing that in 1996, the time pertinent in this
case, this was in fact a requirement.
More importantly, the absence of supporting documents should not have
prevented petitioner from complying with the mandatory and non-extendible
period, specially since the consequences of delayed filing were extremely serious.
In addition, these supporting documents were not conclusive on the
government.39 If this kind of excuse were to be accepted, then the collection of
customs duties would be at the mercy of importers.
Hence, due to the presence of fraud, the prescriptive period of the finality of
liquidation under Section 1603 was inapplicable:
Section 1603. Finality of Liquidation. When articles have been entered
and passed free of duty or final adjustments of duties made, with
subsequent delivery, such entry and passage free of duty or settlements of
duties will, after the expiration of one (1) year, from the date of the final
payment of duties, in the absence of fraud or protest or compliance
audit pursuant to the provisions of this Code, be final and conclusive upon
all parties, unless the liquidation of the import entry was merely
tentative.40

8 | t a x 2 fi n a l s

THE IMPORTATIONS WERE ABANDONED IN FAVOR OF THE GOVERNMENT

The law is clear and explicit. It gives a non-extendible period of 30 days for the
importer to file the entry which we have already ruled pertains to both the IED
and IEIRD. Thus under Section 1801 in relation to Section 1301, when the
importer fails to file the entry within the said period, he "shall be deemed to have
renounced all his interests and property rights" to the importations and these
shall be considered impliedly abandoned in favor of the government:
Section 1801. Abandonment, Kinds and Effect of. xxx xxx xxx
Any person who abandons an article or who fails to claim his
importation as provided for in the preceding paragraph shall be deemed
to have renounced all his interests and property rights therein.
According to petitioner, the shipments should not be considered impliedly
abandoned because none of its overt acts (filing of the IEDs and paying advance
duties) revealed any intention to abandon the importations. 41
Unfortunately for petitioner, it was the law itself which considered the importation
abandoned when it failed to file the IEIRDs within the allotted time. Before it was
amended, Section 1801 was worded as follows:
Sec. 1801. Abandonment, Kinds and Effect of. Abandonment is express
when it is made direct to the Collector by the interested party in writing
and it is implied when, from the action or omission of the
interested party, an intention to abandon can be clearly
inferred. The failure of any interested party to file the import entry within
fifteen days or any extension thereof from the discharge of the vessel or
aircraft, shall be implied abandonment. An implied abandonment shall not
be effective until the article is declared by the Collector to have been
abandoned after notice thereof is given to the interested party as in
seizure cases.
Any person who abandons an imported article renounces all his interests
and property rights therein.42
After it was amended by RA 7651, there was an indubitable shift in language as to
what could be considered implied abandonment:
Section 1801. Abandonment, Kinds and Effect of. - An imported article
is deemed abandonedunder any of the following circumstances:
a. When the owner, importer, consignee of the imported article
expressly signifies in writing to the Collector of Customs his
intention to abandon; or
b. When the owner, importer, consignee or interested party after
due notice, fails to file an entry within thirty (30) days, which

shall not be extendible, from the date of discharge of the

last package from the vessel or aircraft xxxx

attached form, entitled: "URGENT NOTICE TO FILE ENTRY" which is attached

hereto as Annex A and made an integral part of this Order.

From the wording of the amendment, RA 7651 no longer requires that there be
other acts or omissions where an intent to abandon can be inferred. It is enough
that the importer fails to file the required import entries within the reglementary
period. The lawmakers could have easily retained the words used in the old law
(with respect to the intention to abandon) but opted to omit them. 43 It would be
error on our part to continue applying the old law despite the clear changes
introduced by the amendment.

xxx xxx xxx

C. OPERATIONAL PROVISIONS
xxx xxx xxx
C.2 On Implied Abandonment:
C.2.1 When no entry is filed
C.2.1.1 Within twenty-four (24) hours after the completion of the
boarding formalities, the Boarding Inspector must submit the manifests to the
Bay Service or similar office so that the Entry Processing Division copy may be put
to use by said office as soon as possible.
C..2.1.2 Within twenty-four (24) hours after the completion of the
unloading of the vessel/aircraft, the Inspector assigned in the vessel/aircraft,
shall issue a certificationaddressed to the Collector of Customs (Attention: Chief,
Entry Processing Division), copy furnished Chief, Data Monitoring Unit, specifically
stating the time and date of discharge of the last package from the vessel/aircraft
assigned to him. Said certificate must be encoded by Data Monitoring Unit in the
Manifest Clearance System.

NOTICE WAS NOT NECESSARY UNDER THE CIRCUMSTANCES OF THIS

CASE
Petitioner also avers that the importations could not be deemed impliedly
abandoned because respondent did not give it any notice as required by Section
1801 of the TCC:
Sec. 1801. Abandonment, Kinds and Effect of. - An imported article is
deemed abandoned under any of the following circumstances:
xxx xxx xxx
b. When the owner, importer, consignee or interested party after due
notice, fails to file an entry within thirty (30) days, which shall not be
extendible, from the date of discharge of the last package from the vessel
or aircraft xxx (Emphasis supplied)
Furthermore, it claims that notice and abandonment proceedings were required
under the BOCs guidelines on abandonment (CMO 15-94):
SUBJECT: REVISED GUIDELINES ON ABANDONMENT
xxx xxx xxx
B. ADMINISTRATIVE PROVISIONS
xxx xxx xxx
B.2 Implied abandonment occurs when:
B.2.1 The owner, importer, consignee, interested party or his authorized
broker/representative, after due notice, fails to file an entry within a nonextendible period of thirty (30) days from the date of discharge of last package
from the carrying vessel or aircraft.
xxx xxx xxx
Due notice to the consignee/importer/owner/interested party shall be by
means of posting of a notice to file entry at the Bulletin Board seven (7)
days prior to the lapse of the thirty (30) day period by the Entry Processing
Division listing the consignees who/which have not filed the required import
entries as of the date of the posting of the notice and notifying them of the
arrival of their shipment, the name of the carrying vessel/aircraft, Voy. No.
Reg. No. and the respective B/L No./AWB No., with a warning, as shown by the

9 | t a x 2 fi n a l s

C.2.1.3 Twenty-three (23) days after the discharge of the last

package from the carrying vessel/aircraft, the Chief, Data Monitoring Unit shall
cause the printing of theURGENT NOTICE TO FILE ENTRY in accordance with
the attached form, Annex A hereof, sign the URGENT NOTICE and cause its
posting continuously for seven (7) days at the Bulletin Board for the
purpose until the lapse of the thirty (30) day period.
C.2.1.4 The Chief, Data Monitoring Unit, shall submit a weekly report to the
Collector of Customs with a listing by vessel, Registry Number of shipments/
importations which shall be deemed abandoned for failure to file entry within the
prescribed period and with certification that per records available, the thirty
(30) day period within which to file the entry therefore has lapsed without the
consignee/importer filing the entry and that the proper posting of notice as
required has been complied with.
xxx xxx xxx
C.2.1.5 Upon receipt of the report, the Collector of Customs shall issue
an order to the Chief, Auction and Cargo Disposal Division, to dispose of the
shipment enumerated in the report prepared by the Chief, Data Monitoring Unit
on the ground that those are abandoned and ipso facto deemed the property of
the Government to be disposed of as provided by law.
xxx xxx xxx44 (Emphasis supplied)
We disagree.
Under the peculiar facts and circumstances of this case, due notice was not
necessary. The shipments arrived in 1996. The IEDs and IEIRDs were also filed in

1996. However, respondent discovered the fraud which attended the importations
and their subsequent release from the BOCs custody only in 1999. Obviously, the
situation here was not an ordinary case of abandonment wherein the importer
merely decided not to claim its importations. Fraud was established against
petitioner; it colluded with the former District Collector. Because of this, the
scheme was concealed from respondent. The government was unable to protect
itself until the plot was uncovered. The government cannot be crippled by the
malfeasance of its officials and employees. Consequently, it was impossible for
respondent to comply with the requirements under the rules.
By the time respondent learned of the anomaly, the entries had already been
belatedly filed and the oil importations released and presumably used or sold. It
was a fait accompli. Under such circumstances, it would have been against all
logic to require respondent to still post an "urgent notice to file entry" before
declaring the shipments abandoned.
The minutes of the deliberations in the House of Representatives Committee on
Ways and Means on the proposed amendment to Section 1801 of the TCC show
that the phrase "after due notice" was intended for owners, consignees, importers
of the shipments who live in rural areas or distant places far from the port where
the shipments are discharged, who are unfamiliar with customs procedures and
need the help and advice of people on how to file an entry:
xxxxxxxxx
MR. FERIA. 1801, your Honor. The question that was raised here in the last
hearing was whether notice is required to be sent to the importer. And, it has
been brought forward that we can dispense with the notice to the importer
because the shipping companies are notifying the importers on the arrival of their
shipment. And, so that notice is sufficient to . . . sufficient for the claimant or
importer to know that the shipments have already arrived.
Second, your Honor, the legitimate businessmen always have . . . they have their
agents with the shipping companies, and so they should know the arrival of their
shipment.
xxx xxx xxx
HON. QUIMPO. Okay. Comparing the two, Mr. Chairman, I cannot help but notice
that in the substitution now there is a failure to provide the phrase AFTER NOTICE
THEREOF IS GIVEN TO THE INTERESTED PARTY, which was in the original. Now in
the second, in the substitution, it has been deleted. I was first wondering whether
this would be necessary in order to provide for due process. Im thinking of
certain cases, Mr. Chairman, where the owner might not have known. This is
now on implied abandonment not the express abandonment.
xxx xxx xxx

10 | t a x 2 fi n a l s

HON. QUIMPO. Because Im thinking, Mr. Chairman. Im thinking of certain

situations where the importer even though, you know, in the normal course of
business sometimes they fail to keep up the date or something to that
effect.
THE CHAIRMAN. Sometimes their cargoes get lost.
HON. QUIMPO. So just to, you know . . . anyway, this is only a notice to be sent
to them that they have a cargo there.
xxx xxx xxx
MR. PARAYNO. Your Honor, I think as a general rule, five days [extendible] to
another five days is a good enough period of time. But we cannot discount
that there are some consignees of shipments located in rural areas or
distant from urban centers where the ports are located to come to the
[BOC] and to ask for help particularly if a ship consignment is made to
an individual who is uninitiated with customs procedures. He will
probably have the problem of coming over to the urban centers, seek
the advice of people on how to file entry. And therefore, the five day
extendible to another five days might really be a tight period for some.
But the majority of our importers are knowledgeable of procedures. And
in fact, it is in their interest to file the entry even before the arrival of the
shipment. Thats why we have a procedure in the bureau whereby importers can
file their entries even before the shipment arrives in the country. 45 (Emphasis
supplied)
xxxxxxxxx
Petitioner, a regular, large-scale and multinational importer of oil and oil products,
fell under the category of a knowledgeable importer which was familiar with the
governing rules and procedures in the release of importations.
Furthermore, notice to petitioner was unnecessary because it was fully aware that
its shipments had in fact arrived in the Port of Batangas. The oil shipments were
discharged from the carriers docked in its private pier or wharf, into its shore
tanks. From then on, petitioner had actual physical possession of its oil
importations. It was thus incumbent upon it to know its obligation to file the IEIRD
within the 30-day period prescribed by law. As a matter of fact, importers such as
petitioner can, under existing rules and regulations, file in advance an import
entry even before the arrival of the shipment to expedite the release of the same.
However, it deliberately chose not to comply with its obligation under Section
1301.
The purpose of posting an "urgent notice to file entry" pursuant to Section B.2.1
of CMO 15-94 is only to notify the importer of the "arrival of its shipment" and the
details of said shipment. Since it already had knowledge of such, notice was
superfluous. Besides, the entries had already been filed, albeit belatedly. It would

have been oppressive to the government to demand a literal implementation of

this notice requirement.
AN ABANDONED ARTICLE SHALL IPSO FACTO BE DEEMED THE PROPERTY
OF THE GOVERNMENT
Section 1802 of the TCC provides:
Sec. 1802. Abandonment of Imported Articles. - An abandoned article
shall ipso facto be deemed the property of the Government and
shall be disposed of in accordance with the provisions of this Code.
(Emphasis supplied)
The term "ipso facto" is defined as "by the very act itself" or "by mere act."
Probably a closer translation of the Latin term would be "by the fact itself." 46 Thus,
there was no need for any affirmative act on the part of the government with
respect to the abandoned imported articles since the law itself provides that the
abandoned articles shall ipso facto be deemed the property of the government.
Ownership over the abandoned importation was transferred to the government by
operation of law under Section 1802 of the TCC, as amended by RA 7651.
A historical review of the pertinent provisions of the TCC dispels any view that is
contrary to the automatic transfer of ownership of the abandoned articles to the
government by the mere fact of an importers failure to file the required entries
within the mandated period.
Under the former Administrative Code, Act 2711, 47 Section 1323 of Article XV
thereof provides:
Sec. 1323. When implied abandonment takes effect Notice An implied
abandonment shall not take effect until after the property shall be
declared by the collector to have been abandoned and notice to the party
in interest as in seizure cases.
Thereafter, RA 193748 was enacted. Section 1801 thereof provides:
Sec. 1801. Abandonment, Kinds and Effect of. Abandonment is express
when it is made direct to the Collector by the interested party in writing
and it is implied when, from the action or omission of the interested party,
an intention to abandon can be clearly inferred. The failure of any
interested party to file the import entry within fifteen days or any
extension thereof from the discharge of the vessel or aircraft, shall be
implied abandonment. An implied abandonment shall not be effective until
the article is declared by the Collector to have been abandoned after
notice thereof is given to the interested party as in seizure cases.
Any person who abandons an imported article renounces all his interests
and property rights therein.
PD 146449 did not amend the provisions of the TCC on abandonment. The latest
amendment was introduced by Section 1802 of RA 7651 which provides:

11 | t a x 2 fi n a l s

Sec. 1802. Abandonment of Imported Articles. An abandoned article

shall ipso facto be deemed the property of the Government and shall be
disposed of in accordance with the provisions of this Code.
The amendatory law, RA 7651, deleted the requirement that there must be a
declaration by the Collector of Customs that the goods have been abandoned by
the importers and that the latter shall be given notice of said declaration before
any abandonment of the articles becomes effective.
No doubt, by using the term "ipso facto" in Section 1802 as amended by RA 7651,
the legislature removed the need for abandonment proceedings and for a
declaration that the imported articles have been abandoned before ownership
thereof can be transferred to the government.50
Petitioner claims it is arbitrary, harsh and confiscatory to deprive importers of
their property rights just because of their failure to timely file the IEIRD. In effect,
petitioner is challenging the constitutionality of Sections 1801 and 1802 by
contending that said provisions are violative of substantive and procedural due
process. We disallow this collateral attack on a presumably valid law:
We have ruled time and again that the constitutionality or validity of laws,
orders, or such other rules with the force of law cannot be attacked
collaterally. There is a legal presumption of validity of these laws and rules.
Unless a law or rule is annulled in a direct proceeding, the legal
presumption of its validity stands.51
Besides,
[a] law is deemed valid unless declared null and void by a competent
court; more so when the issue has not been duly pleaded in the trial court.
The question of constitutionality must be raised at the earliest opportunity.
xxx The settled rule is that courts will not anticipate a question of
constitutional law in advance of the necessity of deciding it. 52
Be that as it may, the intent of Congress was unequivocal. Our policy makers
wanted to do away with lengthy proceedings before an importation can be
considered abandoned:
x x x x x x xxx
MR. PARAYNO. Thank you, Mr. Chairman. The proposed amendment to
Section 1801 on the abandonment, kinds and effects. This aimed to
facilitate, Mr. Chairman, the process by which this activity is being acted
upon at the moment. The intention, Mr. Chairman, is for the Customs
Administration to be able to maximize the revenue that can be derived
from abandoned goods, and the problem that we are encountering at the
moment is that we have to go through a lengthy process similar to a
seizure proceedings to be able to finally declare the cargo, the abandoned
cargo forfeited in favor of the government and therefore, may be disposed
of pursuant to law. And that therefore, the proposed amendment
particularly on the implied abandonment as framed here will do
away with the lengthy process of seizure proceedings and
therefore, enable us to dispose of the shipments through public auction
and other modes of disposal as early as possible.

THE CHAIRMAN. In other words, Commissioner, therell be no need for a

seizure in the case of abandonment because under the proposed
bill its considered to be government property.53
x x x xxx xxx
CONCLUSION
Petitioners failure to file the required entries within a non-extendible period of
thirty days from date of discharge of the last package from the carrying vessel
constituted implied abandonment of its oil importations. This means that from the
precise moment that the non-extendible thirty-day period lapsed, the abandoned
shipments were deemed (that is, they became) the property of the government.
Therefore, when petitioner withdrew the oil shipments for consumption, it
appropriated for itself properties which already belonged to the government.
Accordingly, it became liable for the total dutiable value of the shipments of
imported crude oil amounting to P1,210,280,789.21 reduced by the total amount
of duties paid amounting to P316,499,021.00 thereby leaving a balance
ofP893,781,768.21.
By the very nature of its functions, the CTA is a highly specialized court
specifically created for the purpose of reviewing tax and customs cases. It is
dedicated exclusively to the study and consideration of revenue-related problems
and has necessarily developed an expertise on the subject. Thus, as a general
rule, its findings and conclusions are accorded great respect and are generally
upheld by this Court, unless there is a clear showing of a reversible error or an
improvident exercise of authority. There is no such showing here.
WHEREFORE, the petition is hereby DENIED. Petitioner Chevron Philippines, Inc.
is ORDERED to pay the amount of EIGHT HUNDRED NINETY THREE MILLION
SEVEN HUNDRED EIGHTY ONE THOUSAND SEVEN HUNDRED SIXTY EIGHT PESOS
AND TWENTY-ONE CENTAVOS (P893,781,768.21) plus six percent (6%) legal
interest per annum accruing from the date of promulgation of this decision until
its finality. Upon finality of this decision, the sum so awarded shall bear interest at
the rate of twelve percent (12%) per annum until its full satisfaction.
Costs against petitioner.
SO ORDERED.

12 | t a x 2 fi n a l s

G.R. No. 165027

October 12, 2006
PROTON PILIPINAS CORPORATION, petitioner,
vs. REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF
CUSTOMS, respondent.
CHICO-NAZARIO, J.:
This case is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Court of Appeals
Decision1 in CA-G.R. SP No. 77684 entitled, Proton Pilipinas Corporation v. Hon.
Juan C. Nabong, dated 29 April 2004 and its Resolution2 dated 2 August 2004,
which respectively dismissed the Petition for Certiorari filed by petitioner and
denied its Motion for Reconsideration, thereby affirming the Orders issued by the
Regional Trial Court (RTC) of Manila dated 24 January 20033 and 15 April 2003.4
The controversy arose from the following facts:
Herein petitioner Proton Pilipinas Corporation (Proton) is a corporation duly
organized and existing under Philippine laws and duly registered 5 with the Board
of Investments (BOI). It is engaged in the business of importing, manufacturing,
and selling vehicles.
Sometime in 1997, Devmark Textile Industries, Inc. (Devmark), a corporation duly
registered with the Securities and Exchange Commission (SEC) and with the BOI,
and engaged in the business of spinning, knitting, weaving, dyeing, and finishing
all types of textile, yarns, and fabrics, together with Texasia, Inc. (Texasia),
expressed the intention to purchase the various vehicles distributed and
marketed by petitioner. In payment thereof, the above named companies offered
petitioner their Tax Credit Certificates (TCCs) worth P30,817,191.00. The
companies, through their officers, guaranteed petitioner that the TCCs were valid,
genuine, and subsisting. They further assured petitioner that said TCCs were a
safe and a valid mode of payment for import duties and taxes as they were issued
by the Department of Finance (DOF) and duly honored and accepted by the
Bureau of Customs (BOC).
Persuaded by the representations and assurances made by the two companies as
to the legality of the transaction, Paul Y. Rodriguez, in his capacity as Executive
Vice-President of Proton, signed a Deed of Assignment6 with Eulogio L. Reyes,
General Manager of Devmark. The terms and conditions of the Deed of
Assignment are as follows:
1. That the acceptance by the ASSIGNEE of the above duty/taxes credit certificate
being assigned by ASSIGNOR shall be subject to condition that the [DOF]
approves the proposed assignment.
2. For the purpose of this assignment, the above duty/taxes certificates being
assigned hereby to ASSIGNEE shall not be credited as payment of ASSIGNORs
account unless and until ASSIGNEE has in turn utilized/applied the same with the

13 | t a x 2 fi n a l s

[BOC] or Bureau of Internal Revenue [BIR] for payment of each duty/tax

obligations.
3. ASSIGNEE undertakes to issue to ASSIGNOR the Tax Credit corresponding credit
notes, as when the above duty/taxes credit certificates was (sic) use[d]/applied,
either partially or fully by the ASSIGNEE, in payment of ASSIGNEEs duty/taxes
obligation with the [BOC] or [BIR], respectively.
4. Withstanding the above-stated arrangement, such Tax Credit assigned and
transferred by the ASSIGNOR to ASSIGNEE shall be subject to post-audit by the
Government and shall be credited to the ASSIGNOR only upon actual availment
thereof by ASSIGNEE.
5. If the whole or any portion of the Tax Credit assigned and transferred by
ASSIGNOR to the ASSIGNEE is disallowed by the Government upon post-audit or
cannot be utilized for any cause or reason not attributable to the fault negligence
of the ASSIGNEE, the whole amount corresponding such Tax Credit or such portion
thereof as is disallowed by the Government or cannot be utilized by ASSIGNEE
shall be paid in cash to ASSIGNEE by the ASSIGNOR immediately upon receipt of
written notice of such event.7
Consequently, the TCCs, as well as their transfers to petitioner, were submitted to
the DOF for evaluation and approval. Thereafter, the DOF, through its
Undersecretary Antonio P. Belicena, cleared said TCCs for transaction and
approved them for transfer. For that reason, petitioner delivered 13 vehicles with
a total value ofP10,778,500.00 and post-dated checks worth P10,592,618.00, in
exchange for the said TCCs, to Devmark and Texasia in accordance with their
agreement. In turn, petitioner used the TCCs for payment of its customs duties
and taxes to the BOC.
In the interim, the Office of the Ombudsman (Ombudsman) under Hon. Aniano
Desierto began conducting an investigation on the alleged "P60 Billion DOF Tax
Credit Scam" in July 1998. On 30 March 1999, Silverio T. Manuel, Jr., as Graft
Investigator II, was given the assignment to look into the alleged irregular
issuances of four TCCs to Devmark and its subsequent transfer to and utilization
by petitioner. Based on the Fact-Finding Report 8dated 29 October 1999 of the Fact
Finding and Investigation Bureau, Ombudsman, the TCCs were found to be
irregularly and fraudulently issued by several officers of the DOF, including its
Department Undersecretary Belicena, to Devmark. As revealed in the said Report,
all the pertinent documents submitted by Devmark in support of its application
for the TCCs were fake and spurious. As a consequence thereof, the transfers of
the subject TCCs to petitioner and their subsequent use of the same was declared
invalid and illegal. The Report recommended among other things, that the
directors of the petitioner and Devmark, along with several DOF officers, be
criminally charged with violation of Section 3(e) and (j) of Republic Act No.
3019,9 otherwise known as The Anti-Graft and Corrupt Practices Act.

On the weight of the Fact-Finding Report, the Ombudsman filed with the
Sandiganbayan, Criminal Cases No. 26168 to 71 10 charging DOF Undersecretary
Belicena together with Reyes, General Manager of Devmark, Peter Y. Rodriguez
and Paul Y. Rodriguez, in their capacity as Director and Executive VicePresident/Chief Operating Officer of the petitioner, respectively, for violation of
Section 3(e) and (j) of Republic Act No. 3019.
In turn, petitioner filed a criminal case for Estafa against the officers of Devmark
with the City Prosecutor of Mandaluyong, docketed as I.S. No. 00-42921-K,
entitled, Proton Pilipinas, Inc. v. Robert Liang. The BOC on the other hand, filed
Civil Case No. 02-10265011 against petitioner before the RTC for the collection of
taxes and customs duties, which remain unpaid because the subject TCCs had
been cancelled brought about by petitioners use of fraudulent TCCs in paying its
obligations.
Petitioner then filed a Motion to Dismiss12 the aforesaid civil case filed against it
by BOC on the grounds of lack of jurisdiction, prematurity of action, and litis
pendentia. The said Motion, however, was denied by the trial court in its Order
dated 24 January 2003. Petitioner sought reconsideration of the above-mentioned
Order, but the same was likewise denied in another Order dated 15 April 2003.

[Presidential Decree] PD 1861 and RA 7975. But now under RA 8249,

Sandiganbayan has the exclusive expanded jurisdiction over all civil
actions for recovery of civil liability regardless of whether or not they arise
from the offense charged.
ii. In fact, the language of the law is clear and extant that this expanded
jurisdiction of the Sandiganbayan supersedes "any provision of law or the
rules of court."
iii. The subject matter of the Civil Case, being the civil aspect of the
Criminal Cases, is deemed simultaneously instituted in the latter.
II.
The Honorable Court of Appeals erred in holding that the litis pendentia rule is
inapplicable and that the civil case is not premature.
1. The requisites of litis pendentia are present in the Criminal Cases and the Civil
Case.

Hence, this Petition.

a. There is identity of parties or at least such as representing the same

interest in both actionsb. There is identity of rights asserted and relief prayed for, the relief being
founded on the same factsc. The identity in the two (2) cases is such that the judgment that may be
rendered in the pending case would, regardless of which party is
successful, amount to res judicata in the otherd. Even assuming that not all the requisites of litis pendentia under the
Rules of Court are present, the pendency of the Criminal Cases constitute
some form of litis pendentia by express provision of Section 4, RA 8249.
2. In any event, the Civil Case is premature since the validity or invalidity of the
TCCs is a prejudicial issue that has yet to be resolved with finality by the
Sandiganbayan in the Criminal Cases.

In the petitioners Memorandum,13 it ascribes the following errors committed by

the Court of Appeals:

Given the foregoing, this Court restates the issues for resolution in the Petition at
bar, as follows:

Feeling aggrieved, petitioner filed before the Court of Appeals a Petition

for Certiorari under Rule 65 of the Revised Rules of Civil Procedure seeking to
annul the Orders of the trial court.
On 29 April 2004, the Court of Appeals rendered a Decision dismissing the Petition
for lack of merit and affirming the RTC Orders. On 7 June 2004, petitioner moved
for reconsideration but the same was denied in the Court of Appeals Resolution
dated 2 August 2004.

I.
The Honorable Court of Appeals erred in affirming the RTC Orders and,
consequently, in not dismissing the Civil Case because, per Section 4, RA 8249,
the Sandiganbayan has sole and exclusive jurisdiction over the subject matter
thereof.
1. Per Section 4, RA 8249, the Sandiganbayan has sole and exclusive jurisdiction
over the subject matter of the Civil Case to the exclusion of the RTC.
a. The expanded jurisdiction of the Sandiganbayan under RA 8249 covers the
subject matter of the Civil Case.
i. Before, the exclusive jurisdiction of the Sandiganbayan over civil actions
was limited only to "civil liability arising from the offense charged" per

14 | t a x 2 fi n a l s

I. Whether or not the jurisdiction over Civil Case No. 02-102650, involving
collection of unpaid customs duties and taxes of petitioner, belongs to the
Sandiganbayan and not to the RTC, as it can be considered the civil aspect
of the Criminal Cases filed before the Sandiganbayan, hence, deemed
instituted in the latter.
II. Whether or not the Court of Appeals erred in holding that, the rule
on litis pendentia is inapplicable in the present case.
III. Whether or not the institution of the aforesaid Civil Case is premature
as the determination of the validity or invalidity of the TCCs is a prejudicial
issue that must first be resolved with finality in the Criminal Cases filed
before the Sandiganbayan.
The Petition is bereft of merit.

In the instant case, petitioner argues that since the filing of the criminal cases
was anchored on the alleged conspiracy among accused public officials, including
the corporate officers, regarding the anomalous and illegal transfer of four TCCs
from Devmark to petitioner and the latters subsequent use of three TCCs in
paying their customs duties and taxes to the detriment of the government, the
civil case regarding collection of unpaid customs duties and taxes was deemed
impliedly instituted with the criminal cases before the Sandiganbayan, being the
civil aspect of the criminal cases. To buttress its assertion, petitioner quoted the
last paragraph of Section 4, Republic Act No. 8249, which states that:
Any provision of law or Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil
liability shall at all times be simultaneously instituted with, and jointly
determined in, the same proceeding by the Sandiganbayan or the
appropriate courts, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the criminal action shall be
recognized: x x x.
It is a truism beyond doubt that the jurisdiction of the court over a subject matter
is conferred only by the Constitution or by law. 14 In addition, it is settled that
jurisdiction is determined by the allegations in the complaint. 15
Accordingly, as can be gleaned from the Complaint for Collection of Money with
Damages16 filed by the Government against petitioner, what the former seeks is
the payment of customs duties and taxes due from petitioner, which remain
unpaid by reason of the cancellation of the subject TCCs for being fake and
spurious. Said Complaint has nothing to do with the criminal liability of the
accused, which the Government wants to enforce in the criminal cases filed
before the Sandiganbayan. This can be clearly inferred from the fact that only
petitioner was impleaded in the said Complaint.
While it is true that according to the aforesaid Section 4, of Republic Act No. 8249,
the institution of the criminal action automatically carries with it the institution of
the civil action for the recovery of civil liability, however, in the case at bar, the
civil case for the collection of unpaid customs duties and taxes cannot be
simultaneously instituted and determined in the same proceedings as the criminal
cases before the Sandiganbayan, as it cannot be made the civil aspect of the
criminal cases filed before it. It should be borne in mind that the tax and the
obligation to pay the same are all created by statute; so are its collection and
payment governed by statute.17The payment of taxes is a duty which the law
requires to be paid. Said obligation is not a consequence of the felonious acts
charged in the criminal proceeding nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of non-existence of the criminal
acts charged.18 Hence, the payment and collection of customs duties and taxes in
itself creates civil liability on the part of the taxpayer. Such civil liability to pay

15 | t a x 2 fi n a l s

taxes arises from the fact, for instance, that one has engaged himself in business,
and not because of any criminal act committed by him. 19
Undoubtedly, Republic Act No. 3019 is a special law but since it is silent as to the
definition of civil liability, hence, it is only proper to make use of the Revised Penal
Code provisions relating to civil liability as a supplement. This is in accordance
with the provision of Article 10 of the Revised Penal Code, which make the said
Code supplementary to special laws unless the latter should especially provide
the contrary.20 Article 104 of the Revised Penal Code enumerates the matters
covered by the civil liability arising from crimes, to wit:
Article 104. What is included in civil liability. The civil liability established
in articles 100, 101, 102 and 103 of this Code includes:
1. Restitution;21
2. Reparation of the damage caused;22
3. Indemnification for consequential damages.23
With the above provision of the Revised Penal Code, it is far-fetched that the civil
case for the collection of unpaid customs duties and taxes can be simultaneously
instituted with the criminal cases for violation of Section 3(e) and (j) of Republic
Act No. 3019 filed before the Sandiganbayan nor can it be made the civil aspect
of such criminal cases. All the matters covered by the civil liability in the aforesaid
article have something to do with the crimes committed by the wrongdoer.
Clearly, the civil liability for violation of any criminal statute, like Republic Act No.
3019, exists because of the criminal act done by the offender. In other words, the
civil obligation flows from and is created by the criminal liability, 24 thus, the civil
liability arising from crimes is different from the civil liability contemplated in the
case of taxation.
Since the present case took place at the time when Republic Act No.
1125,25 otherwise known as, An Act Creating the Court of Tax Appeals, was still in
effect and when the Court of Tax Appeals had no jurisdiction yet over tax
collection cases, this case therefore, still falls under the general jurisdiction of the
RTC. Section 19(6) of Batas Pambansa Blg. 129, as amended, provides that:
Section 19. Jurisdictional in civil cases. Regional Trial Courts shall
exercise exclusive original jurisdiction:
xxx
(6) In all cases not within the exclusive jurisdiction of any court, tribunal,
person or body exercising jurisdiction of any court, tribunal, person or
body exercising judicial or quasi-judicial functions; x x x.
Consequently, the RTC, not the Sandiganbayan, has jurisdiction
No. 02-102650. The jurisdiction of the Sandiganbayan is only with
other things, to the criminal cases for violation of Republic
particularly in this case, Section 3(e) and (j) thereof, but it has

over Civil Case

respect, among
Act No. 3019,
no authority to

take cognizance of the civil case to collect the unpaid customs duties and taxes of
the petitioner.
On the second and third issues. Petitioner avers that the Court of Appeals erred in
not applying the rule on litis pendentia despite the fact that all its requisites are
present in both criminal and civil cases. Petitioner also avows that the institution
of the civil case for collection of unpaid customs duties and taxes was premature
since the validity or invalidity of the TCCs was a prejudicial issue that has yet to
be resolved with finality by the Sandiganbayan in the Criminal Cases before it.
Conversely, the Government claims that in Criminal Cases No. 26168 to 71 filed
before the Sandiganbayan, the petitioner was not the party accused, but its
corporate officers, whereas in Civil Case No. 02-102650 the party sued is not the
corporate officers, but the corporation. Accordingly, there can be no litis
pendentia as the requisite of identity of parties was absent.
Litis pendentia is a Latin term, which literally means "a pending suit." Litis
pendentia as a ground for the dismissal of a civil action refers to that situation
wherein another action is pending between the same parties for the same cause
of action, such that the second action becomes unnecessary and vexatious.
For litis pendentia to be invoked, the concurrence of the following requisites is
necessary:
(a) identity of parties or at least such as represent the same interest in
both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being
founded on the same facts; and
(c) the identity in the two cases should be such that the judgment that
may be rendered in one would, regardless of which party is successful,
amount to res judicata in the other.26
In the case at bar, in Criminal Cases No. 26168 to 71 only the responsible officers
of the petitioner are charged in the Information, while in Civil Case No. 02102650, it is only the corporation that is impleaded, holding it liable for the
unpaid customs duties and taxes as a corporate taxpayer. Taxes being personal to
the taxpayer, it can only be enforced against herein petitioner because the
payment of unpaid customs duties and taxes are the personal obligation of the
petitioner as a corporate taxpayer, thus, it cannot be imposed on its corporate
officers, much so on its individual stockholders, for this will violate the principle
that a corporation has personality separate and distinct from the persons
constituting it.27 Having said that, the parties in the two actions are entirely
different, hence, petitioner failed to establish the first requisite of litis
pendentia as to identity of parties.
Going to the second requisite of litis pendentia, this Court finds that the causes of
action, as well as the reliefs prayed for in the criminal and civil actions are
considerably different. In the criminal cases, the cause of action of the
Government, as the Court of Appeals mentioned in its Decision, was founded on
the fact that it was defrauded as a result of the alleged conspiracy among the

16 | t a x 2 fi n a l s

corporate officers of the petitioner and some public officials in the procurement
and use of the spurious TCCs, amounting to violation of Section 3(e) and (j) of
Republic Act No. 3019. Therefore, the primordial relief sought by the Government
is the conviction of the accused for their fraudulent acts. On the contrary, the
cause of action in the civil case was established on the basis that since the TCCs
were not honored, the customs duties and taxes remain unpaid so the civil action
was filed in order to collect the unpaid taxes due to petitioner. The relief sought
by the Government in the civil case is the collection of unpaid customs duties and
taxes. Thus, the conviction of the accused in the criminal cases and the collection
of unpaid taxes in the civil case are totally unrelated causes of action that will not
justify the application of the rule on litis pendentia.
As regards the third requisite of litis pendentia, again, the petitioner failed to
meet the same. This Court deems it necessary to quote the very wordings of the
Court of Appeals in its Decision dated 29 April 2004, as follows:
Moreover, a judgment in the criminal cases, to our mind, will not be determinative
of the civil case upon which the principle of res judicata will operate. A judgment
in the criminal cases will only lead to either conviction or acquittal of the accused
officers of the petitioner as the crime only attaches to them but will not in anyway
affect the liability of the petitioner as it is a distinct and separate juridical person.
Nor do we believe that a finding on the efficacy of the TCCs will change the dire
situation in which the Government finds itself in as the tax and the customs
duties remain unpaid. The fate of the TCCs for whatever its worth is already fait
accompli. It is not disputed by the parties concerned that the subject TCCs have
already been cancelled by the [DOF] for which reason the twin suits have been
brought. It is on this basis too, that petitioner filed a [C]omplaint for [E]stafa
against Devmarks officers before the City Prosecutor of Mandaluyong City. Hence,
it is absurd for the petitioner to anchor its complaint on the alleged worthlessness
of the TCCs only to argue in the present action that the same must await final
determination in the criminal cases before the Sandiganbayan. 28
Attention must be given to the fact that taxes are the lifeblood of the nation
through which the government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents. 29 It is also settled that
taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need.30 So then, the determination of the validity or
invalidity of the TCCs cannot be regarded as a prejudicial issue that must first be
resolved with finality in the Criminal Cases filed before the Sandiganbayan. The
Government should not and must not await the result of the criminal proceedings
in the Sandiganbayan before it can collect the outstanding customs duties and
taxes of the petitioner for such will unduly restrain the Government in doing its
functions. The machineries of the Government will not be able to function well if
the collection of taxes will be delayed so much so if its collection will depend on
the outcome of any criminal proceedings on the guise that the issue of collection

of taxes is a prejudicial issue that need to be first resolved before enforcing its
collection.
Therefore, it is the obligation of the petitioner to make good its obligation by
paying the customs duties and taxes, which remain unpaid by reason of the
cancellation of the subject TCCs for having been found as fake and spurious. It
should not make the Government suffer for its own misfortune.
IN VIEW WHEREOF, the instant Petition is hereby DENIED. The Decision as well
as the Resolution of the Court of Appeals in CA-G.R. SP No. 77684 dated 29 April
2004 and 2 August 2004, respectively, affirming the Orders of the RTC are
hereby AFFIRMED. Costs against petitioner. SO ORDERED.

17 | t a x 2 fi n a l s

G.R. No. 193007

July 19, 2011

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,

vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
ABAD, J.:

May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
for declaratory relief1 assailing the validity of the impending imposition of valueadded tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have
an interest as regular users of tollways in stopping the BIR action. Additionally,
Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994
Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National
Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on
the other hand, claims that she served as Assistant Secretary of the Department
of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past
administration.
Petitioners allege that the BIR attempted during the administration of President
Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred,
however, in view of the consistent opposition of Diaz and other sectors to such
move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010,
the BIR revived the idea and would impose the challenged tax on toll fees
beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend
to include toll fees within the meaning of "sale of services" that are subject to
VAT; that a toll fee is a "users tax," not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never

18 | t a x 2 fi n a l s

factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO),
enjoining the implementation of the VAT. The Court required the government,
represented by respondents Cesar V. Purisima, Secretary of the Department of
Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to
comment on the petition within 10 days from notice. 2 Later, the Court issued
another resolution treating the petition as one for prohibition. 3
On August 23, 2010 the Office of the Solicitor General filed the governments
comment.4 The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the law
provides otherwise; that the Court should seek the meaning and intent of the law
from the words used in the statute; and that the imposition of VAT on tollway
operations has been the subject as early as 2003 of several BIR rulings and
circulars.5
The government also argues that petitioners have no right to invoke the nonimpairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the States
sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT. In any
event, it cannot be claimed that the rights of tollway operators to a reasonable
rate of return will be impaired by the VAT since this is imposed on top of the toll
rate. Further, the imposition of VAT on toll fees would have very minimal effect on
motorists using the tollways.
In their reply6 to the governments comment, petitioners point out that tollway
operators cannot be regarded as franchise grantees under the NIRC since they do
not hold legislative franchises. Further, the BIR intends to collect the VAT by
rounding off the toll rate and putting any excess collection in an escrow account.
But this would be illegal since only the Congress can modify VAT rates and
authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010
(BIR RMC 63-2010), which directs toll companies to record an accumulated input
VAT of zero balance in their books as of August 16, 2010, contravenes Section 111

of the NIRC which grants entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees
cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as
one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file
the action.

plain, speedy, and adequate remedy in the ordinary course of law against the BIR
action in the form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that
need to be resolved for the public good. 8 The Court has also held that a petition
for prohibition is a proper remedy to prohibit or nullify acts of executive officials
that amount to usurpation of legislative authority.9
Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who
use the tollways everyday, but more so on the governments effort to raise
revenue for funding various projects and for reducing budgetary deficits.

1. Whether or not the government is unlawfully expanding VAT coverage

by including tollway operators and tollway operations in the terms
"franchise grantees" and "sale of services" under Section 108 of the Code;
and

To dismiss the petition and resolve the issues later, after the challenged VAT has
been imposed, could cause more mischief both to the tax-paying public and the
government. A belated declaration of nullity of the BIR action would make any
attempt to refund to the motorists what they paid an administrative nightmare
with no solution. Consequently, it is not only the right, but the duty of the Court to
take cognizance of and resolve the issues that the petition raises.

2. Whether or not the imposition of VAT on tollway operators a) amounts to

a tax on tax and not a tax on services; b) will impair the tollway operators
right to a reasonable return of investment under their TOAs; and c) is not
administratively feasible and cannot be implemented.

Although the petition does not strictly comply with the requirements of Rule 65,
the Court has ample power to waive such technical requirements when the legal
questions to be resolved are of great importance to the public. The same may be
said of the requirement of locus standi which is a mere procedural requisite. 10

The case also presents two substantive issues:

The Courts Rulings

A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for
prohibition rather than one for declaratory relief, the characterization that
petitioners Diaz and Timbol gave their action. The government has sought
reconsideration of the Courts resolution, 7 however, arguing that petitioners
allegations clearly made out a case for declaratory relief, an action over which the
Court has no original jurisdiction. The government adds, moreover, that the
petition does not meet the requirements of Rule 65 for actions for prohibition
since the BIR did not exercise judicial, quasi-judicial, or ministerial functions when
it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a

19 | t a x 2 fi n a l s

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is
levied, assessed, and collected, according to Section 108, on the gross receipts
derived from the sale or exchange of services as well as from the use or lease of
properties. The third paragraph of Section 108 defines "sale or exchange of
services" as follows:
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors

of cinematographic films; persons engaged in milling, processing, manufacturing

or repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to another place
in the Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities,
telephone and telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on "all kinds of services"
rendered in the Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive. 11 By qualifying "services" with
the words "all kinds," Congress has given the term "services" an all-encompassing
meaning. The listing of specific services are intended to illustrate how pervasive
and broad is the VATs reach rather than establish concrete limits to its
application. Thus, every activity that can be imagined as a form of "service"
rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.)
1112 or the Toll Operation Decree establishes the legal basis for the services that
tollway operators render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators expense. Tollways
serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for
this reason slow-moving. In consideration for constructing tollways at their
expense, the operators are allowed to collect government-approved fees from
motorists using the tollways until such operators could fully recover their
expenses and earn reasonable returns from their investments.

20 | t a x 2 fi n a l s

When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latters use of the tollway facilities over which the operator enjoys private
proprietary rights12 that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under Section
108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension
houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods or
cargoes; and
7. Common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines.
It does not help petitioners cause that Section 108 subjects to VAT "all kinds of
services" rendered for a fee "regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties." This
means that "services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of
human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds of
services," they also come under the specific class described in Section 108 as "all
other franchise grantees" who are subject to VAT, "except those under Section
119 of this Code."

Tollway operators are franchise grantees and they do not belong to exceptions
(the low-income radio and/or television broadcasting companies with gross annual
incomes of less than P10 million and gas and water utilities) that Section
11913 spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public
concern.14
Petitioners of course contend that tollway operators cannot be considered
"franchise grantees" under Section 108 since they do not hold legislative
franchises. But nothing in Section 108 indicates that the "franchise grantees" it
speaks of are those who hold legislative franchises. Petitioners give no reason,
and the Court cannot surmise any, for making a distinction between franchises
granted by Congress and franchises granted by some other government agency.
The latter, properly constituted, may grant franchises. Indeed, franchises
conferred or granted by local authorities, as agents of the state, constitute as
much a legislative franchise as though the grant had been made by Congress
itself.15 The term "franchise" has been broadly construed as referring, not only to
authorizations that Congress directly issues in the form of a special law, but also
to those granted by administrative agencies to which the power to grant
franchises has been delegated by Congress. 16
Tollway operators are, owing to the nature and object of their business, "franchise
grantees." The construction, operation, and maintenance of toll facilities on public
improvements are activities of public consequence that necessarily require a
special grant of authority from the state. Indeed, Congress granted special
franchise for the operation of tollways to the Philippine National Construction
Company, the former tollway concessionaire for the North and South Luzon
Expressways. Apart from Congress, tollway franchises may also be granted by the
TRB, pursuant to the exercise of its delegated powers under P.D. 1112. 17 The
franchise in this case is evidenced by a "Toll Operation Certificate." 18
Petitioners contend that the public nature of the services rendered by tollway
operators excludes such services from the term "sale of services" under Section
108 of the Code. But, again, nothing in Section 108 supports this contention. The
reverse is true. In specifically including by way of example electric utilities,
telephone, telegraph, and broadcasting companies in its list of VAT-covered
businesses, Section 108 opens other companies rendering public service for a fee
to the imposition of VAT. Businesses of a public nature such as public utilities and
the collection of tolls or charges for its use or service is a franchise. 19

21 | t a x 2 fi n a l s

Nor can petitioners cite as binding on the Court statements made by certain
lawmakers in the course of congressional deliberations of the would-be law. As
the Court said in South African Airways v. Commissioner of Internal
Revenue,20 "statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law." The congressional will
is ultimately determined by the language of the law that the lawmakers voted on.
Consequently, the meaning and intention of the law must first be sought "in the
words of the statute itself, read and considered in their natural, ordinary,
commonly accepted and most obvious significations, according to good and
approved usage and without resorting to forced or subtle construction."
Two. Petitioners argue that a toll fee is a "users tax" and to impose VAT on toll
fees is tantamount to taxing a tax. 21 Actually, petitioners base this argument on
the following discussion in Manila International Airport Authority (MIAA) v. Court of
Appeals:22
No one can dispute that properties of public dominion mentioned in Article 420 of
the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed
by the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
x x x The operation by the government of a tollway does not change the
character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay
the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the public for the maintenance of
public roads.
The charging of fees to the public does not determine the character of the
property whether it is for public dominion or not. Article 420 of the Civil Code
defines property of public dominion as "one intended for public use."Even if the
government collects toll fees, the road is still "intended for public use" if anyone
can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the

road, the speed restrictions and other conditions for the use of the road do not
affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character of
MIAA as an airport for public use. Such fees are often termed users tax. This
means taxing those among the public who actually use a public facility instead of
taxing all the public including those who never use the particular public facility. A
users tax is more equitable a principle of taxation mandated in the 1987
Constitution."23 (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a
"users tax" must also pertain to tollway fees. But the main issue in the MIAA case
was whether or not Paraaque City could sell airport lands and buildings under
MIAA administration at public auction to satisfy unpaid real estate taxes. Since
local governments have no power to tax the national government, the Court held
that the City could not proceed with the auction sale. MIAA forms part of the
national
government
although
not
integrated
in
the
department
24
framework." Thus, its airport lands and buildings are properties of public
dominion beyond the commerce of man under Article 420(1) 25 of the Civil Code
and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was
made, not to establish a rule that tollway fees are users tax, but to make the
point that airport lands and buildings are properties of public dominion and that
the collection of terminal fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they are not assessed and
collected by the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users
tax, collectible from motorists, for the construction and maintenance of certain
roadways. The tax in such a case goes directly to the government for the
replenishment of resources it spends for the roadways. This is not the case here.
What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own
expense under the build, operate, and transfer scheme that the government has
adopted for expressways.26 Except for a fraction given to the government, the toll
fees essentially end up as earnings of the tollway operators.

22 | t a x 2 fi n a l s

In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures.27 Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income. Although toll fees are charged for the use of
public facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the government under
its sovereign authority, toll fees may be demanded by either the government or
private individuals or entities, as an attribute of ownership. 28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to
the nature of VAT as an indirect tax. In indirect taxation, a distinction is made
between the liability for the tax and burden of the tax. The seller who is liable for
the VAT may shift or pass on the amount of VAT it paid on goods, properties or
services to the buyer. In such a case, what is transferred is not the sellers liability
but merely the burden of the VAT.29
Thus, the seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the VAT ceases to be a tax 30and simply becomes part
of the cost that the buyer must pay in order to purchase the good, property or
service.
Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator. Under Section 105 of the Code, 31 VAT is imposed on
any person who, in the course of trade or business, sells or renders services for a
fee. In other words, the seller of services, who in this case is the tollway operator,
is the person liable for VAT. The latter merely shifts the burden of VAT to the
tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a "users tax." VAT is assessed against the tollway operators
gross receipts and not necessarily on the toll fees. Although the tollway operator
may shift the VAT burden to the tollway user, it will not make the latter directly
liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that
one has to pay in order to use the tollways.32

Three. Petitioner Timbol has no personality to invoke the non-impairment of

contract clause on behalf of private investors in the tollway projects. She will
neither be prejudiced by nor be affected by the alleged diminution in return of
investments that may result from the VAT imposition. She has no interest at all in
the profits to be earned under the TOAs. The interest in and right to recover
investments solely belongs to the private tollway investors.

the BIR intends to go about it, 35 the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, any concern
about how the VAT on tollway operations will be enforced must first be addressed
to the BIR on whom the task of implementing tax laws primarily and exclusively
rests. The Court cannot preempt the BIRs discretion on the matter, absent any
clear violation of law or the Constitution.

Besides, her allegation that the private investors rate of recovery will be
adversely affected by imposing VAT on tollway operations is purely speculative.
Equally presumptuous is her assertion that a stipulation in the TOAs known as the
Material Adverse Grantor Action will be activated if VAT is thus imposed. The
Court cannot rule on matters that are manifestly conjectural. Neither can it
prohibit the State from exercising its sovereign taxing power based on uncertain,
prophetic grounds.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 632010 which directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, the date when the VAT imposition
was supposed to take effect. The issuance allegedly violates Section 111(A) 36 of
the Code which grants first time VAT payers a transitional input VAT of 2% on
beginning inventory.

Four. Finally, petitioners assert that the substantiation requirements for claiming
input VAT make the VAT on tollway operations impractical and incapable of
implementation. They cite the fact that, in order to claim input VAT, the name,
address and tax identification number of the tollway user must be indicated in the
VAT receipt or invoice. The manner by which the BIR intends to implement the
VAT by rounding off the toll rate and putting any excess collection in an escrow
account is also illegal, while the alternative of giving "change" to thousands of
motorists in order to meet the exact toll rate would be a logistical nightmare.
Thus, according to them, the VAT on tollway operations is not administratively
feasible.33
Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer. Non-observance of the
canon, however, will not render a tax imposition invalid "except to the extent that
specific constitutional or statutory limitations are impaired." 34 Thus, even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is
not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the taxing authority will actually implement the
VAT on tollway operations. Any declaration by the Court that the manner of its
implementation is illegal or unconstitutional would be premature. Although the
transcript of the August 12, 2010 Senate hearing provides some clue as to how

23 | t a x 2 fi n a l s

In this connection, the BIR explained that BIR RMC 63-2010 is actually the product
of negotiations with tollway operators who have been assessed VAT as early as
2005, but failed to charge VAT-inclusive toll fees which by now can no longer be
collected. The tollway operators agreed to waive the 2% transitional input VAT, in
exchange for cancellation of their past due VAT liabilities. Notably, the right to
claim the 2% transitional input VAT belongs to the tollway operators who have not
questioned the circulars validity. They are thus the ones who have a right to
challenge the circular in a direct and proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative
prerogative or expand the VAT laws coverage when she sought to impose VAT on
tollway operations. Section 108(A) of the Code clearly states that services of all
other franchise grantees are subject to VAT, except as may be provided under
Section 119 of the Code. Tollway operators are not among the franchise grantees
subject to franchise tax under the latter provision. Neither are their services
among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners
so strongly allege, then it would have been well for the law to clearly say so. Tax
exemptions must be justified by clear statutory grant and based on language in
the law too plain to be mistaken.37 But as the law is written, no such exemption
obtains for tollway operators. The Court is thus duty-bound to simply apply the
law as it is found.1avvphi1

Lastly, the grant of tax exemption is a matter of legislative policy that is within
the exclusive prerogative of Congress. The Courts role is to merely uphold this
legislative policy, as reflected first and foremost in the language of the tax
statute. Thus, any unwarranted burden that may be perceived to result from
enforcing such policy must be properly referred to Congress. The Court has no
discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when
R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now,
however, that the executive has earnestly pursued the VAT imposition against
tollway operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax laws. Consequently, the
executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and
Commissioner of Internal Revenues motion for reconsideration of its August 24,
2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F.
Timbols petition for lack of merit, and SETS ASIDE the Courts temporary
restraining order dated August 13, 2010.
SO ORDERED.

When the intent of the law is not apparent as worded, or when the application of
the law would lead to absurdity or injustice, legislative history is all important. In
such cases, courts may take judicial notice of the origin and history of the
law,1 the deliberations during the enactment, 2 as well as prior laws on the same
subject matter3 to ascertain the true intent or spirit of the law.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in
relation to Republic Act (RA) No. 9282, 4 seeks to set aside the April 30, 2008
Decision5 and the June 24, 2008 Resolution6 of the Court of Tax Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty
Development Corporation (First Asia) are domestic corporations duly organized
and existing under the laws of the Republic of the Philippines. Both are engaged
in the business of operating cinema houses, among others.7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a
Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on
cinema ticket sales in the amount of P119,276,047.40 for taxable year 2000. 8 In
response, SM Prime filed a letter-protest dated December 15, 2003. 9
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the
alleged VAT deficiency, which the latter protested in a letter dated January 14,
2004.10

G.R. No. 183505

February 26, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs. SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT
CORPORATION, Respondents.
DEL CASTILLO, J.:

24 | t a x 2 fi n a l s

On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered
it to pay the VAT deficiency for taxable year 2000 in the amount
of P124,035,874.12.11
On October 15, 2004, SM Prime filed a Petition for Review before the CTA
docketed as CTA Case No. 7079.12
CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount
of P35,823,680.93.13 First Asia protested the PAN in a letter dated July 9, 2002. 14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT
deficiency which was protested by First Asia in a letter dated December 12,
2002.15
On September 6, 2004, the BIR rendered a Decision denying the protest and
ordering First Asia to pay the amount of P35,823,680.93 for VAT deficiency for
taxable year 1999.16
Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the
CTA, docketed as CTA Case No. 7085.17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema
ticket sales for taxable year 2000 in the amount of P35,840,895.78. First Asia
protested the PAN through a letter dated April 22, 2004. 18
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT
deficiency.19 First Asia protested the same in a letter dated July 9, 2004. 20
On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the
VAT deficiency in the amount ofP35,840,895.78 for taxable year 2000.21

sent a Formal Letter of Demand, which was protested by First Asia on December
14, 2004.23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount
of P28,196,376.46 for the taxable year 2003 was issued by the BIR against First
Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A Formal
Letter of Demand was thereafter issued by the BIR to First Asia, which the latter
protested through a letter dated November 11, 2004. 24
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered
First Asia to pay the amounts ofP33,610,202.91 and P28,590,826.50 for VAT
deficiency for taxable years 2002 and 2003, respectively. 25
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA,
docketed as CTA Case No. 7272.26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed
by SM Prime and First Asia.27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111
and 7272 with CTA Case No. 7079 on the grounds that the issues raised therein
are identical and that SM Prime is a majority shareholder of First Asia. The motion
was granted.28

CTA Case No. 7272

Upon submission of the parties respective memoranda, the consolidated cases

were submitted for decision on the sole issue of whether gross receipts derived
from admission tickets by cinema/theater operators or proprietors are subject to
VAT.29

Re: Assessment Notice No. 008-02

Ruling of the CTA First Division

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the
total amount of P32,802,912.21 was issued against First Asia by the BIR. In
response, First Asia filed a protest-letter dated November 11, 2004. The BIR then

On September 22, 2006, the First Division of the CTA rendered a Decision granting
the Petition for Review. Resorting to the language used and the legislative history
of the law, it ruled that the activity of showing cinematographic films is not a
service covered by VAT under the National Internal Revenue Code (NIRC) of 1997,

This prompted First Asia to file a Petition for Review before the CTA on December
16, 2004. The case was docketed as CTA Case No. 7111. 22

25 | t a x 2 fi n a l s

as amended, but an activity subject to amusement tax under RA 7160, otherwise

known as the Local Government Code (LGC) of 1991. Citing House Joint Resolution
No. 13, entitled "Joint Resolution Expressing the True Intent of Congress with
Respect to the Prevailing Tax Regime in the Theater and Local Film Industry
Consistent with the States Policy to Have a Viable, Sustainable and Competitive
Theater and Film Industry as One of its Partners in National Development," 30 the
CTA First Division held that the House of Representatives resolved that there
should only be one business tax applicable to theaters and movie houses, which
is the 30% amusement tax imposed by cities and provinces under the LGC of
1991. Further, it held that consistent with the States policy to have a viable,
sustainable and competitive theater and film industry, the national government
should be precluded from imposing its own business tax in addition to that
already imposed and collected by local government units. The CTA First Division
likewise found that Revenue Memorandum Circular (RMC) No. 28-2001, which
imposes VAT on gross receipts from admission to cinema houses, cannot be given
force and effect because it failed to comply with the procedural due process for
tax issuances under RMC No. 20-86.31 Thus, it disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for
Review. Respondents Decisions denying petitioners protests against deficiency
value-added taxes are hereby REVERSED. Accordingly, Assessment Notices Nos.
VT-00-000098,
VT-99-000057,
VT-00-000122,
003-03
and
008-02
are ORDEREDcancelled and set aside.
SO ORDERED.32
Aggrieved, the CIR moved for reconsideration which was denied by the First
Division in its Resolution dated December 14, 2006.33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc. 34 The case was docketed as CTA EB
No. 244.35 The CTA En Banchowever denied36 the Petition for Review and
dismissed37 as well petitioners Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an
exhaustive enumeration of what services are intended to be subject to VAT. And
since the showing or exhibition of motion pictures, films or movies by cinema
operators or proprietors is not among the enumerated activities contemplated in

26 | t a x 2 fi n a l s

the phrase "sale or exchange of services," then gross receipts derived by cinema/
theater operators or proprietors from admission tickets in showing motion
pictures, film or movie are not subject to VAT. It reiterated that the exhibition or
showing of motion pictures, films, or movies is instead subject to amusement tax
under the LGC of 1991. As regards the validity of RMC No. 28-2001, the CTA En
Banc agreed with its First Division that the same cannot be given force and effect
for failure to comply with RMC No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges that the CTA En Banc
seriously erred:
(1) In not finding/holding that the gross receipts derived by operators/proprietors
of cinema houses from admission tickets [are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE
PAYING PUBLIC IS A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT
TO VAT UNDER SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE
APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS
UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE
APPLICABLE HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY APPLIED THE
SAME AND PROMULGATED DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS
SERVICES FROM THE VAT IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE
TRIED BY THE HONORABLE COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF
THE NIRC.

(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive
in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion
pictures is merely subject to the amusement tax imposed by the Local
Government Code; and

The petition is bereft of merit.

The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive
Section 108 of the NIRC of the 1997 reads:

(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001. 38

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.

Simply put, the issue in this case is whether the gross receipts derived by
operators or proprietors of cinema/theater houses from admission tickets are
subject to VAT.

(A) Rate and Base of Tax. There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from
the sale or exchange of services, including the use or lease of properties.

Petitioners Arguments

The phrase "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels,
rest houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land, air and water relative to
their transport of goods or cargoes; services of franchise grantees of telephone
and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; services of banks, non-bank
financial intermediaries and finance companies; and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase
"sale or exchange of services" shall likewise include:

Petitioner argues that the enumeration of services subject to VAT in Section 108
of the NIRC is not exhaustive because it covers all sales of services unless
exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the
provision is clear and unambiguous. Thus, he maintains that the exhibition of
movies by cinema operators or proprietors to the paying public, being a sale of
service, is subject to VAT.
Respondents Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the
NIRC of 1997 shows that the gross receipts of proprietors or operators of
cinemas/theaters derived from public admission are not among the services
subject to VAT. Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax imposed by the
national government. According to them, the absence of gross receipts from
cinema/theater admission tickets from the list of services which are subject to the
national amusement tax under Section 125 of the NIRC of 1997 reinforces this
legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on
which the deficiency assessments were based is an unpublished administrative
ruling.

(1) The lease or the use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;

Our Ruling
xxxx

27 | t a x 2 fi n a l s

(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration
of the "sale or exchange of services" subject to VAT is not exhaustive. The words,
"including," "similar services," and "shall likewise include," indicate that the
enumeration is by way of example only.39
Among those included in the enumeration is the "lease of motion picture films,
films, tapes and discs." This, however, is not the same as the showing or
exhibition of motion pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Blacks Law Dictionary is defined as "To show or display. x x x To
produce anything in public so that it may be taken into possession" (6th ed., p.
573). While the word "lease" is defined as "a contract by which one owning such
property grants to another the right to possess, use and enjoy it on specified
period of time in exchange for periodic payment of a stipulated price, referred to
as rent (Blacks Law Dictionary, 6th ed., p. 889). x x x 40
Since the activity of showing motion pictures, films or movies by cinema/ theater
operators or proprietors is not included in the enumeration, it is incumbent upon
the court to the determine whether such activity falls under the phrase "similar
services." The intent of the legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
41

Under the NIRC of 1939, the national government imposed amusement tax on
proprietors, lessees, or operators of theaters, cinematographs, concert halls,
circuses, boxing exhibitions, and other places of amusement, including cockpits,
race tracks, and cabaret.42 In the case of theaters or cinematographs, the taxes
were first deducted, withheld, and paid by the proprietors, lessees, or operators of
such theaters or cinematographs before the gross receipts were divided between
the proprietors, lessees, or operators of the theaters or cinematographs and the

28 | t a x 2 fi n a l s

distributors of the cinematographic films. Section 11 43 of the Local Tax

Code,44 however, amended this provision by transferring the power to impose
amusement tax45 on admission from theaters, cinematographs, concert halls,
circuses and other places of amusements exclusively to the local government.
Thus, when the NIRC of 1977 46 was enacted, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets, day and
night clubs, Jai-Alai and race tracks. 47
On January 1, 1988, the VAT Law 48 was promulgated. It amended certain
provisions of the NIRC of 1977 by imposing a multi-stage VAT to replace the tax
on original and subsequent sales tax and percentage tax on certain services. It
imposed VAT on sales of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and base of tax.
There shall be levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in the sale of
services. The phrase "sale of services" means the performance of all kinds of
services for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal property;
lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; and similar services
regardless of whether or not the performance thereof calls for the exercise or use
of the physical or mental faculties: Provided That the following services performed
in the Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, x x x
xxxx
"Gross receipts" means the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the
amount charged for materials supplied with the services and deposits or
advance payments actually or constructively received during the taxable
quarter for the service performed or to be performed for another person,
excluding value-added tax.

(b) Determination of the tax. (1) Tax billed as a separate item in the
invoice. If the tax is billed as a separate item in the invoice, the tax shall
be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. If the tax is
not billed separately or is billed erroneously in the invoice, the tax shall be
determined by multiplying the gross receipts (including the amount intended to
cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended,
however, were exempted from the coverage of VAT. 49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88,
which clarified that the power to impose amusement tax on gross receipts derived
from admission tickets was exclusive with the local government units and that
only the gross receipts of amusement places derived from sources other than
from admission tickets were subject to amusement tax under the NIRC of 1977, as
amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy
amusement tax on gross receipts arising from admission to places of amusement
has been transferred to the local governments to the exclusion of the national
government.
xxxx

be implemented in accordance with BIR RULING, dated December 4, 1973 and

BIR RULING NO. 231-86 dated November 5, 1986 to wit:
"x x x Accordingly, only the gross receipts of the amusement places
derived from sources other than from admission tickets shall be subject
to x x x amusement tax prescribed under Section 228 of the Tax Code, as
amended (now Section 123, NIRC, as amended by E.O. 273). The tax on gross
receipts derived from admission tickets shall be levied and collected by
the city government pursuant to Section 23 of Presidential Decree No.
231, as amended x x x" or by the provincial government, pursuant to
Section 11 of P.D. 231, otherwise known as the Local Tax Code. (Emphasis
supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government
retained the power to impose amusement tax on proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty percent (30%) of the gross
receipts from admission fees under Section 140 thereof. 50 In the case of theaters
or cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the local government before the gross receipts
are divided between said proprietors, lessees, or operators and the distributors of
the cinematographic films. However, the provision in the Local Tax Code expressly
excluding the national government from collecting tax from the proprietors,
lessees, or operators of theaters, cinematographs, concert halls, circuses and
other places of amusements was no longer included.

Since the promulgation of the Local Tax Code which took effect on June 28, 1973
none of the amendatory laws which amended the National Internal Revenue
Code, including the value added tax law under Executive Order No. 273, has
amended the provisions of Section 11 of the Local Tax Code. Accordingly, the sole
jurisdiction for collection of amusement tax on admission receipts in places of
amusement rests exclusively on the local government, to the exclusion of the
national government. Since the Bureau of Internal Revenue is an agency of the
national government, then it follows that it has no legal mandate to levy
amusement tax on admission receipts in the said places of amusement.

In 1994, RA 7716 restructured the VAT system by widening its tax base and
enhancing its administration. Three years later, RA 7716 was amended by RA
8241. Shortly thereafter, the NIRC of 199751 was signed into law. Several
amendments52 were made to expand the coverage of VAT. However, none pertain
to cinema/theater operators or proprietors. At present, only lessors or distributors
of cinematographic films are subject to VAT. While persons subject to amusement
tax53 under the NIRC of 1997 are exempt from the coverage of VAT.54

Considering the foregoing legal background, the provisions under Section 123 of
the National Internal Revenue Code as renumbered by Executive Order No. 273
(Sec. 228, old NIRC) pertaining to amusement taxes on places of amusement shall

(1) Historically, the activity of showing motion pictures, films or movies by

cinema/theater operators or proprietors has always been considered as a form of
entertainment subject to amusement tax.

29 | t a x 2 fi n a l s

Based on the foregoing, the following facts can be established:

(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the
national government.
(3) When the Local Tax Code was enacted, amusement tax on admission tickets
from theaters, cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government.
(4) Under the NIRC of 1977, the national government imposed amusement tax
only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai
and race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent sales
tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons subject to
amusement tax under the NIRC from the coverage of VAT.1auuphil
(7) When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of
amusements.
(8) Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the
coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered
by the amusement tax. This holds true even in the case of cinema/theater
operators taxed under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services. The mere fact that
they are taxed by the local government unit and not by the national government
is immaterial. The Local Tax Code, in transferring the power to tax gross receipts
derived by cinema/theater operators or proprietor from admission tickets to the
local government, did not intend to treat cinema/theater houses as a separate
class. No distinction must, therefore, be made between the places of amusement
taxed by the national government and those taxed by the local government.

30 | t a x 2 fi n a l s

To hold otherwise would impose an unreasonable burden on cinema/theater

houses operators or proprietors, who would be paying an additional 10% 55 VAT on
top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a
total of 40% tax. Such imposition would result in injustice, as persons taxed under
the NIRC of 1997 would be in a better position than those taxed under the LGC of
1991. We need not belabor that a literal application of a law must be rejected if it
will operate unjustly or lead to absurd results. 56 Thus, we are convinced that the
legislature never intended to include cinema/theater operators or proprietors in
the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals, 57 to
wit:
The power of taxation is sometimes called also the power to destroy. Therefore, it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector
kill the "hen that lays the golden egg." And, in order to maintain the general
public's trust and confidence in the Government this power must be used justly
and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against
respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator was then subject
to amusement tax under Section 260 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code of 1939, computed on the amount
paid for admission. With the enactment of the Local Tax Code under Presidential
Decree (PD) No. 231, dated June 28, 1973, the power of imposing taxes on gross
receipts from admission of persons to cinema/theater and other places of
amusement had, thereafter, been transferred to the provincial government, to the
exclusion of the national or municipal government (Sections 11 & 13, Local Tax
Code). However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been repealed and/or
deleted by Republic Act (RA) No. 7160, otherwise known as the Local Government
Code of 1991, enacted into law on October 10, 1991. Accordingly, the enactment
of RA No. 7160, thus, eliminating the statutory prohibition on the national

government to impose business tax on gross receipts from admission of persons

to places of amusement, led the way to the valid imposition of the VAT pursuant
to Section 102 (now Section 108) of the old Tax Code, as amended by the
Expanded VAT Law (RA No. 7716) and which was implemented beginning January
1, 1996.58 (Emphasis supplied)

without first determining who are covered by the provision. 62Thus, unless a
statute imposes a tax clearly, expressly and unambiguously, what applies is the
equally well-settled rule that the imposition of a tax cannot be presumed. 63 In
fact, in case of doubt, tax laws must be construed strictly against the government
and in favor of the taxpayer.64

We disagree.

WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision
of the Court of Tax AppealsEn Banc holding that gross receipts derived by
respondents from admission tickets in showing motion pictures, films or movies
are not subject to value-added tax under Section 108 of the National Internal
Revenue Code of 1997, as amended, and its June 24, 2008 Resolution denying the
motion for reconsideration are AFFIRMED.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of cinema/theater operators or proprietors
derived from admission tickets. The removal of the prohibition under the Local Tax
Code did not grant nor restore to the national government the power to impose
amusement tax on cinema/theater operators or proprietors. Neither did it expand
the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it
cannot be presumed nor can it be extended by implication. A law will not be
construed as imposing a tax unless it does so clearly, expressly, and
unambiguously.59 As it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No.
28-2001 which imposes VAT on the gross receipts from admission to cinema
houses must be struck down. We cannot overemphasize that RMCs must not
override, supplant, or modify the law, but must remain consistent and in harmony
with, the law they seek to apply and implement.60
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001
complied with the procedural due process for tax issuances as prescribed under
RMC No. 20-86.

SO ORDERED.

G.R. No. 173425

September 4, 2012

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs. COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT
OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF
INTERNAL REVENUE, Respondents.
DEL CASTILLO, J.:

Courts cannot limit the application or coverage of a law, nor can it impose
conditions not provided therein. To do so constitutes judicial legislation.

Rule on tax exemption does not apply

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails
the July 7, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 61436,
the dispositive portion of which reads.

Moreover, contrary to the view of petitioner, respondents need not prove their
entitlement to an exemption from the coverage of VAT. The rule that tax
exemptions should be construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied against him. 61 The reason is
obvious: it is both illogical and impractical to determine who are exempted

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the

Decision dated October 12, 2000 of the Court of Tax Appeals in CTA Case No.
5735, denying petitioners claim for refund in the amount of Three Hundred Fifty-

31 | t a x 2 fi n a l s

Nine Million Six Hundred Fifty-Two Thousand Nine Pesos and Forty-Seven Centavos
(P 359,652,009.47), is hereby AFFIRMED.
SO ORDERED.2

Realizing that its transitional input tax credit was not applied in computing its
output VAT for the first quarter of 1997, petitioner on November 17, 1998 filed
with the BIR a claim for refund of the amount of P 359,652,009.47 erroneously
paid as output VAT for the said period.16

Factual Antecedents

Ruling of the Court of Tax Appeals

Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered

domestic corporation engaged in the development and sale of real property. 3 The
Bases Conversion Development Authority (BCDA), a wholly owned government
corporation created under Republic Act (RA) No. 7227, 4 owns 45% of petitioners
issued and outstanding capital stock; while the Bonifacio Land Corporation, a
consortium of private domestic corporations, owns the remaining 55%. 5

On February 24, 1999, due to the inaction of the respondent Commissioner of

Internal Revenue (CIR), petitioner elevated the matter to the Court of Tax Appeals
(CTA) via a Petition for Review.17

On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, 6 dated
December 8, 1992, petitioner purchased from the national government a portion
of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City
(Global City).7

xxxx

On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by

amending certain provisions of the old National Internal Revenue Code (NIRC). RA
7716 extended the coverage of VAT to real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or business. 9
On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue
(BIR) Revenue District No. 44, Taguig and Pateros, an inventory of all its real
properties, the book value of which aggregated P71,227,503,200.10 Based on this
value, petitioner claimed that it is entitled to a transitional input tax credit
of P5,698,200,256,11 pursuant to Section 10512 of the old NIRC.
In October 1996, petitioner started selling Global City lots to interested buyers. 13
For the first quarter of 1997, petitioner generated a total amount
of P 3,685,356,539.50 from its sales and lease of lots, on which the output VAT
payable was P 368,535,653.95.14 Petitioner paid the output VAT by making cash
payments to the BIR totalling P 359,652,009.47 and crediting its unutilized input
tax credit on purchases of goods and services of P 8,883,644.48.15

32 | t a x 2 fi n a l s

In opposing the claim for refund, respondents interposed the following special and
affirmative defenses:

8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax
Code as amended by E.O. 273, the basis of the presumptive input tax, in the case
of real estate dealers, is the improvements, such as buildings, roads, drainage
systems, and other similar structures, constructed on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on
September 19, 1996, failed to comply with the aforesaid revenue regulations
mandating that for purposes of availing the presumptive input tax credits under
its Transitory Provisions, "an inventory as of December 31, 1995, of such goods or
properties and improvements showing the quantity, description, and amount
should be filed with the RDO no later than January 31, 1996. x x x" 18
On October 12, 2000, the CTA denied petitioners claim for refund. According to
the CTA, "the benefit of transitional input tax credit comes with the condition that
business taxes should have been paid first." 19 In this case, since petitioner
acquired the Global City property under a VAT-free sale transaction, it cannot avail
of the transitional input tax credit. 20 The CTA likewise pointed out that under
Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC,
the 8% transitional input tax credit should be based on the value of the
improvements on land such as buildings, roads, drainage system and other
similar structures, constructed on or after January 1, 1998, and not on the book
value of the real property.21 Thus, the CTA disposed of the case in this manner:

WHEREFORE, in view of all the foregoing, the claim for refund representing
alleged overpaid value-added tax covering the first quarter of 1997 is
hereby DENIED for lack of merit.

3.05.d. Whether there is basis and necessity to interpret and construe the
provisions of Section 105 of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax by
petitioner on its land before it may claim the input tax credit granted by Section
105 of the National Internal Revenue Code.

SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review 23 under Rule 43 of the Rules of
Court before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that
petitioner is not entitled to the 8% transitional input tax credit since it did not pay
any VAT when it purchased the Global City property. 24 The CA opined that
transitional input tax credit is allowed only when business taxes have been paid
and passed-on as part of the purchase price.25 In arriving at this conclusion, the
CA relied heavily on the historical background of transitional input tax credit. 26 As
to the validity of RR 7-95, which limited the 8% transitional input tax to the value
of the improvements on the land, the CA said that it is entitled to great weight as
it was issued pursuant to Section 24527 of the old NIRC.28

3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated
on the purpose of the transitional/presumptive input tax provided for in Section
105 of the National Internal Revenue Code.
3.05.g. Whether the economic and social objectives in the acquisition of the
subject property by petitioner from the Government should be taken into
consideration.29
Petitioners Arguments
Petitioner claims that it is entitled to recover the amount of P 359,652,009.47
erroneously paid as output VAT for the first quarter of 1997 since its transitional
input tax credit of P 5,698,200,256 is more than sufficient to cover its output VAT
liability for the said period.30

Issues
Hence, the instant petition with the principal issue of whether petitioner is
entitled to a refund of P 359,652,009.47 erroneously paid as output VAT for the
first quarter of 1997, the resolution of which depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated
Revenue Regulations No. 7-95 insofar as the latter limited the
transitional/presumptive input tax credit which may be claimed under Section 105
of the National Internal Revenue Code to the "improvements" on real properties.

Petitioner assails the pronouncement of the CA that prior payment of taxes is

required to avail of the 8% transitional input tax credit. 31 Petitioner contends that
there is nothing in Section 105 of the old NIRC to support such conclusion. 32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax
credit to the value of the improvements on the land, is invalid because it goes
against the express provision of Section 105 of the old NIRC, in relation to Section
10033 of the same Code, as amended by RA 7716.34
Respondents Arguments

3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of

Section 105 of the National Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of
Internal Revenue, and declaration of validity of said Regulations by the Court of
Tax Appeals and Court of Appeals, were in violation of the fundamental principle
of separation of powers.

33 | t a x 2 fi n a l s

Respondents, on the other hand, maintain that petitioner is not entitled to a

transitional input tax credit because no taxes were paid in the acquisition of the
Global City property.35 Respondents assert that prior payment of taxes is inherent
in the nature of a transitional input tax. 36 Regarding RR 7-95, respondents insist
that it is valid because it was issued by the Secretary of Finance, who is

mandated by law to promulgate all needful rules and regulations for the
implementation of Section 105 of the old NIRC.37
Our Ruling

materials, and supplies, where prior taxes were paid, was not the intention of the
law. Otherwise, it would have specifically stated that the beginning inventory
excludes goods, materials, and supplies where no taxes were paid. As retired
Justice Consuelo Ynares-Santiago has pointed out in her Concurring Opinion in the
earlier case of Fort Bonifacio:

The petition is meritorious.

The issues before us are no longer new or novel as these have been resolved in
the related case of Fort Bonifacio Development Corporation v. Commissioner of
Internal Revenue.38
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. A person who becomes liable to valueadded tax or any person who elects to be a VAT-registered person shall, subject to
the filing of an inventory as prescribed by regulations, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to 8% of the
value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the
output tax. (Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted
provision to indicate that prior payment of taxes is necessary for the availment of
the 8% transitional input tax credit. Obviously, all that is required is for the
taxpayer to file a beginning inventory with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only
tantamount to judicial legislation but would also render nugatory the provision in
Section 105 of the old NIRC that the transitional input tax credit shall be "8% of
the value of [the beginning] inventory or the actual [VAT] paid on such goods,
materials and supplies, whichever is higher" because the actual VAT (now 12%)
paid on the goods, materials, and supplies would always be higher than the 8%
(now 2%) of the beginning inventory which, following the view of Justice Carpio,
would have to exclude all goods, materials, and supplies where no taxes were
paid. Clearly, limiting the value of the beginning inventory only to goods,

34 | t a x 2 fi n a l s

If the intent of the law were to limit the input tax to cases where actual VAT was
paid, it could have simply said that the tax base shall be the actual value-added
tax paid. Instead, the law as framed contemplates a situation where a transitional
input tax credit is claimed even if there was no actual payment of VAT in the
underlying transaction. In such cases, the tax base used shall be the value of the
beginning inventory of goods, materials and supplies.39
Moreover, prior payment of taxes is not required to avail of the transitional input
tax credit because it is not a tax refund per se but a tax credit. Tax credit is not
synonymous to tax refund. Tax refund is defined as the money that a taxpayer
overpaid and is thus returned by the taxing authority. 40 Tax credit, on the other
hand, is an amount subtracted directly from ones total tax liability. 41 It is any
amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite
to avail of a tax credit. In fact, in Commissioner of Internal Revenue v. Central
Luzon Drug Corp.,42 we declared that prior payment of taxes is not required in
order to avail of a tax credit.43 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such
credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in
fact replete with provisions granting or allowing tax credits, even though no taxes
have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -subject to certain limitations -- for estate taxes paid to a foreign country. Also
found in Section 101(C) is a similar provision for donors taxes -- again when paid
to a foreign country -- in computing for the donors tax due. The tax credits in
both instances allude to the prior payment of taxes, even if not made to our
government.
Under Section 110, a VAT (Value-Added Tax) - registered person engaging in
transactions -- whether or not subject to the VAT -- is also allowed a tax credit that

includes a ratable portion of any input tax not directly attributable to either
activity. This input tax may either be the VAT on the purchase or importation of
goods or services that is merely due from -- not necessarily paid by -- such VATregistered person in the course of trade or business; or the transitional input tax
determined in accordance with Section 111(A). The latter type may in fact be an
amount equivalent to only eight percent of the value of a VAT-registered persons
beginning inventory of goods, materials and supplies, when such amount -- as
computed -- is higher than the actual VAT paid on the said items. Clearly from this
provision, the tax credit refers to an input tax that is either due only or given a
value by mere comparison with the VAT actually paid -- then later prorated. No
tax is actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely
presumptive is allowed. For the purchase of primary agricultural products used as
inputs -- either in the processing of sardines, mackerel and milk, or in the
manufacture of refined sugar and cooking oil -- and for the contract price of public
works contracts entered into with the government, again, no prior tax payments
are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively
zero-rated may, under Section 112(A), apply for the issuance of a tax credit
certificate for the amount of creditable input taxes merely due -- again not
necessarily paid to -- the government and attributable to such sales, to the extent
that the input taxes have not been applied against output taxes. Where a
taxpayer is engaged in zero-rated or effectively zero-rated sales and also in
taxable or exempt sales, the amount of creditable input taxes due that are not
directly and entirely attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of sales. Indeed, in availing
of such tax credit for VAT purposes, this provision -- as well as the one earlier
mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of
a tax credit allowed, even though no prior tax payments are not required.
Specifically, in this provision, the imposition of a final withholding tax rate on cash
and/or property dividends received by a nonresident foreign corporation from a
domestic corporation is subjected to the condition that a foreign tax credit will be
given by the domiciliary country in an amount equivalent to taxes that are merely
deemed paid. Although true, this provision actually refers to the tax credit as a
condition only for the imposition of a lower tax rate, not as a deduction from the

35 | t a x 2 fi n a l s

corresponding tax liability. Besides, it is not our government but the domiciliary
country that credits against the income tax payable to the latter by the foreign
corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically
allows as credits, against the income tax imposable under Title II, the amount of
income taxes merely incurred -- not necessarily paid -- by a domestic corporation
during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides
that for such taxes incurred but not paid, a tax credit may be allowed, subject to
the condition precedent that the taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as may be required; and
further conditioned upon payment by the taxpayer of any tax found due, upon
petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax
treaties and special laws that grant or allow tax credits, even though no prior tax
payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid
double taxation, income that is taxed in the state of source is also taxable in the
state of residence, but the tax paid in the former is merely allowed as a credit
against the tax levied in the latter. Apparently, payment is made to the state of
source, not the state of residence. No tax, therefore, has been previously paid to
the latter.
Under special laws that particularly affect businesses, there can also be tax credit
incentives. To illustrate, the incentives provided for in Article 48 of Presidential
Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax
credits equivalent to either five percent of the net value earned, or five or ten
percent of the net local content of export. In order to avail of such credits under
the said law and still achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private
establishments concerned. However, we do not agree with its finding that the
carry-over of tax credits under the said special law to succeeding taxable periods,
and even their application against internal revenue taxes, did not necessitate the
existence of a tax liability.

The examples above show that a tax liability is certainly important in the
availment or use, not the existence or grant, of a tax credit. Regarding this
matter, a private establishment reporting a net loss in its financial statements is
no different from another that presents a net income. Both are entitled to the tax
credit provided for under RA 7432, since the law itself accords that unconditional
benefit. However, for the losing establishment to immediately apply such credit,
where no tax is due, will be an improvident usance.44
In this case, when petitioner realized that its transitional input tax credit was not
applied in computing its output VAT for the 1st quarter of 1997, it filed a claim for
refund to recover the output VAT it erroneously or excessively paid for the 1st
quarter of 1997. In filing a claim for tax refund, petitioner is simply applying its
transitional input tax credit against the output VAT it has paid. Hence, it is merely
availing of the tax credit incentive given by law to first time VAT taxpayers. As we
have said in the earlier case of Fort Bonifacio, the provision on transitional input
tax credit was enacted to benefit first time VAT taxpayers by mitigating the
impact of VAT on the taxpayer.45 Thus, contrary to the view of Justice Carpio, the
granting of a transitional input tax credit in favor of petitioner, which would be
paid out of the general fund of the government, would be an appropriation
authorized by law, specifically Section 105 of the old NIRC.
The history of the transitional input tax credit likewise does not support the ruling
of the CTA and CA. In our Decision dated April 2, 2009, in the related case of Fort
Bonifacio, we explained that:
If indeed the transitional input tax credit is integrally related to previously paid
sales taxes, the purported causal link between those two would have been
nonetheless extinguished long ago. Yet Congress has reenacted the transitional
input tax credit several times; that fact simply belies the absence of any
relationship between such tax credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not
confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its
possible meaning to the shift from the sales tax regime to the VAT regime. Indeed,
it could also allude to the transition one undergoes from not being a VATregistered person to becoming a VAT-registered person. Such transition does not
take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in

36 | t a x 2 fi n a l s

particular. It could also occur when one decides to start a business. Section 105
states that the transitional input tax credits become available either to (1) a
person who becomes liable to VAT; or (2) any person who elects to be VATregistered. The clear language of the law entitles new trades or businesses to
avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newlyVAT registered person such as when a business as it commences operations. If we
view the matter from the perspective of a starting entrepreneur, greater clarity
emerges on the continued utility of the transitional input tax credit.
Following the theory of the CTA, the new enterprise should be able to claim the
transitional input tax credit because it has presumably paid taxes, VAT in
particular, in the purchase of the goods, materials and supplies in its beginning
inventory. Consequently, as the CTA held below, if the new enterprise has not paid
VAT in its purchases of such goods, materials and supplies, then it should not be
able to claim the tax credit. However, it is not always true that the acquisition of
such goods, materials and supplies entail the payment of taxes on the part of the
new business. In fact, this could occur as a matter of course by virtue of the
operation of various provisions of the NIRC, and not only on account of a specially
legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties
are not acquired from a person in the course of trade or business, the transaction
would not be subject to VAT under Section 105. The sale would be subject to
capital gains taxes under Section 24 (D), but since capital gains is a tax on
passive income it is the seller, not the buyer, who generally would shoulder the
tax.
If the goods or properties are acquired through donation, the acquisition would
not be subject to VAT but to donors tax under Section 98 instead. It is the donor
who would be liable to pay the donors tax, and the donation would be exempt if
the donors total net gifts during the calendar year does not exceed P 100,000.00.
If the goods or properties are acquired through testate or intestate succession,
the transfer would not be subject to VAT but liable instead for estate tax under
Title III of the New NIRC. If the net estate does not exceed P 200,000.00, no estate
tax would be assessed.

The interpretation proffered by the CTA would exclude goods and properties which
are acquired through sale not in the ordinary course of trade or business,
donation or through succession, from the beginning inventory on which the
transitional input tax credit is based. This prospect all but highlights the ultimate
absurdity of the respondents position. Again, nothing in the Old NIRC (or even the
New NIRC) speaks of such a possibility or qualifies the previous payment of VAT or
any other taxes on the goods, materials and supplies as a pre-requisite for
inclusion in the beginning inventory.
It is apparent that the transitional input tax credit operates to benefit newly VATregistered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax credit serves to
alleviate the impact of the VAT on the taxpayer. At the very beginning, the VATregistered taxpayer is obliged to remit a significant portion of the income it
derived from its sales as output VAT. The transitional input tax credit mitigates
this initial diminution of the taxpayer's income by affording the opportunity to
offset the losses incurred through the remittance of the output VAT at a stage
when the person is yet unable to credit input VAT payments.
There is another point that weighs against the CTAs interpretation. Under Section
105 of the Old NIRC, the rate of the transitional input tax credit is "8% of the
value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher." If indeed the transitional input tax
credit is premised on the previous payment of VAT, then it does not make sense
to afford the taxpayer the benefit of such credit based on "8% of the value of such
inventory" should the same prove higher than the actual VAT paid. This intent
that the CTA alluded to could have been implemented with ease had the
legislature shared such intent by providing the actual VAT paid as the sole basis
for the rate of the transitional input tax credit.46
In view of the foregoing, we find petitioner entitled to the 8% transitional input
tax credit provided in Section 105 of the old NIRC. The fact that it acquired the
Global City property under a tax-free transaction makes no difference as prior
payment of taxes is not a pre-requisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC

37 | t a x 2 fi n a l s

As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input

tax credit to the value of the improvements on the land, the same contravenes
the provision of Section 105 of the old NIRC, in relation to Section 100 of the same
Code, as amended by RA 7716, which defines "goods or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. (a) Rate and base of
tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to 10% of the
gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible objects
which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business; x x x
In fact, in our Resolution dated October 2, 2009, in the related case of Fort
Bonifacio, we ruled that Section 4.105-1 of RR 7-95, insofar as it limits the
transitional input tax credit to the value of the improvement of the real
properties, is a nullity.48 Pertinent portions of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation
cannot contravene the law on which it is based. RR 7-95 is inconsistent with
Section 105 insofar as the definition of the term "goods" is concerned. This is a
legislative act beyond the authority of the CIR and the Secretary of Finance. The
rules and regulations that administrative agencies promulgate, which are the
product of a delegated legislative power to create new and additional legal
provisions that have the effect of law, should be within the scope of the statutory
authority granted by the legislature to the objects and purposes of the law, and
should not be in contradiction to, but in conformity with, the standards prescribed
by law.
To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law.1wphi1 An implementing rule or regulation cannot
modify, expand, or subtract from the law it is intended to implement. Any rule
that is not consistent with the statute itself is null and void.

While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of
the statute to less than what it provides, or extend or expand the statute beyond
its terms, or in any way modify explicit provisions of the law. Indeed, a quasijudicial body or an administrative agency for that matter cannot amend an act of
Congress. Hence, in case of a discrepancy between the basic law and an
interpretative or administrative ruling, the basic law prevails.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of
transitional input tax credit under Section 105 is a nullity. 49
As we see it then, the 8% transitional input tax credit should not be limited to the
value of the improvements on the real properties but should include the value of
the real properties as well.
In this case, since petitioner is entitled to a transitional input tax credit
of P 5,698,200,256, which is more than sufficient to cover its output VAT liability
for the first quarter of 1997, a refund of the amount of P 359,652,009.47
erroneously paid as output VAT for the said quarter is in order.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July
7, 2006 of the Court of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET
ASIDE. Respondent Commissioner of Internal Revenue is ordered to refund to
petitioner
Fort
Bonifacio
Development
Corporation
the
amount
of P359,652,009.47 paid as output VAT for the first quarter of 1997 in light of the
transitional input tax credit available to petitioner for the said quarter, or in the
alternative, to issue a tax credit certificate corresponding to such amount.
SO ORDERED.

38 | t a x 2 fi n a l s

G.R. No. 175723

February 4, 2014
THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and
MS. LIBERTY M. TOLEDO, in her capacity as the City Treasurer of
Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of
the Regional Trial Court, Branch 112, Pasay City; SM MART, INC.; SM
PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.;
ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES,
PHILS., INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING
CORPORATION and SIGNATURE LINES,Respondents.
PERALTA, J.:
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of
Court seeking to reverse and set aside the Resolutions 1 dated April 6, 2006 and
November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.
The antecedents of the case, as summarized by the CA, are as follows:
The record shows that petitioner City of Manila, through its treasurer, petitioner
Liberty Toledo, assessed taxes for the taxable period from January to December
2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons
Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing
Corp. and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were
authorized to collect under Section 21 of the same Code. Because payment of the
taxes assessed was a precondition for the issuance of their business permits,
private respondents were constrained to pay the P19,316,458.77 assessment
under protest.

On January 24, 2004, private respondents filed [with the Regional Trial Court of
Pasay City] the complaint denominated as one for "Refund or Recovery of Illegally
and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to Issue
TRO and Writ of Preliminary Injunction"
which was docketed as Civil Case No. 04-0019-CFM before public respondent's
sala [at Branch 112]. In the amended complaint they filed on February 16, 2004,
private respondents alleged that, in relation to Section 21 thereof, Sections 14,
15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and
guidelines under Section 143 (h) of Republic Act. No. 7160 [Local Government
Code] on double taxation. They further averred that petitioner city's Ordinance
No. 8011 which amended pertinent portions of the RRCM had already been
declared to be illegal and unconstitutional by the Department of Justice. 2
In its Order3 dated July 9, 2004, the RTC granted private respondents' application
for a writ of preliminary injunction.
Petitioners filed a Motion for Reconsideration 4 but the RTC denied it in its
Order5 dated October 15, 2004.
Petitioners then filed a special civil action for certiorari with the CA assailing the
July 9, 2004 and October 15, 2004 Orders of the RTC. 6
In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners'
petition for certiorari holding that it has no jurisdiction over the said petition. The
CA ruled that since appellate jurisdiction over private respondents' complaint for
tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals
(CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA
9282), it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the CTA.
Petitioners filed a Motion for Reconsideration, 7 but the CA denied it in its
Resolution dated November 29, 2006.
Hence, the present petition raising the following issues:
I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the
case for lack of jurisdiction.
II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in enjoining by issuing a Writ
of Injunction the petitioners, their agents and/or authorized representatives from
implementing Section 21 of the Revised Revenue Code of Manila, as amended,
against private respondents.
III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction despite failure of private respondents to make a written claim for tax
credit or refund with the City Treasurer of Manila.
IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction considering that under

39 | t a x 2 fi n a l s

Section 21 of the Manila Revenue Code, as amended, they are mere collecting
agents of the City Government.
V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction because petitioner City of Manila and its constituents would result to
greater damage and prejudice thereof. (sic)8
Without first resolving the above issues, this Court finds that the instant petition
should be denied for being moot and academic.
Upon perusal of the original records of the instant case, this Court discovered that
a Decision9 in the main case had already been rendered by the RTC on August 13,
2007, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in
favor of the plaintiff and against the defendant to grant a tax refund or credit for
taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila as
amended for the year 2002 in the following amounts:
To plaintiff SM Mart, Inc.

P 11,462,525.02

To plaintiff SM Prime Holdings, Inc.

3,118,104.63

To plaintiff Star Appliances Center

2,152,316.54

To plaintiff Supervalue, Inc.

1,362,750.34

To plaintiff Ace Hardware Phils., Inc.

419,689.04

To plaintiff Watsons Personal Care Health

231,453.62

To plaintiff Jollimart Phils., Corp.

140,908.54

To plaintiff Surplus Marketing Corp.

220,204.70

To plaintiff Signature Mktg. Corp.

94,906.34

P 19,316,458.77

Stores Phils., Inc.

TOTAL:

Defendants are further enjoined from collecting taxes under Section 21, Revenue
Code of Manila from herein plaintiff.
SO ORDERED.10
The parties did not inform the Court but based on the records, the above Decision
had already become final and executory per the Certificate of Finality 11 issued by
the same trial court on October 20, 2008. In fact, a Writ of Execution 12 was issued
by the RTC on November 25, 2009. In view of the foregoing, it clearly appears that
the issues raised in the present petition, which merely involve the incident on the
preliminary injunction issued by the RTC, have already become moot and
academic considering that the trial court, in its decision on the merits in the main
case, has already ruled in favor of respondents and that the same decision is now

final and executory. Well entrenched is the rule that where the issues have
become moot and academic, there is no justiciable controversy, thereby
rendering the resolution of the same of no practical use or value. 13
In any case, the Court finds it necessary to resolve the issue on jurisdiction raised
by petitioners owing to its significance and for future guidance of both bench and
bar. It is a settled principle that courts will decide a question otherwise moot and
academic if it is capable of repetition, yet evading review. 14
However, before proceeding, to resolve the question on jurisdiction, the Court
deems it proper to likewise address a procedural error which petitioners
committed.
Petitioners availed of the wrong remedy when they filed the instant special civil
action for certiorari under Rule 65 of the Rules of Court in assailing the
Resolutions of the CA which dismissed their petition filed with the said court and
their motion for reconsideration of such dismissal. There is no dispute that the
assailed Resolutions of the CA are in the nature of a final order as they disposed
of the petition completely. It is settled that in cases where an assailed judgment
or order is considered final, the remedy of the aggrieved party is appeal. Hence,
in the instant case, petitioner should have filed a petition for review on certiorari
under Rule 45, which is a continuation of the appellate process over the original
case.15
Petitioners should be reminded of the equally-settled rule that a special civil
action for certiorari under Rule 65 is an original or independent action based on
grave abuse of discretion amounting to lack or excess of jurisdiction and it will lie
only if there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law.16 As such, it cannot be a substitute for a lost appeal.17
Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and
in the interest of substantial justice, this Court has, before, treated a petition for
certiorari as a petition for review on certiorari, particularly (1) if the petition for
certiorari was filed within the reglementary period within which to file a petition
for review on certiorari; (2) when errors of judgment are averred; and (3) when
there is sufficient reason to justify the relaxation of the rules. 18 Considering that
the present petition was filed within the 15-day reglementary period for filing a
petition for review on certiorari under Rule 45, that an error of judgment is
averred, and because of the significance of the issue on jurisdiction, the Court
deems it proper and justified to relax the rules and, thus, treat the instant petition
for certiorari as a petition for review on certiorari.
Having disposed of the procedural aspect, we now turn to the central issue in this
case. The basic question posed before this Court is whether or not the CTA has
jurisdiction over a special civil action for certiorari assailing an interlocutory order
issued by the RTC in a local tax case.
This Court rules in the affirmative.

40 | t a x 2 fi n a l s

On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the
CTA and giving to the said court jurisdiction over the following:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges; seizure, detention or release of
property affected fines, forfeitures or other penalties imposed in relation thereto;
or other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in cases
involving the assessment and taxation of real property or other matters arising
under the Assessment Law, including rules and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA
9282) amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its
membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides thus:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the National Internal Revenue
or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
in relations thereto, or other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau
of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its

appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315 of the Tariff and Customs
Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs Code,
and safeguard measures under Republic Act No. 8800, where either party may
appeal the decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be
appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the criminal action will be
recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:

41 | t a x 2 fi n a l s

1. Exclusive original jurisdiction in tax collection cases involving final and

executory assessments for taxes, fees, charges and penalties: Provides,
however, that collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One million
pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction. 19
A perusal of the above provisions would show that, while it is clearly stated that
the CTA has exclusive appellate jurisdiction over decisions, orders or resolutions
of the RTCs in local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction, there is no categorical
statement under RA 1125 as well as the amendatory RA 9282, which provides
that th e CTA has jurisdiction over petitions for certiorari assailing interlocutory
orders issued by the RTC in local tax cases filed before it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of
appellate jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De
Jesus,22 Veloria v. COMELEC,23 Department of Agrarian Reform Adjudication Board
v. Lubrica,24 and Garcia v. Sandiganbayan,25this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that
there is no law which expressly gives these tribunals such power. 26 It must be
observed, however, that with the exception of Garcia v. Sandiganbayan, 27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial
powers. With respect to the Sandiganbayan, Republic Act No. 8249 28 now provides
that the special criminal court has exclusive original jurisdiction over petitions for
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate
jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate
court, also in the exercise of its original jurisdiction, the power to issue, among
others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to

Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their
original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power,
with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the
duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari.
In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction.
There is no perceivable reason why the transfer should only be considered as
partial, not total.
Consistent with the above pronouncement, this Court has held as early as the
case of J.M. Tuason & Co., Inc. v. Jaramillo, et al. 29 that "if a case may be appealed
to a particular court or judicial tribunal or body, then said court or judicial tribunal
or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its
appellate jurisdiction."30 This principle was affirmed in De Jesus v. Court of
Appeals,31 where the Court stated that "a court may issue a writ of certiorari in aid
of its appellate jurisdiction if said court has jurisdiction to review, by appeal or
writ of error, the final orders or decisions of the lower court." 32 The rulings in J.M.
Tuason and De Jesus were reiterated in the more recent cases of Galang, Jr. v.
Geronimo33 and Bulilis v. Nuez.34
Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when
by law, jurisdiction is conferred on a court or judicial officer, all auxiliary writs,
processes and other means necessary to carry it into effect may be employed by
such court or officer.
If this Court were to sustain petitioners' contention that jurisdiction over their
certiorari petition lies with the CA, this Court would be confirming the exercise by
two judicial bodies, the CA and the CTA, of jurisdiction over basically the same
subject matter precisely the split-jurisdiction situation which is anathema to the

42 | t a x 2 fi n a l s

orderly administration of justice.35 The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the
CTA, the tribunal with the specialized competence over tax and tariff matters, the
role of judicial review over local tax cases without mention of any other court that
may exercise such power. Thus, the Court agrees with the ruling of the CA that
since appellate jurisdiction over private respondents' complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same
court. To rule otherwise would lead to an absurd situation where one court
decides an appeal in the main case while another court rules on an incident in the
very same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial
abhorrence to split jurisdiction to conclude that the intention of the law is to
divide the authority over a local tax case filed with the RTC by giving to the CA or
this Court jurisdiction to issue a writ of certiorari against interlocutory orders of
the RTC but giving to the CTA the jurisdiction over the appeal from the decision of
the trial court in the same case. It is more in consonance with logic and legal
soundness to conclude that the grant of appellate jurisdiction to the CTA over tax
cases filed in and decided by the RTC carries with it the power to issue a writ of
certiorari when necessary in aid of such appellate jurisdiction. The supervisory
power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction
to review, by appeal, the final orders and decisions of the RTC, in order to have
complete supervision over the acts of the latter.36
A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the
subject of the action, and to give effect to the final determination of the appeal. It
carries with it the power to protect that jurisdiction and to make the decisions of
the court thereunder effective. The court, in aid of its appellate jurisdiction, has
authority to control all auxiliary and incidental matters necessary to the efficient
and proper exercise of that jurisdiction.1wphi1 For this purpose, it may, when
necessary, prohibit or restrain the performance of any act which might interfere
with the proper exercise of its rightful jurisdiction in cases pending before it. 37
Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to act
effectively within such jurisdiction. These should be regarded as powers which are
inherent in its jurisdiction and the court must possess them in order to enforce its
rules of practice and to suppress any abuses of its process and to defeat any
attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level
as the CA and shall possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied
from a general grant of jurisdiction, in addition to those expressly conferred on
them. These inherent powers are such powers as are necessary for the ordinary
and efficient exercise of jurisdiction; or are essential to the existence, dignity and
functions of the courts, as well as to the due administration of justice; or are
directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court's jurisdiction and render it
effective in behalf of the litigants. 38
Thus, this Court has held that "while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional
provisions, every regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates." 39 Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the
main action, and coming within the above principles, may be taken cognizance of
by the court and determined, since such jurisdiction is in aid of its authority over
the principal matter, even though the court may thus be called on to consider and
decide matters which, as original causes of action, would not be within its
cognizance.40
Based on the foregoing disquisitions, it can be reasonably concluded that the
authority of the CTA to take cognizance of petitions for certiorari questioning
interlocutory orders issued by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise of its appellate
jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that,
insofar as quasi-judicial tribunals are concerned, the authority to issue writs of
certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This
doctrine remains as it applies only to quasi-judicial bodies.
WHEREFORE, the petition is DENIED.
SO ORDERED.

43 | t a x 2 fi n a l s

G.R. No. 171251

March 5, 2012

LASCONA LAND CO., INC., Petitioner,

vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

that we cannot give due course to your request to cancel or set aside the
assessment notice issued to your client for the reason that the case was not
elevated to the Court of Tax Appeals as mandated by the provisions of the last
paragraph of Section 228 of the Tax Code. By virtue thereof, the said assessment
notice has become final, executory and demandable.

PERALTA, J.:
In view of the foregoing, please advise your client to pay its 1993 deficiency
income tax liability in the amount of P753,266.56.
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court seeking the reversal of the Decision 1 dated October 25, 2005 and
Resolution2 dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
58061 which set aside the Decision 3 dated January 4, 2000 and Resolution 4 dated
March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and
declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be
final, executory and demandable.
The facts, as culled from the records, are as follows:
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued
Assessment Notice No. 0000047-93-4075 against Lascona Land Co., Inc. (Lascona)
informing the latter of its alleged deficiency income tax for the year 1993 in the
amount of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by
Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal
Revenue, Revenue Region No. 8, Makati City, in his Letter 6dated March 3, 1999,
which reads, thus:
xxxx
Subject: LASCONA LAND CO., INC.
1993 Deficiency Income Tax
Madam,
Anent the 1993 tax case of subject taxpayer, please be informed that while we
agree with the arguments advanced in your letter protest, we regret, however,

44 | t a x 2 fi n a l s

x x x x (Emphasis ours)
On April 12, 1999, Lascona appealed the decision before the CTA and was
docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director
erred in ruling that the failure to appeal to the CTA within thirty (30) days from
the lapse of the 180-day period rendered the assessment final and executory.
The CIR, however, maintained that Lascona's failure to timely file an appeal with
the CTA after the lapse of the 180-day reglementary period provided under
Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality
of the assessment.
On January 4, 2000, the CTA, in its Decision, 7 nullified the subject assessment. It
held that in cases of inaction by the CIR on the protested assessment, Section
228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA
within thirty (30) days from the lapse of the one hundred eighty (180)-day period,
or (2) wait until the Commissioner decides on his protest before he elevates the
case.
The CIR moved for reconsideration. It argued that in declaring the subject
assessment as final, executory and demandable, it did so pursuant to Section 3
(3.1.5) of Revenue Regulations No. 12-99 dated September 6, 1999 which reads,
thus:
If the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within one hundred eighty (180) days from date of submission,
by the taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of
the said 180-day period; otherwise, the assessment shall become final, executory
and demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of
merit.8 The CTA held that Revenue Regulations No. 12-99 must conform to Section
228 of the NIRC. It pointed out that the former spoke of an assessment becoming
final, executory and demandable by reason of the inaction by the Commissioner,
while the latter referred to decisions becoming final, executory and demandable
should the taxpayer adversely affected by the decision fail to appeal before the
CTA within the prescribed period. Finally, it emphasized that in cases of
discrepancy, Section 228 of the NIRC must prevail over the revenue regulations.
Dissatisfied, the CIR filed an appeal before the CA.9
In the disputed Decision dated October 25, 2005, the Court of Appeals granted
the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and
its Resolution dated March 3, 2000. It further declared that the subject
Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, executory
and demandable.

In a nutshell, the core issue to be resolved is: Whether the subject assessment
has become final, executory and demandable due to the failure of petitioner to
file an appeal before the CTA within thirty (30) days from the lapse of the One
Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC.
Petitioner Lascona, invoking Section 3,11 Rule 4 of the Revised Rules of the Court
of Tax Appeals, maintains that in case of inaction by the CIR on the protested
assessment, it has the option to either: (1) appeal to the CTA within 30 days from
the lapse of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment even beyond the 180-day period in
which case, the taxpayer may appeal such final decision within 30 days from the
receipt of the said decision. Corollarily, petitioner posits that when the
Commissioner failed to act on its protest within the 180-day period, it had the
option to await for the final decision of the Commissioner on the protest, which it
did.
The petition is meritorious.

Lascona moved for reconsideration, but was denied for lack of merit.
Thus, the instant petition, raising the following issues:
I
THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX
APPEALS WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL
FROM THE INACTION OF RESPONDENT COMMISSIONER IS NOT
MANDATORY.
II
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE
ASSESSMENT HAS BECOME FINAL AND DEMANDABLE BECAUSE,
ALLEGEDLY, THE WORD "DECISION" IN THE LAST PARAGRAPH OF SECTION
228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE
DECISION PER SE OF THE COMMISSIONER, BUT SHOULD ALSO BE
CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN
PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON
BY THE COMMISSIONER.10

45 | t a x 2 fi n a l s

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of

the inaction of the Commissioner on the protested assessment, to wit:
SEC. 228. Protesting of Assessment. x x x
xxxx
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the Court of Tax Appeals within
(30) days from receipt of the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise the decision shall become final, executory and
demandable. (Emphasis supplied).
Respondent, however, insists that in case of the inaction by the Commissioner on
the protested assessment within the 180-day reglementary period, petitioner
should have appealed the inaction to the CTA. Respondent maintains that due to
Lascona's failure to file an appeal with the CTA after the lapse of the 180-day
period, the assessment became final and executory.
We do not agree.
In RCBC v. CIR,12 the Court has held that in case the Commissioner failed to act on
the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: (1) file a petition for review with the Court of
Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await
the final decision of the Commissioner on the disputed assessments and appeal
such final decision to the Court of Tax Appeals within 30 days after receipt of a
copy of such decision.13
This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of
Tax Appeals,14 to wit:
SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other

46 | t a x 2 fi n a l s

charges, penalties in relation thereto, or other matters arising under the

National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code or other
applicable law provides a specific period for action: Provided, that in case
of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of
the National Internal revenue Code shall be deemed a denial for purposes
of allowing the taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the Commissioner of Internal
Revenue on the tax case; Provided, further, that should the taxpayer opt to
await the final decision of the Commissioner of Internal Revenue on the
disputed assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final decision to the Court
under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in
the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National
Internal Revenue Code;
(Emphasis ours)
In arguing that the assessment became final and executory by the sole reason
that petitioner failed to appeal the inaction of the Commissioner within 30 days
after the 180-day reglementary period, respondent, in effect, limited the remedy
of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to
appeal the inaction of the Commissioner on its protested assessment after the
lapse of the 180-day period. This is incorrect.
As early as the case of CIR v. Villa,15 it was already established that the word
"decisions" in paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has
been interpreted to mean the decisions of the Commissioner of Internal Revenue
on the protest of the taxpayer against the assessments. Definitely, said word
does not signify the assessment itself. We quote what this Court said aptly in a
previous case:
In the first place, we believe the respondent court erred in holding that the
assessment in question is the respondent Collector's decision or ruling appealable
to it, and that consequently, the period of thirty days prescribed by section 11 of
Republic Act No. 1125 within which petitioner should have appealed to the

respondent court must be counted from its receipt of said assessment. Where a
taxpayer questions an assessment and asks the Collector to reconsider or cancel
the same because he (the taxpayer) believes he is not liable therefor, the
assessment becomes a "disputed assessment" that the Collector must decide,
and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the
decision of the Collector on the disputed assessment, . . . 16

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

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

Therefore, as in Section 228, when the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a single remedy of filing of an
appeal after the lapse of the 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide either
positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for
the final decision of the CIR on the protested assessment. More so, because the
law and jurisprudence have always contemplated a scenario where the CIR will
decide on the protested assessment.

Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved. 20 Thus, even as
we concede the inevitability and indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure.21

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

WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and
the Resolution dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No.
58061 are REVERSED and SET ASIDE. Accordingly, the Decision dated January
4, 2000 of the Court of Tax Appeals in C.T.A. Case No. 5777 and its Resolution
dated March 3, 2000 are REINSTATED.
SO ORDERED.

Accordingly, considering that Lascona opted to await the final decision of the
Commissioner on the protested assessment, it then has the right to appeal such
final decision to the Court by filing a petition for review within thirty days after
receipt of a copy of such decision or ruling, even after the expiration of the 180day period fixed by law for the Commissioner of Internal Revenue to act on the
disputed assessments.17 Thus, Lascona, when it filed an appeal on April 12, 1999
before the CTA, after its receipt of the Letter 18 dated March 3, 1999 on March 12,
1999, the appeal was timely made as it was filed within 30 days after receipt of
the copy of the decision.1wphi1
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by
its inaction on the protested assessment. It is imperative that the taxpayers are
informed of its action in order that the taxpayer should then at least be able to
take recourse to the tax court at the opportune time. As correctly pointed out by
the tax court:

47 | t a x 2 fi n a l s

G.R. No. 117577

December 1, 1995

ALEJANDRO B. TY AND MVR PICTURE TUBE, INC., petitioners,

vs. THE HON. AURELIO C. TRAMPE, in his capacity as Judge of the
Regional Trial Court of Pasig, Metro Manila, THE HON. SECRETARY OF
FINANCE, THE MUNICIPAL ASSESSOR OF PASIG AND THE MUNICIPAL
TREASURER OF PASIG, respondents.
PANGANIBAN, J.:

ARE THE INCREASED REAL ESTATE TAXES imposed by and being collected in the
Municipality (now City) of Pasig, effective from the year 1994, valid an legal? This
is the question brought before this Court for resolution.
The Parties
Petitioner Alejandro B. Ty is a resident of and registered owner of lands and
buildings in the Municipality (now City) of Pasig, while petitioner MVR Picture
Tube, Inc. is a corporation duly organized and existing under Philippine laws and is
likewise a registered owner of lands and buildings in said Municipality 1 .
Respondent Aurelio C. Trampe is being sued in his capacity as presiding judge of
Branch 163. Regional Trial Court of the National Capital Judicial Region, sitting in
Pasig, whose Decision dated 14 July 1994 and Order dated 30 September 1994 in
Special Civil Action No. 629 (entitled "Alejandro B. Ty and MVR Picture Tube, Inc.
vs. The Hon. Secretary of Finance. et al.") are sought to be set aside. Respondent
Secretary of Finance is impleaded as the government officer who approved the
Schedule of Market Values used as basis for the new tax assessments being
enforced by respondents Municipal Assessor and Municipal Treasurer of Pasig and
the legality of which is being questioned in this petition 2 .
The Antecedent Facts
On 06 January 1994, respondent Assessor sent a notice of assessment respecting
certain real properties of petitioners located in Pasig, Metro Manila. In a letter
dated 18 March 1994, petitioners through counsel "request(ed) the Municipal
Assessor to reconsider the subject assessments" 3 .

48 | t a x 2 fi n a l s

Not satisfied, petitioners on 29 March 1994 filed with the Regional Trial Court of
the National Capital Judicial Region, Branch 163, presided over by respondent
Judge, a Petition for Prohibition with prayer for a restraining order and/or writ of
preliminary injunction to declare null and void the new tax assessments and to
enjoin the collection of real estate taxes based on said assessments. In a
Decision 4 dated 14 July 1994, respondent Judge denied the petition "for lack of
merit" in the following disposition.
WHEREFORE, foregoing premises considered, petitioners' prayer to
declare unconstitutional the schedule of market values as prepared
by the Municipal Assessor of Pasig, Metro Manila, and to enjoin
permanently the Municipal Treasurer of Pasig, Metro Manila, from
collecting the real property taxes based thereof (sic) is hereby
DENIED for lack of merit. Cost (sic) de oficio.
Subsequently, petitioners' Motion for Reconsideration was also denied by
respondent Judge in an Order 5 dated 30 September 1994.
Rebuffed by said Decision and Order, petitioners filed this present Petition for
Review directly before this Court, raising pure questions of law and assigning the
following errors:
The Court a quo gravely erred in holding that Presidential Decree
No. 921 was expressly repealed by R.A. 7160 and that said
presidential decree including its Implementing Rules (P.D. 464)
went down to the statutes' graveyard together with the other
decision(s) of the Supreme Court affecting the same.
The Court a quo while holding that the new tax assessments have
tremendously increased ranging from 418.8% to 570%, gravely
erred in blaming petitioners for their failure to exhaust
administrative remedies provided for by law.
The Court a quo blatantly erred in not declaring the confiscatory
and oppressive nature of the assessments as illegal. void ab
initio and unconstitutional constituting a deprivation of property
without due process of law. 6

In a resolution dated 21 November 1994, this Court, without giving due course to
the petition, required respondents to comment thereon. Respondents Municipal
Treasurer and Municipal Assessor, through counsel, filed their Comment on 19
December 1994, and respondent Secretary of Finance, through the Solicitor
General, submitted his on 11 May 1995. Petitioners filed their Reply to the
Comment of respondent Assessor and Treasurer 06 January 1995, and their Reply
to that of the respondent Secretary on 18 May 1995. After careful deliberation on
the above pleadings, the Court resolved to give due course to the petition, and,
inasmuch as the issues are relatively simple, the Court dispensed with requiring
the parties to submit further memoranda and instead decided to consider the
respondents' respective Comments as their answers and memoranda. Thus the
case is now considered submitted for resolution.
The Issues
The issues brought by the parties for decision by this Court are:
1. Whether Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, repealed the provisions of Presidential
Decree No. 921;
2. Whether petitioners are required to exhaust administrative
remedies prior to seeking judicial relief; and
3. Whether the new tax assessments are
confiscatory, and therefore unconstitutional.

oppressive

This Court is inclined to agree with the view of defendants that R.A. 7160
in its repealing clause provide (sic) that Presidential Decree Nos. . . . 464 . .
. are hereby repealed and rendered of no force and effect. Hence said
presidential decrees including their implementing rules went down to the
statutes' graveyard together with the decisions of the Supreme Court on
cases effecting (sic) the same.
This Court is also in accord with respondents (sic) view that petitioners
failed to avail of either Section 226 of R.A. 7160, that is by appealing the
assessment of their properties to the Board of Assessment Appeal within
sixty 160) days from the date of receipt of the written Notice of
Assessment, and if it is true that petitioner (sic) as alleged in their
pleadings was not afforded the opportunity to appeal to the board of
assessment appeal, then they could have availed of the provisions of
Section 252, of the same R.A. 7160 by paying the real estate tax under
protest. Because of petitioners (sic) failure to avail of either Sections 226
or 252 of R.A. 7160, they failed to exhaust administratives (sic) remedies
provided for by law before bringing the case to Court. (Buayan Cattle Co.,
Inc. vs. Quintillan, 128 SCRA 276). Therefore the filing of this case before
this Court is premature, the same not falling under the exception because
the issue involved is not a question of law but of fact (Valmonte vs.
Belmonte, Jr., 170 SCRA 256).

and

In disposing of the above issues against petitioners, the court a quo ruled that the
schedule of market values and the assessments based thereon prepared solely by
respondent assessor are valid and legal, they having been prepared in
accordance with the provisions of the Local Government Code of 1991 (R.A.
7160). It held also that said Code had effectively repealed the previous law on the
matter, P.D. 921, which required, in the preparation of said schedule, joint action
by all the city and municipal assessors in the Metropolitan Manila area. The lower
court also faulted petitioners with failure to exhaust administrative remedies
provided under Sections 226 and 252 of R.A. 7160. Finally, it found the
questioned assessments consistent with the "tremendously increased . . . price of
real estate anywhere in the country." 7

49 | t a x 2 fi n a l s

Stated the court:

Petitioners also alleged that the New Tax Assessments are not only
oppressive and confiscatory but also destructive in view of the tremendous
increase in its valuation, from P855,360.00 to P4,121,280.00 a marked
increase of 418.8% of one of its properties, while the other, from
P857,600.00 to P4,374,410.00, an increased (sic) of 510%. This Court
agree (sic) with petitioners (sic) observation, but the reality (sic) the price
of real property anywhere in the country tremendously increased. This is
shown in the Real Estate Monitor of Economic Incorporated (copy attached
with the memorandum of respondents). For example real properties in
Pasig in 1991 located at the Ortigas Commercial Complex command (sic) a
price of P42,000.00 per square meter which price is supported by a case
filed before this Court (civil case no. 64506, Jesus Fajardo, et al. vs. Ortigas
and Co.) for Recovery (sic) of agents (sic) commission. The property
subject of the sale which was also located at the Ortigas Commercial

Complex at Pasig, Metro Manila was sold to a Taiwanese at P42,000.00 per

square meter. It is therefore not surprising that the assessment of real
properties in Pasig has increased tremendously. Had petitioners first
exhausted administrative remedies they would have realized the fact that
prices of real estate has (sic) tremendously increased and would have
known the reason/reasons why. 8
In its Order dated 30 September 1994 denying the Motion for Reconsideration,
the court a quo ruled:
This Court despite petitioners' exhaustive and thorough research and
discussion of the point in issue, is still inclined to sustain the view that P.D.
921 was impliedly repealed by R.A. 7160. P.D. 921 to the mind of this Court
is an implementing law of P.D. 464, Sections 3, 6, 9, 12 and 13 of said P.D.
provide how certain provisions of P.D. 464 shall be implemented. Since P.D.
464 was expressly repealed by R.A. 7160. P.D. 921 must necessarily be
considered repealed, otherwise, what should Sections 3, 6, 9, 12 and 13 of
P.D. 921 implement? And, had the law makers intended to have said P.D.
921 remain valid and enforceable they would have provided so in R.A.
7160. Since there is none, P.D. 921 must be considered repealed. 9
Re: The First Issue:
Repeal of P.D. 921?

general revision of assessments shall be undertaken. The Secretary of

Finance shall have ninety days from the date of receipt within which to
review said schedule to determine whether it conforms with the provisions
of this Code.
2. Subsequently, on 12 April 1976, P.D. 921 was promulgated, which in Section 9
thereof, states:
Sec. 9. Preparation of Schedule of Values for Real Property within the
Metropolitan Area. The Schedule of Values that will serve as the basis
for the appraisal and assessment for taxation purposes of real properties
located within the Metropolitan Area shall be prepared jointly by the City
Assessors of the Districts created under Section one hereof, with the City
Assessor of Manila acting as Chairman, in accordance with the pertinent
provisions of Presidential Decree No. 464, as amended, otherwise known
as the Real Property Tax Code, and the implementing rules and regulations
thereof issued by the Secretary of Finance.
3. Section One of P.D. 921, referred to above, provides:
Sec. 1. Division of Metropolitan Manila into Local Treasury and Assessment
Districts. For purposes of effective fiscal management, Metropolitan
Manila is hereby divided into the following Local Treasury and Assessment
Districts:

To resolve the first issue, it is necessary to revisit the following provisions of law:

First District Manila

1. Section 15 of P.D. No. 464, promulgated on 20 May 1974, otherwise known as

the Peal Property Tax Code:

Second District Quezon City, Pasig, Marikina,

Mandaluyong and San Juan

Sec. 15. Preparation of Schedule of Values. Before any general revision

of property assessments is made, as provided in this Code, there shall be
prepared for the province or city a Schedule of Market Value for the
different classes of real property therein situated in such form and detail
as shall be prescribed by the Secretary of Finance.
Said schedule, together with an abstract of the data (on) which it is based,
shall be submitted to the Secretary of Finance for review not later than the
thirty-first day of December immediately preceding the calendar year the

50 | t a x 2 fi n a l s

Third District Caloocan City, Malabon,

Navotas and Valenzuela
Fourth District Pasay City, Makati, Paranaque,
Muntinlupa, Las Pias, Pateros and
Taguig
Manila, Quezon City, Caloocan City and Pasay City shall be the respective
Centers of the aforesaid Treasury and Assessment Districts.

4. On 01 January 1992, Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, took effect. Section 212 of said law is quoted as
follows:
Sec. 212. Preparation of Schedule of Fair Market Values. Before any
general revision of property assessment is made pursuant to the
provisions of this Title, there shall be prepared a schedule of fair market
values by the provincial, city and the municipal assessors of the
municipalities within the Metropolitan Manila Area for the different classes
of real property situated in their respective local government units for
enactment by ordinance of the sanggunian concerned. The schedule of fair
market values shall be published in a newspaper of general circulation in
the province, city or municipality concerned, or in the absence thereof,
shall be posted in the provincial capitol, city or municipal hall and in two
other conspicuous public place therein.
5. The repealing clause of R.A. 7160 found in the Section 534 thereof is hereby
reproduced as follows:
Sec. 534. Repealing Clause.
(a) . . .
(b) . . .
(c) . . . ; and Presidential Decree Nos. 381, 436, 464, 477, 626, 632, 752,
and 1136 are hereby repealed and rendered of no force and effect.
xxx xxx xxx

Petitioners contend that, contrary to the aforequoted Decision of the lower court,
"whether the assessment is made before or after the effectivity of R.A. 7160, the
observance of, and compliance with, the explicit requirement of P.D. 921 is strict
and mandatory either" because P.D. 921 was not impliedly repealed by R.A. 7160
and is therefore still the applicable statute, or because the Supreme Court, in
three related cases 10 promulgated on 16 December 1993 after the Local
Government Code of 1991 already took effect ruled that a schedule of market
values and the corresponding assessments based thereon "prepared solely by the
city assessor . . . failed to comply with the explicit requirement (of collegial and
joint action by all the assessors in the Metropolitan Manila area under P.D.
921) . . . and are on that account illegal and void."
On the other hand, respondents aver that Section 9 of P.D. 921 and Section 212 of
R.A. 7160 are clearly and unequivocally incompatible because they dwell on the
same subject matter, namely, the preparation of a schedule of values for real
property within the Metropolitan Manila Area. Under P.D. 921, the schedule shall
be preparedjointly by the city assessors of the District, while, under R.A. 7160,
such schedule shall be prepared "by the provincial, city and municipal assessors
of the municipalities within the Metropolitan Manila area . . . ". Furthermore, they
claim that "Section 9 (of P.D. 921) merely supplement(ed) Section 15 of P.D. 464
in so far as the preparation of the schedule of values in Metro Manila (is
concerned)." Thus, "with the express repeal of P.D. 464 . . . P.D. 921 . . .can not
therefore exist independently on its own." They also argue that although the
aforecited Supreme Court decision was promulgated after R.A. 7160 took effect,
"the assessment of the Municipal Assessors in those three (3) cited cases were
assessed in 1990 prior to the effectivity of the Code." Hence, the doctrine in said
cases cannot be applied to those prepared in 1994 under R.A. 7160.
We rule for petitioners.

(f) All general and special laws, acts, city charter, decrees,
executive orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly.
(emphasis supplied)

R.A. 7160 has a repealing provision (Section 534) and, if the intention of the
legislature was to abrogate P.D. 921, it would have included it in such repealing
clause, as it did in expressly rendering of no force and effect several other
presidential decrees. Hence, any repeal or modification of P.D. 921 can only be
possible under par. (f) of said Section 534, as follows:

It is obvious from the above provisions of R.A 7160, specifically Sec. 534, that P.D.
921 was NOT EXPRESSLY repealed by said statute. Thus, the question is: Was P.D.
921 IMPLIEDLY repealed by R.A. 7160?

(f) All general and special laws, acts, city charter, decrees, executive
orders, proclamations and administrative regulations, part or parts thereof

51 | t a x 2 fi n a l s

which are inconsistent with any of the provisions of the Code are hereby
repealed or modified accordingly.

needed is a manifest indication of the legislative purpose to repeal.

[Citing numerous cases]

The foregoing partakes of the nature of a general repealing provision. It is a basic

rule of statutory construction that repeals by implication are not favored. An
implied repeal will not be allowed unless it is convincingly and unambiguously
demonstrated that the two laws are so clearly repugnant and patently
inconsistent that they cannot co-exist. This is based on the rationale that the will
of the legislature cannot be overturned by the judicial function of construction
and interpretation. Courts cannot take the place of Congress in repealing statutes.
Their function is to try to harmonize, as much as possible, seeming conflicts in the
laws and resolve doubts in favor of their validity and co-existence.

More specifically, a subsequent statute, general in character as to its

terms and application, is not to be construed as repealing a special or
specific enactment, unless the legislative purpose to do so is manifest.
This is so even if the provisions of the latter are sufficiently comprehensive
to include what was set forth in the special act. This principle has likewise
been consistently applied in decisions of the Court from Manila Railroad
Co. v. Rafferty (40 Phil 224), decided as far back as 1919. A citation from
an opinion of Justice Tuason is illuminating. Thus: "From another angle the
presumption against repeal is stronger. A special law is not regarded as
having been amended or repealed by a general law unless the intent to
repeal or alter is manifest. Generalia specialibus non derogant. An this is
true although the terms of the general act are broad enough to include the
matter in the special statute. . . . At any rate, in the event harmony
between provisions of this type in the same law or in two laws is
impossible, the specific provision controls unless the statute, considered in
its entirety, indicates a contrary intention upon the part of the legislature. .
. . A general law is one which embraces a class of subjects or places and
does not omit any subject or place naturally belonging to such class, while
a special act is one which relates to particular persons or things of a
class." (citing Valera v. Tuason, 80 Phil. 823, 827-828 [1948].)

In Villegas v. Subido, 11 the issue raised before the Court was whether the
Decentralization Act had the effect of repealing what was specifically ordained in
the Charter of the City of Manila. Under the Charter, it was provided in its Section
22 that "The President of the Philippines with the consent of the Commission on
Appointments shall appoint . . . the City Treasurer and his Assistant." Under the
Decentralization Act, it was provided that "All other employees, except teachers
paid out of provincial, city or municipal general funds and other local funds
shall . . . be appointed by the provincial governor, city or municipal mayor upon
recommendation of the head of office concerned."
The Court, in holding that there was no implied repeal in this
case 12 , said:
. . . It has been the constant holding of this Court that repeals by
implication are not favored and will not be so declared unless it be
manifest that the legislature so intended. Such a doctrine goes as far back
as United States v. Reyes, a 1908 decision (10 Phil. 423, Cf. U.S. v.
Academia, 10 Phil. 431 [1908]). It is necessary then before such a repeal is
deemed to exist that it be shown that the statutes or statutory provisions
deal with the same subject matter and that the latter be inconsistent with
the former. (Cf. Calderon v. Provincia del Santisimo Rosario, 28 Phil. 164
[1914]). There must be a showing of repugnancy clear and convincing in
character. The language used in the latter statute must be such as to
render it irreconcilable with what has been formerly enacted. An
inconsistency that falls short of that standard does not suffice. What is

52 | t a x 2 fi n a l s

In the relatively recent case of Mecano vs. Commission on Audit 13 , the Court en
banc had occasion to reiterate and to reinforce the rule against implied repeals,
as follows:
Repeal by implication proceeds on the premise that where a statute of
later date clearly reveals an intention on the part of the legislature to
abrogate a prior act on the subject, that intention must be given effect.
Hence, before there can be a repeal, there must be a clear showing on the
part of the law maker that the intent in enacting the new law was to
abrogate the old one. The intention to repeal must be clear and manifest;
otherwise, at least, as a general rule, the later act is to be construed as a
continuation of, and not a substitute for, the first act and will continue so
far as the two acts are the same from the time of the first enactment.

There are two categories of repeal by implication. The first is where

provisions in the two acts on the same subject matter are in an
irreconcilable conflict, the later act to the extent of the conflict constitutes
an implied repeal of the earlier one. The second is if the later act covers
the whole subject of the earlier one and is clearly intended as a substitute,
it will operate to repeal the earlier law.
Implied repeal by irreconcilable inconsistency take place when the two
statutes cover the same subject matter; they are so clearly inconsistent
and incompatible with each other that they cannot be reconciled or
harmonized; and both cannot be given effect, that is that one law cannot
be enforced without nullifying the other.
In the same vein, but in different words, this Court ruled in Gordon
vs. Veridiano 14 :
Courts of justice, when confronted with apparently conflicting statutes,
should endeavor to reconcile the same instead of declaring outright the
invalidity of one as against the other. Such alacrity should be avoided. The
wise policy is for the judge to harmonize them if this is possible, bearing in
mind that they are equally the handiwork of the same legislature, and so
give effect to both while at the same time also according due respect to a
coordinate department of the government. It is this policy the Court will
apply in arriving at the interpretation of the laws above-cited and the
conclusions that should follow therefrom.
In the instant case, and using the Courts' standard for implied repeal in Mecano,
we compared the two laws.
Presidential Decree No. 921 was promulgated on 12 April 1976, with the aim
of, inter alia, evolving "a progressive revenue raising program that will not unduly
burden the tax payers . . . " 15 in Metropolitan Manila. Hence, it provided for the
"administration of local financial services in Metropolitan Manila" only, and for this
purpose, divided the area into four Local Treasury and Assessment Districts,
regulated the duties and functions of the treasurers and assessors in the cities
and municipalities in said area and spelled out the process of assessing, imposing
and distributing the proceeds of real estate taxes therein.

53 | t a x 2 fi n a l s

Upon the other hand, Republic Act No. 7160, otherwise "known and cited as the
Local 'Government Code of 1991'" 16 took effect on 01 January 1992 17. It declared
"genuine and meaningful local autonomy" as a policy of the state. Such policy
was meant to decentralize government "powers, authority, responsibilities and
resources" from the national government to the local government units "to enable
them to attain their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals." 18 In the
formulation and implementation of policies and measures on local autonomy,
''(l)ocal government units may group themselves, consolidate or coordinate their
efforts, services and resources for purposes commonly beneficial to them." 19
From the above, it is clear that the two laws are not co-extensive and mutually
inclusive in their scope and purpose. While R.A. 7160 covers almost all
governmental functions delegated to local government units all over the country,
P.D. 921 embraces only the Metropolitan Manila area and is limited to the
administration of financial services therein, especially the assessment and
collection of real estate (and some other local) taxes.
Coming down to specifics, Sec. 9 of P.D. 921 requires that the schedule of values
of real properties in the Metropolitan Manila area shall be prepared jointly by the
city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states
that the schedule shall be prepared "by the provincial, city and municipal
assessors of the municipalities within the Metropolitan Manila Area for the
different classes of real property situated in their respective local government
units for enactment by ordinance of the sanggunian concerned. . . ."
It is obvious that harmony in these provisions is not only possible, but in fact
desirable, necessary and consistent with the legislative intent and policy. By
reading together and harmonizing these two provisions, we arrive at the following
steps in the preparation of the said schedule, as follows:
1. The assessor in each municipality or city in the Metropolitan Manila area
shall prepare his/her proposed schedule of values, in accordance with Sec.
212, R.A. 7160.
2. Then, the Local Treasury and Assessment District shall meet, per Sec. 9,
P.D. 921. In the instant case, that district shall be composed of the
assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan,
pursuant to Sec. 1 of said P.D. In this meeting, the different assessors shall

compare their individual assessments, discuss and thereafter jointly agree

and produce a schedule of values for their district, taking into account the
preamble of said P.D. that they should evolve "a progressive revenue
raising program that will not unduly burden the taxpayers".
3. The schedule jointly agreed upon by the assessors shall then be
published in a newspaper of general circulation and submitted to the
sanggunian concerned for enactment by ordinance, per Sec. 212, R.A.
7160.
By this harmonization, both the preamble of P.D. 921 decreeing that the real
estate taxes shall "not unduly burden the taxpayer" and the "operative principle
of decentralization" provided under Sec. 3, R.A. 7160 encouraging local
government units to "consolidate or coordinate their efforts, services and
resources" shall be fulfilled. Indeed the essence of joint local action for common
good so cherished in the Local Government Code finds concrete expression in this
harmonization.
How about respondents' claim that, with the express repeal of P.D. 464, P.D. 921
being merely a "supplement" of said P.D. cannot "exist independently on its
own"? Quite the contrary is true. By harmonizing P.D. 921 with R.A. 7160, we have
just demonstrated that it can exist outside of P.D. 464, as a support, supplement
and extension of R.A. 7160, which for this purpose, has replaced P.D. 464.
Since it is now clear that P.D. 921 is still good law, it is equally clear that this
Court's ruling in the Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing
and applicable doctrine. And, applying the said ruling in the present case, it is
likewise clear that the schedule of values prepared solely by the respondent
municipal assessor is illegal and void.
Re: The Second Issue:
Exhaustion of Administrative Remedies
We now come to the second issue. The provisions of Sections 226 and 252 of R.A.
7160 being material to this issue, are set forth below:
Sec. 226. Local Board of Assessment Appeals. Any owner or person
having legal interest in the property who is not satisfied with the action of

54 | t a x 2 fi n a l s

the provincial, city or municipal assessor in the assessment of his property

may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or
city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
Sec. 252. Payment under Protest. (a) No protest shall be entertained
unless the taxpayer first pays the tax. There shall be annotated on the tax
receipts the words "paid under protest". The protest in writing must be
filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within
Metropolitan Manila Area, who shall decide the protest within sixty (60)
days from receipt.
(b) The tax or a portion thereof paid under protest shall be held in trust by
the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer,
the amount or portion of the tax protested shall be refunded to the
protestant, or applied as tax credit against his existing or future tax
liability.
(d) In the event that the protest is denied or upon the lapse of the sixtyday period prescribed in subparagraph (a), the taxpayer may avail of the
remedies as provided for in Chapter 3, Title Two, Book II of this Code.
Respondents argue that this case is premature because petitioners neither
appealed the questioned assessments on their properties to the Board of
Assessment Appeal, pursuant to Sec. 226, nor paid the taxes under protest, per
Sec. 252.
We do not agree. Although as a rule, administrative remedies must first be
exhausted before resort to judicial action can prosper, there is a well-settled
exception in cases where the controversy does not involve questions of fact but
only of law. 20 In the present case, the parties, even during the proceedings in the
lower court on 11 April 1994, already agreed "that the issues in the petition are
legal" 21 , and thus, no evidence was presented in said court.

In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160
provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conducted
solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this
Board may be fruitful only where questions of fact are involved. Again, the protest
contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as
to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the
reasonableness of an increase in a real estate tax assessment, he is required to
"first pay the tax" under protest. Otherwise, the city or municipal treasurer will
not act on his protest. In the case at bench however, the petitioners are
questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax.
These are not questions merely of amounts of the increase in the tax but attacks
on the very validity of anyincrease.
Finally, it will be noted that in the consolidated cases of Mathay/Javier/PuyatReyes cited earlier, the Supreme Court referred the petitions (which similarly
questioned the schedules of market values prepared solely by the respective
assessors in the local government units concerned) to the Board of Assessment
Appeal, not for the latter, to exercise its appellate jurisdiction, but rather to act
only
as
a
fact-finding
commission.
Said
the
22
Court thru Chief Justice Andres R. Narvasa:
On November 5, 1991, the Court issued a Resolution clarifying its earlier
one of May 16, 1991. It pointed out that the authority of the Central Board
of Assessment Appeals "to take cognizance of the factual issues raised in
these two cases by virtue of the referral by this Court in the exercise of its
extraordinary or certiorari jurisdiction should not be confused with its
appellate jurisdiction over appealed assessment cases under Section 36 of
P.D. 464 otherwise known as the Real Property Tax Code. The Board is not
acting in its appellate jurisdiction in the instant cases but rather, it is
acting as a Court-appointed fact-finding commission to assist the Court in
resolving the factual issues raised in G.R. Nos. 97618 and 97760."
In other words, the Court gave due course to the petitions therein in spite of the
fact that the petitioners had not, apriori, exhausted administrative remedies by
filing an appeal before said Board. Because there were factual issues raised in the
Mathay, et al. cases, the Supreme Court constituted the Central Board of
Assessment Appeals as a fact-finding body to assist the Court in resolving said
factual issues. But in the instant proceedings, there are no such factual issues.

55 | t a x 2 fi n a l s

Therefore, there is no reason to require petitioners to exhaust the administrative

remedies provided in R.A. 7160, nor to mandate a referral by this Court to said
Board.
Re: The Third Issue:
Constitutionality of the Assessments
Having already definitively disposed of the case through the resolution of the
foregoing two issues, we find no more need to pass upon the third. It is axiomatic
that the constitutionality of a law, regulation, ordinance or act will not be resolved
by courts if the controversy can be, as in this case it has been, settled on other
grounds. In the recent case of Macasiano vs. National Housing Authority 23 , this
Court declared:
It is a rule firmly entrenched in our jurisprudence that the constitutionality
of an act of the legislature will not be determined by the courts unless that
question is properly raised and presented in appropriate cases and is
necessary to a determination of the case, i.e., the issue of constitutionality
must be the very lis mota presented. To reiterate, the essential requisites
for a successful judicial inquiry into the constitutionality of a law are: (a)
the existence of an actual case or controversy involving a conflict of legal
rights susceptible of judicial determination, (b) the constitutional question
must be raised by a proper party, (c) the constitutional question must be
raised at the earliest opportunity, and (d) the resolution of the
constitutional question must be necessary to the decision of the case.
(emphasis supplied)
The aforequoted decision in Macasiano merely reiterated the ruling in Laurel
vs. Garcia 24, where this Court held:
The Court does not ordinarily pass upon constitutional questions unless
these questions are properly raised in appropriate cases and their
resolution is necessary for the determination of the case (People v. Vera,
65 Phil. 56 [1937]). The Court will not pass upon a constitutional question
although properly presented by the record if the case can be disposed of
on some other ground such as the application of a statute or general
law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad
Commission v. Pullman Co., 312 U.S. 496 [1941]). 25 (emphasis supplied)

In view of the foregoing ruling, the question may be asked: what happens to real
estate tax payments already made prior to its promulgation and finality? Under
the law 26 , "the taxpayer may file a written claim for refund or credit for taxes
and interests . . . ."
Finally, this Tribunal would be remiss in its duty as guardian of the judicial branch
if we let pass unnoticed the ease by which the respondent Judge consigned "to
the statutes' graveyard" a legislative enactment "together with the (three)
decisions of the Supreme Court" promulgated jointly and unanimously en banc.
An elementary regard for the sacredness of laws and the stability of judicial
doctrines laid down by superior authority should have constrained him to be more
circumspect in rendering his decision and to spell out carefully and precisely the
reasons for his decision to invalidate such acts, instead of imperiously decreeing
an implied repeal. He knows or should have known the legal precedents against
implied repeals. Respondent Judge, in his decision, did not even make an attempt
to try to reconcile or harmonize the laws involved. Instead, he just
unceremoniously swept them and this Court's decisions into the dustbin of
"judicial history." In his future acts and decisions, he is admonished to be more
judicious in setting aside established laws, doctrines and precedents.
WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the
questioned Decision and Order of respondent Judge, DECLARING as null and void
the questioned Schedule of Market Values for properties in Pasig City prepared by
respondent Assessor, as well as the corresponding assessments and real estate
tax increases based thereon; and ENJOINING the respondent Treasurer from
collecting the real estate tax increases made on the basis of said Schedule and
assessments. No costs.
SO ORDERED.

G.R. No. L-21183

September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant,

vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS
OCCIDENTAL, defendant-appellant.

56 | t a x 2 fi n a l s

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 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.
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:
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,

57 | t a x 2 fi n a l s

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.
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 revenue in the
guise of a police or a regulatory measure. Our finding, however, is the other
way.1awphl.nt
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.

58 | t a x 2 fi n a l s

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." 15 Ordinance 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;
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

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.

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.1awphl.nt

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

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 fees are 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

59 | t a x 2 fi n a l s

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 andSantos vs. Municipal Government
of Caloocan, 30 used by plaintiff as references, are entirely inopposite. InPacific
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".

60 | t a x 2 fi n a l s

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.
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." 38And 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
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 42 that 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.
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

61 | t a x 2 fi n a l s

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.
Vao, 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.
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

62 | t a x 2 fi n a l s

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.

G.R. No. 191761

November 14, 2012

CAGAYAN ELECTRIC POWER AND LIGHT CO., INC., Petitioner,

vs. CITY OF CAGAYAN DE ORO, Respondent.
CARPIO, J.:
The Case
G.R. No. 191761 is a petition for review1 assailing the Decision2 promulgated on
28 May 2009 as well as the Resolution 3 promulgated on 24 March 2010 by the
Court of Appeals (appellate court) in CA-G.R. CV No. 01105-Min. The appellate
court affirmed the 8 January 2007 Decision 4 of Branch 18 of the Regional Trial
Court of Misamis Oriental (trial court) in Civil Case No. 2005-207.
The trial court upheld the validity of the City of Cagayan de Oros Ordinance No.
9503-2005 and denied Cagayan Electric Power and Light Co., Inc.s (CEPALCO)
claim of exemption from the said ordinance.
The Facts

income which appellee City of Cagayan de Oro may not impose, the same being
expressly prohibited by Section 133(a) of Republic Act No. 7160 (R.A. 7160)
otherwise known as the Local Government Code (LGC) of 1991. CEPALCO argues
that, assuming the City Council can enact the assailed ordinance, it is
nevertheless exempt from the imposition by virtue of Republic Act No. 9284 (R.A.
9284) providing for its franchise. CEPALCO further claims exemplary damages of
PhP200,000.00 alleging that the passage of the ordinance manifests malice and
bad faith of the respondent-appellee towards it.
In its Answer, appellee raised the following affirmative defenses: (a) the
enactment and implementation of the subject ordinance was a valid and lawful
exercise of its powers pursuant to the 1987 Constitution, the Local Government
Code, other applicable provisions of law, and pertinent jurisprudence; (b) nonexemption of CEPALCO because of the express withdrawal of the exemption
provided by Section 193 of the LGC; (c) the subject ordinance is legally presumed
valid and constitutional; (d) prescription of respondent-appellees action pursuant
to Section 187 of the LGC; (e) failure of respondent-appellee to exhaust
administrative remedies under the Local Government Code; (f) CEPALCOs action
for declaratory relief cannot prosper since no breach or violation of the subject
ordinance was yet committed by the City. 5

The appellate court narrated the facts as follows:

Ordinance No. 9503-2005 reads:

On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City

Council) passed Ordinance No. 9503-2005 imposing a tax on the lease or rental of
electric and/or telecommunication posts, poles or towers by pole owners to other
pole users at ten percent (10%) of the annual rental income derived from such
lease or rental.

ORDINANCE IMPOSING A TAX ON THE LEASE OR RENTAL OF ELECTRIC AND/OR

TELECOMMUNICATION POSTS, POLES OR TOWERS BY POLE OWNERS TO OTHER
POLE USERS AT THE RATE OF TEN (10) PERCENT OF THE ANNUAL RENTAL INCOME
DERIVED THEREFROM AND FOR OTHER PURPOSES BE IT ORDAINED by the City
Council (Sangguniang Panlungsod) of the City of Cagayan de Oro in session
assembled that:

The City Council, in a letter dated 15 March 2005, informed appellant Cagayan
Electric Power and Light Company, Inc. (CEPALCO), through its President and
Chief Operation Manager, Ms. Consuelo G. Tion, of the passage of the subject
ordinance.

SECTION 1. - Whenever used in this Ordinance, the following terms shall be

construed as:

On September 30, 2005, appellant CEPALCO, purportedly on pure question of law,

filed a petition for declaratory relief assailing the validity of Ordinance No. 95032005 before the Regional Trial Court of Cagayan de Oro City, Branch 18, on the
ground that the tax imposed by the disputed ordinance is in reality a tax on

63 | t a x 2 fi n a l s

a. Electric companies include all public utility companies whether

corporation or cooperative engaged in the distribution and sale of
electricity;

b. Telecommunication companies refer to establishments or entities that

are holders of franchise through an Act of Congress to engage, maintain,
and operate telecommunications, voice and data services, under existing
Philippine laws, rules and regulations;
c. Pole User includes any person, natural or juridical, including government
agencies and entities that use and rent poles and towers for the
installation of any cable, wires, service drops and other attachments;
d. Pole Owner includes electric and telecommunication company or
corporation that owns poles, towers and other accessories thereof.
SECTION 2. - There shall be imposed a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at
the rate of ten (10) percent of the annual rental income derived therefrom.
SECTION 3. - The tax imposed herein shall not be passed on by pole owners to the
bills of pole users in the form of added rental rates.
SECTION 4. (a) Pole owners herein defined engaged in the business of renting
their posts, poles and/or towers shall secure a separate business permit therefor
as provided under Article (P), Section 62(a) of Ordinance No. 8847-2003,
otherwise known as the Cagayan de Oro City Revenue Code of 2003.
(b) Pertinent provisions of Ordinance No. 8847-2003, covering situs of the tax,
payment of taxes and administrative provisions shall apply in the imposition of
the tax under this Ordinance.

On 8 January 2007, the trial court rendered its Decision 7 in favor of the City of
Cagayan de Oro. The trial court identified three issues for its resolution: (1)
whether Ordinance No. 9503-2005 is valid; (2) whether CEPALCO should be
exempted from tax; and (3) whether CEPALCOs action is barred for nonexhaustion of administrative remedies and for prescription.
In ruling for the validity of Ordinance No. 9503-2005, the trial court rejected
CEPALCOs claim that the ordinance is an imposition of income tax prohibited by
Section 133(a) of the Local Government Code. 8 The trial court reasoned that since
CEPALCOs business of leasing its posts to pole users is what is directly taxed, the
tax is not upon the income but upon the privilege to engage in business.
Moreover, Section 143(h), in relation to Section 151, of the Local Government
Code authorizes a city to impose taxes, fees and charges on any business which
is not specified as prohibited under Section 143(a) to (g) and which the city
council may deem proper to tax.
The trial court also rejected CEPALCOs claim of exemption from tax. The trial
court noted that Republic Act (R.A.) Nos. 3247, 9 357010 and 6020,11 which
previously granted CEPALCOs franchise, expressly stated that CEPALCO would
pay a three percent franchise tax in lieu of all assessments of whatever authority.
However, there is no similar provision in R.A. No. 9284, which gave CEPALCO its
current franchise.
Finally, the trial court found that CEPALCOs action is barred by prescription as it
failed to raise an appeal to the Secretary of Justice within the thirty-day period
provided in Section 187 of the Local Government Code.
The dispositive portion of the trial courts decision reads:

SECTION 5. - This Ordinance shall take effect after 15 days following its
publication in a local newspaper of general circulation for at least three (3)
consecutive issues.
UNANIMOUSLY APPROVED.6

WHEREFORE, it is crystal clear that Petitioner CEPALCO failed not only in proving
its allegations that City Ordinance 9503-2005 is illegal and contrary to law, and
that [it] is exempted from the imposition of tax, but also in convincing the Court
that its action is not barred for non-exhaustion of administrative remedy [sic] and
by prescription. Hence, the instant petition is DENIED.

Ordinance No. 9503-2005 was unanimously approved by the City Council of

Cagayan de Oro on 10 January 2005.

SO ORDERED.12

The Trial Courts Ruling

CEPALCO filed a brief with the appellate court and raised the following errors of
the trial court:

64 | t a x 2 fi n a l s

A. The lower court manifestly erred in concluding that the instant action is
barred for non-exhaustion of administrative remedies and by prescription.
B. The lower court gravely erred in finding that Ordinance No. 9503-2005
of the City of Cagayan de Oro does not partake of the nature of an income
tax.
C. The lower court gravely erred in finding that Ordinance No. 9503-2005
of the City of Cagayan de Oro is valid.
D. The lower court seriously erred in finding that herein appellant is not
exempted from payment of said tax.13

2. In a case involving pure questions of law, the Court of Appeals still

insisted on a useless administrative remedy before resort to the court may
be made; and
3. Recent legislation
disregarded.16

affirming

CEPALCOs

tax

exemptions

was

In a Resolution dated 6 July 2011, 17 this Court required both parties to discuss
whether the amount of tax imposed by Section 2 of Ordinance No. 9503-2005
complies with or violates, as the case may be, the limitation set by Section 151, in
relation to Sections 137 and 143(h), of the Local Government Code.
The Courts Ruling

The Appellate Courts Ruling

Failure to Exhaust Administrative Remedies
On 28 May 2009, the appellate court rendered its Decision
courts decision.

14

and affirmed the trial

The appellate court stated that CEPALCO failed to file a timely appeal to the
Secretary of Justice, and did not exhaust its administrative remedies. The
appellate court agreed with the trial courts ruling that the assailed ordinance is
valid and declared that the subject tax is a license tax for the regulation of
business in which CEPALCO is engaged. Finally, the appellate court found that
CEPALCOs claim of tax exemption rests on a strained interpretation of R.A. No.
9284.
In a Resolution15 dated 24 March 2010, the appellate court denied CEPALCOs
motion for reconsideration for lack of merit. The resolution also denied CEPALCOs
3 August 2009 supplemental motion for reconsideration for being filed out of
time.
CEPALCO filed the present petition for review before this Court on 27 May 2010.

Ordinance No. 9503-2005 is a local revenue measure. As such, the Local

Government Code applies.
SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue
Measures; Mandatory Public Hearings. The procedure for approval of local tax
ordinances and revenue measures shall be in accordance with the provisions of
this Code: Provided, That public hearings shall be conducted for the purpose prior
to the enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised
on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of receipt
of the appeal: Provided, however, That such appeal shall not have the effect of
suspending the effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days
after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.

The Issues
CEPALCO enumerated the following reasons for warranting review:
1. In spite of its patent illegality, a City Ordinance passed in violation or in
excess of the citys delegated power to tax was upheld;

65 | t a x 2 fi n a l s

SEC. 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10)
days after their approval, certified true copies of all provincial, city, and municipal
tax ordinances or revenue measures shall be published in full for three (3)
consecutive days in a newspaper of local circulation: Provided, however, That in
provinces, cities and municipalities where there are no newspapers of local

circulation, the same may be posted in at least two (2) conspicuous and publicly
accessible places.
The Sangguniang Panlungsod of Cagayan de Oro approved Ordinance No. 95032005 on 10 January 2005. Section 5 of said ordinance provided that the
"Ordinance shall take effect after 15 days following its publication in a local
newspaper of general circulation for at least three (3) consecutive issues." Gold
Star Daily published Ordinance No. 9503-2005 on 1 to 3 February 2005.
Ordinance No. 9503-2005 thus took effect on 19 February 2005. CEPALCO filed its
petition for declaratory relief before the Regional Trial Court on 30 September
2005, clearly beyond the 30-day period provided in Section 187. CEPALCO did not
file anything before the Secretary of Justice. CEPALCO ignored our ruling in Reyes
v. Court of Appeals18 on the mandatory nature of the statutory periods:
Clearly, the law requires that the dissatisfied taxpayer who questions the validity
or legality of a tax ordinance must file his appeal to the Secretary of Justice,
within 30 days from effectivity thereof. In case the Secretary decides the appeal,
a period also of 30 days is allowed for an aggrieved party to go to court. But if the
Secretary does not act thereon, after the lapse of 60 days, a party could already
proceed to seek relief in court. These three separate periods are clearly given for
compliance as a prerequisite before seeking redress in a competent court. Such
statutory periods are set to prevent delays as well as enhance the orderly and
speedy discharge of judicial functions. For this reason the courts construe these
provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose taxes.
The power to tax is the most effective instrument to raise needed revenues to
finance and support the myriad activities of local government units for the
delivery of basic services essential to the promotion of the general welfare and
enhancement of peace, progress, and prosperity of the people. Consequently, any
delay in implementing tax measures would be to the detriment of the public. It is
for this reason that protests over tax ordinances are required to be done within
certain time frames. In the instant case, it is our view that the failure of
petitioners to appeal to the Secretary of Justice within 30 days as required by Sec.
187 of R.A. 7160 is fatal to their cause.

66 | t a x 2 fi n a l s

As in Reyes, CEPALCOs failure to appeal to the Secretary of Justice within the

statutory period of 30 days from the effectivity of the ordinance should have been
fatal to its cause. However, we relax the application of the rules in view of the
more substantive matters.
City of Cagayan de Oros Power to Create Sources of Revenue
vis-a-vis CEPALCOs Claim of Exemption
Section 5, Article X of the 1987 Constitution provides that "each local government
unit shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government." The Local Government
Code supplements the Constitution with Sections 151 and 186:
SEC. 151. Scope of Taxing Powers. Except as otherwise provided in this Code,
the city may levy the taxes, fees and charges which the province or municipality
may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the
rates of professional and amusement taxes.
SEC. 186. Power to Levy Other Taxes, Fees or Charges. Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the
National Internal Revenue Code, as amended, or other applicable laws: Provided,
That the taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees, or charges shall not be enacted without any
prior public hearing conducted for the purpose.
Although CEPALCO does not question the authority of the Sangguniang
Panlungsod of Cagayan de Oro to impose a tax or to enact a revenue measure,
CEPALCO insists that Ordinance No. 9503-2005 is an imposition of an income tax
which is prohibited by Section 133(a) 19 of the Local Government Code.
Unfortunately for CEPALCO, we agree with the ruling of the trial and appellate

courts that Ordinance No. 9503-2005 is a tax on business. CEPALCOs act of

leasing for a consideration the use of its posts, poles or towers to other pole users
falls under the Local Government Codes definition of business. Business is
defined by Section 131(d) of the Local Government Code as "trade or commercial
activity regularly engaged in as a means of livelihood or with a view to profit." In
relation to Section 131(d),20 Section 143(h)21 of the Local Government Code
provides that the city may impose taxes, fees, and charges on any business which
is not specified in Section 143(a) to (g) 22 and which the sanggunian concerned
may deem proper to tax.

xxxx
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
SEC. 534. Repealing Clause. x x x.

In contrast to the express statutory provisions on the City of Cagayan de Oros

power to tax, CEPALCOs claim of tax exemption of the income from its poles
relies on a strained interpretation.23 Section 1 of R.A. No. 9284 added Section 9 to
R.A. No. 3247, CEPALCOs franchise:
SEC. 9. Tax Provisions. The grantee, its successors or assigns, shall be subject to
the payment of all taxes, duties, fees or charges and other impositions applicable
to private electric utilities under the National Internal Revenue Code (NIRC) of
1997, as amended, the Local Government Code and other applicable laws:
Provided, That nothing herein shall be construed as repealing any specific tax
exemptions, incentives, or privileges granted under any relevant law: Provided,
further, That all rights, privileges, benefits and exemptions accorded to existing
and future private electric utilities by their respective franchises shall likewise be
extended to the grantee.
The grantee shall file the return with the city or province where its facility is
located and pay the taxes due thereon to the Commissioner of Internal Revenue
or his duly authorized representative in accordance with the NIRC and the return
shall be subject to audit by the Bureau of Internal Revenue.
The Local Government Code withdrew tax exemption privileges previously given
to natural or juridical persons, and granted local government units the power to
impose franchise tax,24 thus:
SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.

67 | t a x 2 fi n a l s

(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.
It is hornbook doctrine that tax exemptions are strictly construed against the
claimant. For this reason, tax exemptions must be based on clear legal provisions.
The separate opinion in PLDT v. City of Davao 25 is applicable to the present case,
thus:
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax
exemption must point to a specific provision of law conferring on the taxpayer, in
clear and plain terms, exemption from a common burden. Any doubt whether a
tax exemption exists is resolved against the taxpayer. Tax exemptions cannot
arise by mere implication, much less by an implied re-enactment of a repealed
tax exemption clause.
CEPALCOs claim of exemption under the "in lieu of all taxes" clause must fail in
light of Section 193 of the Local Government Code as well as Section 9 of its own
franchise.
Ordinance No. 9503-2005s Compliance with
the Local Government Code
In our Resolution dated 6 July 2011, 26 we asked both parties to discuss whether
the amount of tax imposed by Section 2 of Ordinance No. 9503-2005 complies
with or violates, as the case may be, the limitation set by Section 151, in relation
to Sections 137 and 143(h), of the Local Government Code.

CEPALCO argues that Ordinance No. 9503-2005 should be invalidated because

the City of Cagayan de Oro exceeded its authority in enacting it. CEPALCO argued
thus:

rental income derived therefrom." Again, it is obvious that the respondent

Citys questioned tax ordinance is way too much. Using the same tax base
of Php100 to illustrate, let us compute:

5. Thus, the taxes imposable under either Section 137 or Section 143(h)
are not unbridled but are restricted as to the amount which may be
imposed. This is the first limitation. Furthermore, if it is a city which
imposes the same, it can impose only up to one-half of what the province
or municipality may impose. This is the second limitation.

Under Section 143(h), the maximum tax that a municipality may impose is 2% of
Php100, which is Php2 or Two Pesos. Therefore, the maximum tax that the City
may impose shall be one-half of this, which is Php1 or One Peso. But the tax
under Ordinance No. 9503-2005 is Php10, or Ten Pesos. This is a whooping [sic]
10 times more than that allowed for the municipality! As in the earlier instance
discussed above, the violation made by the respondent city of its delegated
taxing authority is all too patent.27 (Boldfacing and underscoring in the original)

6. Let us now examine Ordinance No. 9503-2005 of the respondent City of

Cagayan de Oro in the light of the twin limitations mentioned above.
7. Ordinance No. 9503-2005 of the respondent City of Cagayan de Oro
imposes a tax on the lease or rental of electric and/or telecommunication
posts, poles or towers by pole owners to other pole users "at the rate of
ten (10) percent of the annual rental income derived therefrom."
8. With respect to Section 137, considering that the tax allowed provinces
"shall not exceed fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction," the tax imposed by
Ordinance No. 9503-2005 "at the rate of ten (10) percent of the annual
rental income derived therefrom" is too much. There is a whale of a
difference between the allowable 50% of 1% and the 10% tax imposed by
the respondent. To illustrate: assuming that the gross annual receipt is
Php100, the maximum tax that a province may impose under Section 137
(50% of 1%) shall be Php0.5 or only fifty centavos. Therefore, the
maximum tax that the City may impose shall only be one-half of this,
which is Php0.25 or only twenty-five centavos. But the questioned
Ordinance imposes a tax amounting to 10% of the gross annual receipt of
Php100, which is Php10, or Ten Pesos. This a whooping [sic] 40 times more
than that allowed for the province! The violation made by respondent city
of its delegated taxing authority is all too patent.
9. With respect to Section 143(h), the rate of tax which the municipality
may impose "shall not exceed two percent (2%) of gross sales or receipts
of the preceding calendar year." On the other hand, the tax imposed by
Ordinance No. 9503-2005 is "at the rate of ten (10) percent of the annual

68 | t a x 2 fi n a l s

The interpretation of the City of Cagayan de Oro is diametrically opposed to that

of CEPALCO. The City of Cagayan de Oro points out that under Section 151 of the
Local Government Code, cities not only have the power to levy taxes, fees and
charges which the provinces or municipalities may impose, but the maximum rate
of taxes imposable by cities may exceed the maximum rate of taxes imposable by
provinces or municipalities by as much as 50%. The City of Cagayan de Oro goes
on to state:
6. Thus, Section 30 of City of Cagayan de Oros Ordinance No. 8847-2003,
otherwise known as the Revenue Code of Cagayan de Oro, imposes a franchise
tax on the gross receipts realized from the preceding year by a business enjoying
a franchise, at the rate of 75% of 1%. The increase of 25% over that which is
prescribed under Section 137 of the LGC is in accordance with Section 151
thereof prescribing the allowable increase on the rate of tax on the businesses
duly identified and enumerated under Section 143 of the LGC or those defined
and categorized in the preceding sections thereof;
7. Section 143 of the LGC prescribes the rate of taxes on the identified categories
of business enumerated therein which were determined to be existing at the time
of its enactment. On the other hand, Section 151 of the LGC prescribes the
allowable rate of increase over the rate of taxes imposed on businesses identified
under Section 143 and the preceding sections thereof. It is [City of Cagayan de
Oros humble opinion that the allowable rate of increase provided under Section
151 of the LGC applies only to those businesses identified and enumerated under
Section 143 thereof. Thus, it is respectfully submitted by City of Cagayan de Oro
that the 2% limitation prescribed under Section 143(h) applies only to the tax
rates on the businesses identified thereunder and does not apply to those that

may thereafter be deemed taxable under Section 186 of the LGC, such as the
herein assailed Ordinance No. 9503-2005. On the same vein, it is the respectful
submission of City of Cagayan de Oro that the limitation under Section 151 of the
LGC likewise does not apply in our particular instance, otherwise it will run
counter to the intent and purpose of Section 186 of the LGC;
8. Be it strongly emphasized here that CEPALCO is differently situated vis--vis
the rest of the businesses identified under Section 143 of the LGC. The imposition
of a tax "xxx on the lease or rental of electric and/or telecommunications posts,
poles or towers by pole owners to other pole users at the rate of ten (10%) of the
annual rental income derived therefrom" as provided under Section 2 of the
questioned Ordinance No. 9503-2005 is based on a reasonable classification, to
wit: (a) It is based on substantial distinctions which make a real difference; (b)
these are germane to the purpose of the law; (c) the classification applies not
only to the present conditions but also to future conditions which are substantially
identical to those of the present; and (d) the classification applies only to those
belonging to the same class;
9. Furthermore, Section 186 of the LGC allow [sic] local government units to
exercise their taxing power to levy taxes, fees or charges on any base or subject
not otherwise specifically enumerated in the preceding sections, more particularly
Section 143 thereof, or under the provisions of the National Internal Revenue
Code, as long as they are not unjust, excessive, oppressive, confiscatory or
contrary to declared national policy. Moreover, a public hearing is required before
the Ordinance levying such taxes, fees or charges can be enacted;
10. It is respectfully submitted by City of Cagayan de Oro that the tax rate
imposed under Section 2 of the herein assailed Ordinance is not unjust, excessive,
oppressive, confiscatory or contrary to a declared national policy;
11. A reading of Section 143 of the LGC reveals that it has neither identified the
operation of a business engaged in leasing nor prescribed its tax rate. Moreover,
a Lessor, in any manner, is not included among those defined as Contractor under
Section 131(h) of the LGC. However, a Lessor, in its intended general application
in City of Cagayan de Oro (one who rents out real estate properties), was
identified, categorized and included as one of the existing businesses operating in
the city, and thus falling under the provisions of Ordinance No. 8847-2003 (the
Revenue Code of Cagayan de Oro) and, therefore, imposed only a tax rate of 2%
on their gross annual receipts;

69 | t a x 2 fi n a l s

12. While the herein assailed Ordinance similarly identifies that the base of the
tax imposed therein are receipts and/or revenue derived from rentals of poles and
posts, CEPALCO cannot be considered under the definition of Lessor under the
spirit, essence and intent of Section 58(h) of the Revenue Code of Cagayan de
Oro, because the same refers only to "Real Estate Lessors, Real Estate Dealers
and Real Estate Developers." Thus, CEPALCO should be, as it has been,
categorized as a (Distinct) Lessor where it enjoys not only a tremendous and
substantial edge but also an absolute advantage in the rental of poles, posts
and/or towers to other telecommunication and cable TV companies and the like
over and above all others in view of its apparent monopoly by allowing the use of
their poles, posts and/or towers by, leasing them out to, telecommunication and
cable TV companies operating within the city and suburbs. Furthermore, CEPALCO
has neither competition in this field nor does it expect one since there are no
other persons or entities who are engaged in this particular business activity;
x x x x28
CEPALCO is mistaken when it states that a city can impose a tax up to only onehalf of what the province or city may impose. A more circumspect reading of the
Local Government Code could have prevented this error. Section 151 of the Local
Government Code states that, subject to certain exceptions, a city may exceed by
"not more than 50%" the tax rates allowed to provinces and municipalities. 29 A
province may impose a franchise tax at a rate "not exceeding 50% of 1% of the
gross annual receipts."30 Following Section 151, a city may impose a franchise tax
of up to 0.0075 (or 0.75%) of a business gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction. A municipality may impose a business tax at a rate not exceeding
"two percent of gross sales or receipts." 31 Following Section 151, a city may
impose a business tax of up to 0.03 (or 3%) of a business gross sales or receipts
of the preceding calendar year.
CEPALCO also erred when it equates Section 137s "gross annual receipts" with
Ordinance No. 9503-2005s "annual rental income." Section 2 of Ordinance No.
9503-2005 imposes "a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at
the rate of ten (10) percent of the annual rental income derived therefrom," and
not on CEPALCOs gross annual receipts. Thus, although the tax rate of 10% is
definitely higher than that imposable by cities as franchise or business tax, the
tax base of annual rental income of "electric and/or telecommunication posts,

poles or towers by pole owners to other pole users" is definitely smaller than that
used by cities in the computation of franchise or business tax. In effect, Ordinance
No. 9503-2005 wants a slice of a smaller pie.

promulgated on 24 March 2010 are REVERSED and SET ASIDE Ordinance No.
9503-2005 is declared void.
SO ORDERED.

However, we disagree with the City of Cagayan de Oros submission that

Ordinance No. 9503-2005 is not subject to the limits imposed by Sections 143 and
151 of the Local Government Code. On the contrary, Ordinance No. 9503-2005 is
subject to the limitation set by Section 143(h). Section 143 recognizes separate
lines of business and imposes different tax rates for different lines of business. Let
us suppose that one is a brewer of liquor and, at the same time, a distributor of
articles of commerce. The brewery business is subject to the rates established in
Section 143(a) while the distribution business is subject to the rates established
in Section 143(b). The City of Cagayan de Oros imposition of a tax on the lease of
poles falls under Section 143(h), as the lease of poles is CEPALCOs separate line
of business which is not covered by paragraphs (a) to (g) of Section 143. The
treatment of the lease of poles as a separate line of business is evident in Section
4(a) of Ordinance No. 9503-2005. The City of Cagayan de Oro required CEPALCO
to apply for a separate business permit.1wphi1
More importantly, because "any person, who in the course of trade or business x
x x leases goods or properties x x x shall be subject to the value-added tax," 32 the
imposable tax rate should not exceed two percent of gross receipts of the lease of
poles of the preceding calendar year. Section 143(h) states that "on any business
subject to x x x value-added x x x tax under the National Internal Revenue Code,
as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year" from the lease of goods or properties.
Hence, the 10% tax rate imposed by Ordinance No. 9503-2005 clearly violates
Section 143(h) of the Local Government Code.
Finally, in view of the lack of a separability clause, we declare void the entirety of
Ordinance No. 9503-2005. Any payment made by reason of the tax imposed by
Ordinance No. 9503-2005 should, therefore, be refunded to CEPALCO. Our ruling,
however, is made without prejudice to the enactment by the City of Cagayan de
Oro of a tax ordinance that complies with the limits set by the Local Government
Code.
WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CAG.R. CV No. 01105-Min promulgated on 28 May 2009 and the Resolution

70 | t a x 2 fi n a l s

G.R. No. 117577 December 1, 1995

ALEJANDRO B. TY AND MVR PICTURE TUBE, INC., petitioners,
vs. THE HON. AURELIO C. TRAMPE, in his capacity as Judge of the
Regional Trial Court of Pasig,
Metro Manila, THE HON. SECRETARY OF FINANCE, THE MUNICIPAL
ASSESSOR OF PASIG AND THE MUNICIPAL TREASURER OF
PASIG, respondents.
PANGANIBAN, J.:
ARE THE INCREASED REAL ESTATE TAXES imposed by and being collected in the
Municipality (now City) of Pasig, effective from the year 1994, valid an legal? This
is the question brought before this Court for resolution.

The Parties
Petitioner Alejandro B. Ty is a resident of and registered owner of lands and
buildings in the Municipality (now City) of Pasig, while petitioner MVR Picture
Tube, Inc. is a corporation duly organized and existing under Philippine laws and is
likewise a registered owner of lands and buildings in said Municipality 1 .
Respondent Aurelio C. Trampe is being sued in his capacity as presiding judge of
Branch 163. Regional Trial Court of the National Capital Judicial Region, sitting in
Pasig, whose Decision dated 14 July 1994 and Order dated 30 September 1994 in
Special Civil Action No. 629 (entitled "Alejandro B. Ty and MVR Picture Tube, Inc.
vs. The Hon. Secretary of Finance. et al.") are sought to be set aside. Respondent
Secretary of Finance is impleaded as the government officer who approved the
Schedule of Market Values used as basis for the new tax assessments being
enforced by respondents Municipal Assessor and Municipal Treasurer of Pasig and
the legality of which is being questioned in this petition 2 .
The Antecedent Facts
On 06 January 1994, respondent Assessor sent a notice of assessment respecting
certain real properties of petitioners located in Pasig, Metro Manila. In a letter
dated 18 March 1994, petitioners through counsel "request(ed) the Municipal
Assessor to reconsider the subject assessments" 3 .
Not satisfied, petitioners on 29 March 1994 filed with the Regional Trial Court of
the National Capital Judicial Region, Branch 163, presided over by respondent
Judge, a Petition for Prohibition with prayer for a restraining order and/or writ of
preliminary injunction to declare null and void the new tax assessments and to
enjoin the collection of real estate taxes based on said assessments. In a
Decision 4 dated 14 July 1994, respondent Judge denied the petition "for lack of
merit" in the following disposition.
WHEREFORE, foregoing premises considered, petitioners' prayer to declare
unconstitutional the schedule of market values as prepared by the
Municipal Assessor of Pasig, Metro Manila, and to enjoin permanently the
Municipal Treasurer of Pasig, Metro Manila, from collecting the real
property taxes based thereof (sic) is hereby DENIED for lack of merit. Cost
(sic) de oficio.
Subsequently, petitioners' Motion for Reconsideration was also denied by
respondent Judge in an Order 5 dated 30 September 1994.
Rebuffed by said Decision and Order, petitioners filed this present Petition for
Review directly before this Court, raising pure questions of law and assigning the
following errors:
The Court a quo gravely erred in holding that Presidential Decree No. 921
was expressly repealed by R.A. 7160 and that said presidential decree
including its Implementing Rules (P.D. 464) went down to the statutes'

71 | t a x 2 fi n a l s

graveyard together with the other decision(s) of the Supreme Court

affecting the same.
The Court a quo while holding that the new tax assessments have
tremendously increased ranging from 418.8% to 570%, gravely erred in
blaming petitioners for their failure to exhaust administrative remedies
provided for by law.
The Court a quo blatantly erred in not declaring the confiscatory and
oppressive nature of the assessments as illegal. void ab initio and
unconstitutional constituting a deprivation of property without due process
of law. 6
In a resolution dated 21 November 1994, this Court, without giving due course to
the petition, required respondents to comment thereon. Respondents Municipal
Treasurer and Municipal Assessor, through counsel, filed their Comment on 19
December 1994, and respondent Secretary of Finance, through the Solicitor
General, submitted his on 11 May 1995. Petitioners filed their Reply to the
Comment of respondent Assessor and Treasurer 06 January 1995, and their Reply
to that of the respondent Secretary on 18 May 1995. After careful deliberation on
the above pleadings, the Court resolved to give due course to the petition, and,
inasmuch as the issues are relatively simple, the Court dispensed with requiring
the parties to submit further memoranda and instead decided to consider the
respondents' respective Comments as their answers and memoranda. Thus the
case is now considered submitted for resolution.
The Issues
The issues brought by the parties for decision by this Court are:
1. Whether Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, repealed the provisions of Presidential Decree
No. 921;
2. Whether petitioners are required to exhaust administrative remedies
prior to seeking judicial relief; and
3. Whether the new tax assessments are oppressive and confiscatory, and
therefore unconstitutional.
In disposing of the above issues against petitioners, the court a quo ruled that the
schedule of market values and the assessments based thereon prepared solely by
respondent assessor are valid and legal, they having been prepared in
accordance with the provisions of the Local Government Code of 1991 (R.A.
7160). It held also that said Code had effectively repealed the previous law on the
matter, P.D. 921, which required, in the preparation of said schedule, joint action
by all the city and municipal assessors in the Metropolitan Manila area. The lower
court also faulted petitioners with failure to exhaust administrative remedies
provided under Sections 226 and 252 of R.A. 7160. Finally, it found the
questioned assessments consistent with the "tremendously increased . . . price of
real estate anywhere in the country." 7

Stated the court:

This Court is inclined to agree with the view of defendants that R.A. 7160 in its
repealing clause provide (sic) that Presidential Decree Nos. . . . 464 . . . are hereby
repealed and rendered of no force and effect. Hence said presidential decrees
including their implementing rules went down to the statutes' graveyard together
with the decisions of the Supreme Court on cases effecting (sic) the same.
This Court is also in accord with respondents (sic) view that petitioners failed to
avail of either Section 226 of R.A. 7160, that is by appealing the assessment of
their properties to the Board of Assessment Appeal within sixty 160) days from
the date of receipt of the written Notice of Assessment, and if it is true that
petitioner (sic) as alleged in their pleadings was not afforded the opportunity to
appeal to the board of assessment appeal, then they could have availed of the
provisions of Section 252, of the same R.A. 7160 by paying the real estate tax
under protest. Because of petitioners (sic) failure to avail of either Sections 226 or
252 of R.A. 7160, they failed to exhaust administratives (sic) remedies provided
for by law before bringing the case to Court. (Buayan Cattle Co., Inc. vs.
Quintillan, 128 SCRA 276). Therefore the filing of this case before this Court is
premature, the same not falling under the exception because the issue involved is
not a question of law but of fact (Valmonte vs. Belmonte, Jr., 170 SCRA 256).
Petitioners also alleged that the New Tax Assessments are not only oppressive
and confiscatory but also destructive in view of the tremendous increase in its
valuation, from P855,360.00 to P4,121,280.00 a marked increase of 418.8% of
one of its properties, while the other, from P857,600.00 to P4,374,410.00, an
increased (sic) of 510%. This Court agree (sic) with petitioners (sic) observation,
but the reality (sic) the price of real property anywhere in the country
tremendously increased. This is shown in the Real Estate Monitor of Economic
Incorporated (copy attached with the memorandum of respondents). For example
real properties in Pasig in 1991 located at the Ortigas Commercial Complex
command (sic) a price of P42,000.00 per square meter which price is supported
by a case filed before this Court (civil case no. 64506, Jesus Fajardo, et al. vs.
Ortigas and Co.) for Recovery (sic) of agents (sic) commission. The property
subject of the sale which was also located at the Ortigas Commercial Complex at
Pasig, Metro Manila was sold to a Taiwanese at P42,000.00 per square meter. It is
therefore not surprising that the assessment of real properties in Pasig has
increased tremendously. Had petitioners first exhausted administrative remedies
they would have realized the fact that prices of real estate has (sic) tremendously
increased and would have known the reason/reasons why. 8
In its Order dated 30 September 1994 denying the Motion for Reconsideration,
the court a quo ruled:
This Court despite petitioners' exhaustive and thorough research and discussion
of the point in issue, is still inclined to sustain the view that P.D. 921 was impliedly
repealed by R.A. 7160. P.D. 921 to the mind of this Court is an implementing law

72 | t a x 2 fi n a l s

of P.D. 464, Sections 3, 6, 9, 12 and 13 of said P.D. provide how certain provisions
of P.D. 464 shall be implemented. Since P.D. 464 was expressly repealed by R.A.
7160. P.D. 921 must necessarily be considered repealed, otherwise, what should
Sections 3, 6, 9, 12 and 13 of P.D. 921 implement? And, had the law makers
intended to have said P.D. 921 remain valid and enforceable they would have
provided so in R.A. 7160. Since there is none, P.D. 921 must be considered
repealed. 9
Re: The First Issue:
Repeal of P.D. 921?
To resolve the first issue, it is necessary to revisit the following provisions of law:
1. Section 15 of P.D. No. 464, promulgated on 20 May 1974, otherwise known as
the Peal Property Tax Code:
Sec. 15. Preparation of Schedule of Values. Before any general revision
of property assessments is made, as provided in this Code, there shall be
prepared for the province or city a Schedule of Market Value for the
different classes of real property therein situated in such form and detail
as shall be prescribed by the Secretary of Finance.
Said schedule, together with an abstract of the data (on) which it is based,
shall be submitted to the Secretary of Finance for review not later than the
thirty-first day of December immediately preceding the calendar year the
general revision of assessments shall be undertaken. The Secretary of
Finance shall have ninety days from the date of receipt within which to
review said schedule to determine whether it conforms with the provisions
of this Code.
2. Subsequently, on 12 April 1976, P.D. 921 was promulgated, which in Section 9
thereof, states:
Sec. 9. Preparation of Schedule of Values for Real Property within the
Metropolitan Area. The Schedule of Values that will serve as the basis
for the appraisal and assessment for taxation purposes of real properties
located within the Metropolitan Area shall be prepared jointly by the City
Assessors of the Districts created under Section one hereof, with the City
Assessor of Manila acting as Chairman, in accordance with the pertinent
provisions of Presidential Decree No. 464, as amended, otherwise known
as the Real Property Tax Code, and the implementing rules and regulations
thereof issued by the Secretary of Finance.
3. Section One of P.D. 921, referred to above, provides:
Sec. 1. Division of Metropolitan Manila into Local Treasury and Assessment
Districts. For purposes of effective fiscal management, Metropolitan
Manila is hereby divided into the following Local Treasury and Assessment
Districts:

First District Manila

Second District Quezon City, Pasig, Marikina,
Mandaluyong and San Juan
Third District Caloocan City, Malabon,
Navotas and Valenzuela
Fourth District Pasay City, Makati, Paranaque,
Muntinlupa, Las Pias, Pateros and
Taguig
Manila, Quezon City, Caloocan City and Pasay City shall be the respective Centers
of the aforesaid Treasury and Assessment Districts.
4. On 01 January 1992, Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, took effect. Section 212 of said law is quoted as
follows:
Sec. 212. Preparation of Schedule of Fair Market Values. Before any
general revision of property assessment is made pursuant to the
provisions of this Title, there shall be prepared a schedule of fair market
values by the provincial, city and the municipal assessors of the
municipalities within the Metropolitan Manila Area for the different classes
of real property situated in their respective local government units for
enactment by ordinance of the sanggunian concerned. The schedule of fair
market values shall be published in a newspaper of general circulation in
the province, city or municipality concerned, or in the absence thereof,
shall be posted in the provincial capitol, city or municipal hall and in two
other conspicuous public place therein.
5. The repealing clause of R.A. 7160 found in the Section 534 thereof is hereby
reproduced as follows:
Sec. 534. Repealing Clause.
(a) . . .
(b) . . .
(c) . . . ; and Presidential Decree Nos. 381, 436, 464, 477, 626, 632, 752,
and 1136 are hereby repealed and rendered of no force and effect.
xxx xxx xxx
(f) All general and special laws, acts, city charter, decrees, executive
orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly. (emphasis supplied)
It is obvious from the above provisions of R.A 7160, specifically Sec. 534, that P.D.
921 was NOT EXPRESSLY repealed by said statute. Thus, the question is: Was P.D.
921 IMPLIEDLY repealed by R.A. 7160?
Petitioners contend that, contrary to the aforequoted Decision of the lower court,
"whether the assessment is made before or after the effectivity of R.A. 7160, the
observance of, and compliance with, the explicit requirement of P.D. 921 is strict

73 | t a x 2 fi n a l s

and mandatory either" because P.D. 921 was not impliedly repealed by R.A. 7160
and is therefore still the applicable statute, or because the Supreme Court, in
three related cases 10 promulgated on 16 December 1993 after the Local
Government Code of 1991 already took effect ruled that a schedule of market
values and the corresponding assessments based thereon "prepared solely by the
city assessor . . . failed to comply with the explicit requirement (of collegial and
joint action by all the assessors in the Metropolitan Manila area under P.D.
921) . . . and are on that account illegal and void."
On the other hand, respondents aver that Section 9 of P.D. 921 and Section 212 of
R.A. 7160 are clearly and unequivocally incompatible because they dwell on the
same subject matter, namely, the preparation of a schedule of values for real
property within the Metropolitan Manila Area. Under P.D. 921, the schedule shall
be preparedjointly by the city assessors of the District, while, under R.A. 7160,
such schedule shall be prepared "by the provincial, city and municipal assessors
of the municipalities within the Metropolitan Manila area . . . ". Furthermore, they
claim that "Section 9 (of P.D. 921) merely supplement(ed) Section 15 of P.D. 464
in so far as the preparation of the schedule of values in Metro Manila (is
concerned)." Thus, "with the express repeal of P.D. 464 . . . P.D. 921 . . .can not
therefore exist independently on its own." They also argue that although the
aforecited Supreme Court decision was promulgated after R.A. 7160 took effect,
"the assessment of the Municipal Assessors in those three (3) cited cases were
assessed in 1990 prior to the effectivity of the Code." Hence, the doctrine in said
cases cannot be applied to those prepared in 1994 under R.A. 7160.
We rule for petitioners.
R.A. 7160 has a repealing provision (Section 534) and, if the intention of the
legislature was to abrogate P.D. 921, it would have included it in such repealing
clause, as it did in expressly rendering of no force and effect several other
presidential decrees. Hence, any repeal or modification of P.D. 921 can only be
possible under par. (f) of said Section 534, as follows:
(f) All general and special laws, acts, city charter, decrees,
executive orders, proclamations and administrative regulations,
part or parts thereof which are inconsistent with any of the
provisions of the Code are hereby repealed or modified accordingly.
The foregoing partakes of the nature of a general repealing provision. It is a basic
rule of statutory construction that repeals by implication are not favored. An
implied repeal will not be allowed unless it is convincingly and unambiguously
demonstrated that the two laws are so clearly repugnant and patently
inconsistent that they cannot co-exist. This is based on the rationale that the will
of the legislature cannot be overturned by the judicial function of construction
and interpretation. Courts cannot take the place of Congress in repealing statutes.
Their function is to try to harmonize, as much as possible, seeming conflicts in the
laws and resolve doubts in favor of their validity and co-existence.

In Villegas v. Subido, 11 the issue raised before the Court was whether the
Decentralization Act had the effect of repealing what was specifically ordained in
the Charter of the City of Manila. Under the Charter, it was provided in its Section
22 that "The President of the Philippines with the consent of the Commission on
Appointments shall appoint . . . the City Treasurer and his Assistant." Under the
Decentralization Act, it was provided that "All other employees, except teachers
paid out of provincial, city or municipal general funds and other local funds
shall . . . be appointed by the provincial governor, city or municipal mayor upon
recommendation of the head of office concerned."
The Court, in
case 12 , said:

holding

that

there

was

no

implied

repeal

in

this

. . . It has been the constant holding of this Court that repeals by

implication are not favored and will not be so declared unless it be
manifest that the legislature so intended. Such a doctrine goes as far back
as United States v. Reyes, a 1908 decision (10 Phil. 423, Cf. U.S. v.
Academia, 10 Phil. 431 [1908]). It is necessary then before such a repeal is
deemed to exist that it be shown that the statutes or statutory provisions
deal with the same subject matter and that the latter be inconsistent with
the former. (Cf. Calderon v. Provincia del Santisimo Rosario, 28 Phil. 164
[1914]). There must be a showing of repugnancy clear and convincing in
character. The language used in the latter statute must be such as to
render it irreconcilable with what has been formerly enacted. An
inconsistency that falls short of that standard does not suffice. What is
needed is a manifest indication of the legislative purpose to repeal.
[Citing numerous cases]
More specifically, a subsequent statute, general in character as to its
terms and application, is not to be construed as repealing a special or
specific enactment, unless the legislative purpose to do so is manifest.
This is so even if the provisions of the latter are sufficiently comprehensive
to include what was set forth in the special act. This principle has likewise
been consistently applied in decisions of the Court from Manila Railroad
Co. v. Rafferty (40 Phil 224), decided as far back as 1919. A citation from
an opinion of Justice Tuason is illuminating. Thus: "From another angle the
presumption against repeal is stronger. A special law is not regarded as
having been amended or repealed by a general law unless the intent to
repeal or alter is manifest. Generalia specialibus non derogant. An this is
true although the terms of the general act are broad enough to include the
matter in the special statute. . . . At any rate, in the event harmony
between provisions of this type in the same law or in two laws is
impossible, the specific provision controls unless the statute, considered in
its entirety, indicates a contrary intention upon the part of the legislature. .
. . A general law is one which embraces a class of subjects or places and
does not omit any subject or place naturally belonging to such class, while

74 | t a x 2 fi n a l s

a special act is one which relates to particular persons or things of a

class." (citing Valera v. Tuason, 80 Phil. 823, 827-828 [1948].)
In the relatively recent case of Mecano vs. Commission on Audit 13 , the Court en
banc had occasion to reiterate and to reinforce the rule against implied repeals,
as follows:
Repeal by implication proceeds on the premise that where a statute of
later date clearly reveals an intention on the part of the legislature to
abrogate a prior act on the subject, that intention must be given effect.
Hence, before there can be a repeal, there must be a clear showing on the
part of the law maker that the intent in enacting the new law was to
abrogate the old one. The intention to repeal must be clear and manifest;
otherwise, at least, as a general rule, the later act is to be construed as a
continuation of, and not a substitute for, the first act and will continue so
far as the two acts are the same from the time of the first enactment.
There are two categories of repeal by implication. The first is where
provisions in the two acts on the same subject matter are in an
irreconcilable conflict, the later act to the extent of the conflict constitutes
an implied repeal of the earlier one. The second is if the later act covers
the whole subject of the earlier one and is clearly intended as a substitute,
it will operate to repeal the earlier law.
Implied repeal by irreconcilable inconsistency take place when the two
statutes cover the same subject matter; they are so clearly inconsistent
and incompatible with each other that they cannot be reconciled or
harmonized; and both cannot be given effect, that is that one law cannot
be enforced without nullifying the other.
In the same vein,
vs. Veridiano 14 :

but

in

different

words,

this

Court

ruled

in Gordon

Courts of justice, when confronted with apparently conflicting statutes,

should endeavor to reconcile the same instead of declaring outright the
invalidity of one as against the other. Such alacrity should be avoided. The
wise policy is for the judge to harmonize them if this is possible, bearing in
mind that they are equally the handiwork of the same legislature, and so
give effect to both while at the same time also according due respect to a
coordinate department of the government. It is this policy the Court will
apply in arriving at the interpretation of the laws above-cited and the
conclusions that should follow therefrom.
In the instant case, and using the Courts' standard for implied repeal in Mecano,
we compared the two laws.
Presidential Decree No. 921 was promulgated on 12 April 1976, with the aim
of, inter alia, evolving "a progressive revenue raising program that will not unduly
burden the tax payers . . . " 15 in Metropolitan Manila. Hence, it provided for the

"administration of local financial services in Metropolitan Manila" only, and for this
purpose, divided the area into four Local Treasury and Assessment Districts,
regulated the duties and functions of the treasurers and assessors in the cities
and municipalities in said area and spelled out the process of assessing, imposing
and distributing the proceeds of real estate taxes therein.
Upon the other hand, Republic Act No. 7160, otherwise "known and cited as the
Local 'Government Code of 1991'" 16 took effect on 01 January 1992 17. It declared
"genuine and meaningful local autonomy" as a policy of the state. Such policy
was meant to decentralize government "powers, authority, responsibilities and
resources" from the national government to the local government units "to enable
them to attain their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals." 18 In the
formulation and implementation of policies and measures on local autonomy,
''(l)ocal government units may group themselves, consolidate or coordinate their
efforts, services and resources for purposes commonly beneficial to them." 19
From the above, it is clear that the two laws are not co-extensive and mutually
inclusive in their scope and purpose. While R.A. 7160 covers almost all
governmental functions delegated to local government units all over the country,
P.D. 921 embraces only the Metropolitan Manila area and is limited to the
administration of financial services therein, especially the assessment and
collection of real estate (and some other local) taxes.
Coming down to specifics, Sec. 9 of P.D. 921 requires that the schedule of values
of real properties in the Metropolitan Manila area shall be prepared jointly by the
city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states
that the schedule shall be prepared "by the provincial, city and municipal
assessors of the municipalities within the Metropolitan Manila Area for the
different classes of real property situated in their respective local government
units for enactment by ordinance of the sanggunian concerned. . . ."
It is obvious that harmony in these provisions is not only possible, but in fact
desirable, necessary and consistent with the legislative intent and policy. By
reading together and harmonizing these two provisions, we arrive at the following
steps in the preparation of the said schedule, as follows:
1. The assessor in each municipality or city in the Metropolitan Manila area
shall prepare his/her proposed schedule of values, in accordance with Sec.
212, R.A. 7160.
2. Then, the Local Treasury and Assessment District shall meet, per Sec. 9,
P.D. 921. In the instant case, that district shall be composed of the
assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan,
pursuant to Sec. 1 of said P.D. In this meeting, the different assessors shall
compare their individual assessments, discuss and thereafter jointly agree
and produce a schedule of values for their district, taking into account the

75 | t a x 2 fi n a l s

preamble of said P.D. that they should evolve "a progressive revenue
raising program that will not unduly burden the taxpayers".
3. The schedule jointly agreed upon by the assessors shall then be
published in a newspaper of general circulation and submitted to the
sanggunian concerned for enactment by ordinance, per Sec. 212, R.A.
7160.
By this harmonization, both the preamble of P.D. 921 decreeing that the real
estate taxes shall "not unduly burden the taxpayer" and the "operative principle
of decentralization" provided under Sec. 3, R.A. 7160 encouraging local
government units to "consolidate or coordinate their efforts, services and
resources" shall be fulfilled. Indeed the essence of joint local action for common
good so cherished in the Local Government Code finds concrete expression in this
harmonization.
How about respondents' claim that, with the express repeal of P.D. 464, P.D. 921
being merely a "supplement" of said P.D. cannot "exist independently on its
own"? Quite the contrary is true. By harmonizing P.D. 921 with R.A. 7160, we have
just demonstrated that it can exist outside of P.D. 464, as a support, supplement
and extension of R.A. 7160, which for this purpose, has replaced P.D. 464.
Since it is now clear that P.D. 921 is still good law, it is equally clear that this
Court's ruling in the Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing
and applicable doctrine. And, applying the said ruling in the present case, it is
likewise clear that the schedule of values prepared solely by the respondent
municipal assessor is illegal and void.
Re: The Second Issue:
Exhaustion of Administrative Remedies
We now come to the second issue. The provisions of Sections 226 and 252 of R.A.
7160 being material to this issue, are set forth below:
Sec. 226. Local Board of Assessment Appeals. Any owner or person
having legal interest in the property who is not satisfied with the action of
the provincial, city or municipal assessor in the assessment of his property
may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or
city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
Sec. 252. Payment under Protest. (a) No protest shall be entertained unless the
taxpayer first pays the tax. There shall be annotated on the tax receipts the
words "paid under protest". The protest in writing must be filed within thirty (30)
days from payment of the tax to the provincial, city treasurer or municipal

treasurer, in the case of a municipality within Metropolitan Manila Area, who shall
decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest shall be held in trust by
the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer,
the amount or portion of the tax protested shall be refunded to the
protestant, or applied as tax credit against his existing or future tax
liability.
(d) In the event that the protest is denied or upon the lapse of the sixtyday period prescribed in subparagraph (a), the taxpayer may avail of the
remedies as provided for in Chapter 3, Title Two, Book II of this Code.
Respondents argue that this case is premature because petitioners neither
appealed the questioned assessments on their properties to the Board of
Assessment Appeal, pursuant to Sec. 226, nor paid the taxes under protest, per
Sec. 252.
We do not agree. Although as a rule, administrative remedies must first be
exhausted before resort to judicial action can prosper, there is a well-settled
exception in cases where the controversy does not involve questions of fact but
only of law. 20 In the present case, the parties, even during the proceedings in the
lower court on 11 April 1994, already agreed "that the issues in the petition are
legal" 21 , and thus, no evidence was presented in said court.
In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160
provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conducted
solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this
Board may be fruitful only where questions of fact are involved. Again, the protest
contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as
to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the
reasonableness of an increase in a real estate tax assessment, he is required to
"first pay the tax" under protest. Otherwise, the city or municipal treasurer will
not act on his protest. In the case at bench however, the petitioners are
questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax.
These are not questions merely of amounts of the increase in the tax but attacks
on the very validity of anyincrease.
Finally, it will be noted that in the consolidated cases of Mathay/Javier/PuyatReyes cited earlier, the Supreme Court referred the petitions (which similarly
questioned the schedules of market values prepared solely by the respective
assessors in the local government units concerned) to the Board of Assessment
Appeal, not for the latter, to exercise its appellate jurisdiction, but rather to act
only
as
a
fact-finding
commission.
Said
the
Court 22 thru Chief Justice Andres R. Narvasa:

76 | t a x 2 fi n a l s

On November 5, 1991, the Court issued a Resolution clarifying its earlier

one of May 16, 1991. It pointed out that the authority of the Central Board
of Assessment Appeals "to take cognizance of the factual issues raised in
these two cases by virtue of the referral by this Court in the exercise of its
extraordinary or certiorari jurisdiction should not be confused with its
appellate jurisdiction over appealed assessment cases under Section 36 of
P.D. 464 otherwise known as the Real Property Tax Code. The Board is not
acting in its appellate jurisdiction in the instant cases but rather, it is
acting as a Court-appointed fact-finding commission to assist the Court in
resolving the factual issues raised in G.R. Nos. 97618 and 97760."
In other words, the Court gave due course to the petitions therein in spite of the
fact that the petitioners had not, a priori, exhausted administrative remedies by
filing an appeal before said Board. Because there were factual issues raised in the
Mathay, et al. cases, the Supreme Court constituted the Central Board of
Assessment Appeals as a fact-finding body to assist the Court in resolving said
factual issues. But in the instant proceedings, there are no such factual issues.
Therefore, there is no reason to require petitioners to exhaust the administrative
remedies provided in R.A. 7160, nor to mandate a referral by this Court to said
Board.
Re: The Third Issue:
Constitutionality of the Assessments
Having already definitively disposed of the case through the resolution of the
foregoing two issues, we find no more need to pass upon the third. It is axiomatic
that the constitutionality of a law, regulation, ordinance or act will not be resolved
by courts if the controversy can be, as in this case it has been, settled on other
grounds. In the recent case of Macasiano vs. National Housing Authority 23 , this
Court declared:
It is a rule firmly entrenched in our jurisprudence that the constitutionality
of an act of the legislature will not be determined by the courts unless that
question is properly raised and presented in appropriate cases and is
necessary to a determination of the case, i.e., the issue of constitutionality
must be the very lis mota presented. To reiterate, the essential requisites
for a successful judicial inquiry into the constitutionality of a law are: (a)
the existence of an actual case or controversy involving a conflict of legal
rights susceptible of judicial determination, (b) the constitutional question
must be raised by a proper party, (c) the constitutional question must be
raised at the earliest opportunity, and (d) the resolution of the
constitutional question must be necessary to the decision of the case.
(emphasis supplied)
The aforequoted decision in Macasiano merely reiterated the ruling in Laurel
vs. Garcia 24, where this Court held:

The Court does not ordinarily pass upon constitutional questions unless
these questions are properly raised in appropriate cases and their
resolution is necessary for the determination of the case (People v. Vera,
65 Phil. 56 [1937]). The Court will not pass upon a constitutional question
although properly presented by the record if the case can be disposed of
on some other ground such as the application of a statute or general
law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad
Commission v. Pullman Co., 312 U.S. 496 [1941]). 25 (emphasis supplied)
In view of the foregoing ruling, the question may be asked: what happens to real
estate tax payments already made prior to its promulgation and finality? Under
the law 26 , "the taxpayer may file a written claim for refund or credit for taxes
and interests . . . ."
Finally, this Tribunal would be remiss in its duty as guardian of the judicial branch
if we let pass unnoticed the ease by which the respondent Judge consigned "to
the statutes' graveyard" a legislative enactment "together with the (three)
decisions of the Supreme Court" promulgated jointly and unanimously en banc.
An elementary regard for the sacredness of laws and the stability of judicial
doctrines laid down by superior authority should have constrained him to be more
circumspect in rendering his decision and to spell out carefully and precisely the
reasons for his decision to invalidate such acts, instead of imperiously decreeing
an implied repeal. He knows or should have known the legal precedents against
implied repeals. Respondent Judge, in his decision, did not even make an attempt
to try to reconcile or harmonize the laws involved. Instead, he just
unceremoniously swept them and this Court's decisions into the dustbin of
"judicial history." In his future acts and decisions, he is admonished to be more
judicious in setting aside established laws, doctrines and precedents.
WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the
questioned Decision and Order of respondent Judge, DECLARING as null and void
the questioned Schedule of Market Values for properties in Pasig City prepared by
respondent Assessor, as well as the corresponding assessments and real estate
tax increases based thereon; and ENJOINING the respondent Treasurer from
collecting the real estate tax increases made on the basis of said Schedule and
assessments. No costs.
SO ORDERED.

G.R. No. 189999

June 27, 2012

ANGELES UNIVERSITY FOUNDATION, Petitioner,

vs. CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of
Angeles City and ENGR. DONATO N. DIZON, in his capacity as Acting
Angeles City Building Official, Respondents.
VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, which seeks to reverse and set aside the
Decision1 dated July 28, 2009 and Resolution 2 dated October 12, 2009 of the
Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the
Decision3 dated September 21, 2007 of the Regional Trial Court of Angeles City,
Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment
of building permit and other fees and ordering respondents to refund the same
with interest at the legal rate.
The factual antecedents:
Petitioner Angeles University Foundation (AUF) is an educational institution
established on May 25, 1962 and was converted into a non-stock, non-profit
education foundation under the provisions of Republic Act (R.A.) No. 6055 4on
December 4, 1975.
Sometime in August 2005, petitioner filed with the Office of the City Building
Official an application for a building permit for the construction of an 11-storey

77 | t a x 2 fi n a l s

building of the Angeles University Foundation Medical Center in its main campus
located at MacArthur Highway, Angeles City, Pampanga. Said office issued a
Building Permit Fee Assessment in the amount of P126,839.20. An Order of
Payment was also issued by the City Planning and Development Office, Zoning
Administration Unit requiring petitioner to pay the sum of P238,741.64 as
Locational Clearance Fee.5
In separate letters dated November 15, 2005 addressed to respondents City
Treasurer Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon,
petitioner claimed that it is exempt from the payment of the building permit and
locational clearance fees, citing legal opinions rendered by the Department of
Justice (DOJ). Petitioner also reminded the respondents that they have previously
issued building permits acknowledging such exemption from payment of building
permit fees on the construction of petitioners 4-storey AUF Information
Technology Center building and the AUF Professional Schools building on July 27,
2000 and March 15, 2004, respectively. 6
Respondent City Treasurer referred the matter to the Bureau of Local Government
Finance (BLGF) of the Department of Finance, which in turn endorsed the query to
the DOJ. Then Justice Secretary Raul M. Gonzalez, in his letter-reply dated
December 6, 2005, cited previous issuances of his office (Opinion No. 157, s.
1981 and Opinion No. 147, s. 1982) declaring petitioner to be exempt from the
payment of building permit fees. Under the 1st Indorsement dated January 6,
2006, BLGF reiterated the aforesaid opinion of the DOJ stating further that "xxx
the Department of Finance, thru this Bureau, has no authority to review the
resolution or the decision of the DOJ."7
Petitioner wrote the respondents reiterating its request to reverse the disputed
assessments and invoking the DOJ legal opinions which have been affirmed by
Secretary Gonzalez. Despite petitioners plea, however, respondents refused to
issue the building permits for the construction of the AUF Medical Center in the
main campus and renovation of a school building located at Marisol Village.
Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but no
written response was received by petitioner.8
Consequently, petitioner paid under protest9 the following:

Medical Center (new construction)

78 | t a x 2 fi n a l s

Building Permit and Electrical Fee

P 217,475.20

Locational Clearance Fee

283,741.64

Fire Code Fee

144,690.00

Total - P 645,906.84

School Building (renovation)

Building Permit and Electrical Fee

P 37,857.20

Locational Clearance Fee

6,000.57

Fire Code Fee

5,967.74

Total - P 49,825.51

Petitioner likewise paid the following sums as required by the City Assessors
Office:

Real Property Tax Basic Fee

P 86,531.10

SEF

43,274.54

Locational Clearance Fee

1,125.00

Total P130,930.6410

[GRAND TOTAL - P 826,662.99]

By reason of the above payments, petitioner was issued the corresponding

Building Permit, Wiring Permit, Electrical Permit and Sanitary Building Permit. On
June 9, 2006, petitioner formally requested the respondents to refund the fees it
paid under protest. Under letters dated June 15, 2006 and August 7, 2006,
respondent City Treasurer denied the claim for refund.11
On August 31, 2006, petitioner filed a Complaint12 before the trial court seeking
the refund of P826,662.99 plus interest at the rate of 12% per annum, and also
praying for the award of attorneys fees in the amount of P300,000.00 and
litigation expenses.
In its Answer,13 respondents asserted that the claim of petitioner cannot be
granted because its structures are not among those mentioned in Sec. 209 of
the National Building Code as exempted from the building permit fee.
Respondents argued that R.A. No. 6055 should be considered repealed on the
basis of Sec. 2104 of the National Building Code. Since the disputed assessments
are regulatory in nature, they are not taxes from which petitioner is exempt. As to
the real property taxes imposed on petitioners property located in Marisol Village,
respondents pointed out that said premises will be used as a school dormitory
which cannot be considered as a use exclusively for educational activities.

79 | t a x 2 fi n a l s

Petitioner countered that the subject building permit are being collected on the
basis of Art. 244 of theImplementing Rules and Regulations of the Local
Government Code, which impositions are really taxes considering that they are
provided under the chapter on "Local Government Taxation" in reference to the
"revenue raising power" of local government units (LGUs). Moreover, petitioner
contended that, as held in Philippine Airlines, Inc. v. Edu, 14 fees may be regarded
as taxes depending on the purpose of its exaction. In any case, petitioner pointed
out that the Local Government Code of 1991 provides in Sec. 193 that non-stock
and non-profit educational institutions like petitioner retained the tax exemptions
or incentives which have been granted to them. Under Sec. 8 of R.A. No. 6055
and applicable jurisprudence and DOJ rulings, petitioner is clearly exempt from
the payment of building permit fees.15
On September 21, 2007, the trial court rendered judgment in favor of the
petitioner and against the respondents. The dispositive portion of the trial courts
decision16 reads:
WHEREFORE, premises considered, judgment is rendered as follows:
a. Plaintiff is exempt from the payment of building permit and other fees
Ordering the Defendants to refund the total amount of Eight Hundred
Twenty Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos
(P826,662.99) plus legal interest thereon at the rate of twelve percent
(12%) per annum commencing on the date of extra-judicial demand or
June 14, 2006, until the aforesaid amount is fully paid.
b. Finding the Defendants liable for attorneys fees in the amount of
Seventy Thousand Pesos (Php70,000.00), plus litigation expenses.
c. Ordering the Defendants to pay the costs of the suit.
SO ORDERED.17
Respondents appealed to the CA which reversed the trial court, holding that while
petitioner is a tax-free entity, it is not exempt from the payment of regulatory
fees. The CA noted that under R.A. No. 6055, petitioner was granted exemption
only from income tax derived from its educational activities and real property
used exclusively for educational purposes. Regardless of the repealing clause in
the National Building Code, the CA held that petitioner is still not exempt because

a building permit cannot be considered as the other "charges" mentioned in Sec.

8 of R.A. No. 6055 which refers to impositions in the nature of tax, import duties,
assessments and other collections for revenue purposes, following the ejusdem
generisrule. The CA further stated that petitioner has not shown that the fees
collected were excessive and more than the cost of surveillance, inspection and
regulation. And while petitioner may be exempt from the payment of real
property tax, petitioner in this case merely alleged that "the subject property is to
be used actually, directly and exclusively for educational purposes," declaring
merely that such premises is intended to house the sports and other facilities of
the university but by reason of the occupancy of informal settlers on the area, it
cannot yet utilize the same for its intended use. Thus, the CA concluded that
petitioner is not entitled to the refund of building permit and related fees, as well
as real property tax it paid under protest.
Petitioner filed a motion for reconsideration which was denied by the CA.

RA 6055 DOES NOT INCLUDE BUILDING PERMIT AND OTHER RELATED FEES
AND/OR CHARGES IS BASED ON ITS ERRONEOUS AND UNWARRANTED
ASSUMPTION THAT THE TAXES, IMPORT DUTIES AND ASSESSMENTS AS
PART OF THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK, NONPROFIT EDUCATIONAL FOUNDATIONS ARE LIMITED TO COLLECTIONS FOR
REVENUE PURPOSES.
C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED
FEES AND/OR CHARGES ARE NOT INCLUDED IN THE TERM "OTHER
CHARGES IMPOSED BY THE GOVERNMENT" UNDER SECTION 8 OF RA 6055,
ITS IMPOSITION IS GENERALLY A TAX MEASURE AND THEREFORE, STILL
COVERED UNDER THE PRIVILEGE OF EXEMPTION.
II. THE COURT OF APPEALS DENIAL OF PETITIONER AUFS EXEMPTION FROM REAL
PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND QUESTIONED
RESOLUTION IS CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE. 18

Hence, this petition raising the following grounds:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A
QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS NECESSITATING
THE HONORABLE COURTS EXERCISE OF ITS POWER OF SUPERVISION
CONSIDERING THAT:
I. IN REVERSING THE TRIAL COURTS DECISION DATED 21 SEPTEMBER 2007, THE
COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION
GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY VIRTUE
OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE AUTHORITY OF THE COURT OF
APPEALS TO DO.
A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND EFFECT.
HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED IN THE
QUESTIONED DECISION THAT NON-STOCK, NON-PROFIT EDUCATIONAL
FOUNDATIONS ARE NOT EXEMPT.
B. THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE OF EJUSDEM
GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM
"OTHER CHARGES IMPOSED BY THE GOVERNMENT" UNDER SECTION 8 OF

80 | t a x 2 fi n a l s

Petitioner stresses that the tax exemption granted to educational stock

corporations which have converted into non-profit foundations was broadened to
include any other charges imposed by the Government as one of the incentives
for such conversion. These incentives necessarily included exemption from
payment of building permit and related fees as otherwise there would have been
no incentives for educational foundations if the privilege were only limited to
exemption from taxation, which is already provided under the Constitution.
Petitioner further contends that this Court has consistently held in several cases
that the primary purpose of the exaction determines its nature. Thus, a charge of
a fixed sum which bears no relation to the cost of inspection and which is payable
into the general revenue of the state is a tax rather than an exercise of the police
power. The standard set by law in the determination of the amount that may be
imposed as license fees is such that is commensurate with the cost of regulation,
inspection and licensing. But in this case, the amount representing the building
permit and related fees and/or charges is such an exorbitant amount as to
warrant a valid imposition; such amount exceeds the probable cost of regulation.
Even with the alleged criteria submitted by the respondents (e.g., character of
occupancy or use of building/structure, cost of construction, floor area and
height), and the construction by petitioner of an 11-storey building, the costs of
inspection will not amount to P645,906.84, presumably for the salary of
inspectors or employees, the expenses of transportation for inspection and the

preparation and reproduction of documents. Petitioner thus concludes that the

disputed fees are substantially and mainly for purposes of revenue rather than
regulation, so that even these fees cannot be deemed "charges" mentioned in
Sec. 8 of R.A. No. 6055, they should properly be treated as tax from which
petitioner is exempt.
In their Comment, respondents maintain that petitioner is not exempt from the
payment of building permit and related fees since the only exemptions provided
in the National Building Code are public buildings and traditional indigenous
family dwellings. Inclusio unius est exclusio alterius. Because the law did not
include petitioners buildings from those structures exempt from the payment of
building permit fee, it is therefore subject to the regulatory fees imposed under
the National Building Code.
Respondents assert that the CA correctly distinguished a building permit fee from
those "other charges" mentioned in Sec. 8 of R.A. No. 6055. As stated by
petitioner itself, charges refer to pecuniary liability, as rents, and fees against
persons or property. Respondents point out that a building permit is classified
under the term "fee." A fee is generally imposed to cover the cost of regulation as
activity or privilege and is essentially derived from the exercise of police power;
on the other hand, impositions for services rendered by the local government
units or for conveniences furnished, are referred to as "service charges".
Respondents also disagreed with petitioners contention that the fees imposed
and collected are exorbitant and exceeded the probable expenses of regulation.
These fees are based on computations and assessments made by the responsible
officials of the City Engineers Office in accordance with the Schedule of Fees and
criteria provided in the National Building Code. The bases of assessment cited by
petitioner (e.g. salary of employees, expenses of transportation and preparation
and reproduction of documents) refer to charges and fees on business and
occupation under Sec. 147 of the Local Government Code, which do not apply to
building permit fees. The parameters set by the National Building Code can be
considered as complying with the reasonable cost of regulation in the assessment
and collection of building permit fees. Respondents likewise contend that the
presumption of regularity in the performance of official duty applies in this case.
Petitioner should have presented evidence to prove its allegations that the
amounts collected are exorbitant or unreasonable.

81 | t a x 2 fi n a l s

For resolution are the following issues: (1) whether petitioner is exempt from the
payment of building permit and related fees imposed under the National Building
Code; and (2) whether the parcel of land owned by petitioner which has been
assessed for real property tax is likewise exempt.
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner
which converted to non-stock, non-profit educational foundations. Section 8 of
said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all taxes, import
duties, assessments, and other charges imposed by the Government onall income
derived from or property, real or personal, used exclusively for the educational
activities of the Foundation.(Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting
the National Building Code of the Philippines. The said Code requires every
person, firm or corporation, including any agency or instrumentality of the
government to obtain a building permit for any construction, alteration or repair
of any building or structure.19Building permit refers to "a document issued by the
Building Official x x x to an owner/applicant to proceed with the construction,
installation, addition, alteration, renovation, conversion, repair, moving,
demolition or other work activity of a specific project/building/structure or
portions thereof after the accompanying principal plans, specifications and other
pertinent documents with the duly notarized application are found satisfactory
and substantially conforming with the National Building Code of the Philippines x
x x and its Implementing Rules and Regulations (IRR)." 20 Building permit fees
refers to the basic permit fee and other charges imposed under theNational
Building Code.
Exempted from the payment of building permit fees are: (1) public buildings and
(2) traditional indigenous family dwellings.21 Not being expressly included in the
enumeration of structures to which the building permit fees do not apply,
petitioners claim for exemption rests solely on its interpretation of the term
"other charges imposed by the National Government" in the tax exemption clause
of R.A. No. 6055.
A "charge" is broadly defined as the "price of, or rate for, something," while the
word "fee" pertains to a "charge fixed by law for services of public officers or for
use of a privilege under control of government." 22 As used in the Local

Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary liability, as
rents or fees against persons or property, while fee means a charge fixed by law
or ordinance for the regulation or inspection of a business or activity. 23

building or structure or causethe same to be done without first obtaining a

building permittherefor from the Building Official assigned in the place where
thesubject building is located or the building work is to be done. (Italics supplied.)

That "charges" in its ordinary meaning appears to be a general term which could
cover a specific "fee" does not support petitioners position that building permit
fees are among those "other charges" from which it was expressly exempted.
Note that the "other charges" mentioned in Sec. 8 of R.A. No. 6055 is qualified by
the words "imposed by the Government on all x x x property used exclusively for
the educational activities of the foundation." Building permit fees are not
impositions on property but on the activity subject of government regulation.
While it may be argued that the fees relate to particular properties, i.e., buildings
and structures, they are actually imposed on certain activities the owner may
conduct either to build such structures or to repair, alter, renovate or demolish
the same. This is evident from the following provisions of the National Building
Code:

That a building permit fee is a regulatory imposition is highlighted by the fact that
in processing an application for a building permit, the Building Official shall see to
it that the applicant satisfies and conforms with approved standard requirements
on zoning and land use, lines and grades, structural design, sanitary and
sewerage, environmental health, electrical and mechanical safety as well as with
other rules and regulations implementing the National Building Code. 24 Thus,
ancillary permits such as electrical permit, sanitary permit and zoning clearance
must also be secured and the corresponding fees paid before a building permit
may be issued. And as can be gleaned from the implementing rules and
regulations of the National Building Code, clearances from various government
authorities
exercising
and
enforcing
regulatory
functions
affecting
buildings/structures, like local government units, may be further required before a
building permit may be issued.25

Section 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health,
property, and public welfare, consistent with theprinciples of sound environmental
management and control; and tothis end, make it the purpose of this Code to
provide for allbuildings and structures, a framework of minimum standards and
requirements to regulate and control their location, site, design quality of
materials, construction, use, occupancy, and maintenance.
Section 103. Scope and Application
(a) The provisions of this Code shall apply to the design,location, sitting,
construction, alteration, repair,conversion, use, occupancy, maintenance, moving,
demolitionof, and addition to public and private buildings andstructures, except
traditional indigenous family dwellingsas defined herein.

Since building permit fees are not charges on property, they are not impositions
from which petitioner is exempt.
As to petitioners argument that the building permit fees collected by respondents
are in reality taxes because the primary purpose is to raise revenues for the local
government unit, the same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police
power.26 In this case, the Secretary of Public Works and Highways who is
mandated to prescribe and fix the amount of fees and other charges that the
Building Official shall collect in connection with the performance of regulatory
functions,27 has promulgated and issued the Implementing Rules and
Regulations28 which provide for the bases of assessment of such fees, as follows:

xxxx

1. Character of occupancy or use of building

Section 301. Building Permits

2. Cost of construction " 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)

No person, firm or corporation, including any agency orinstrumentality of the

government shall erect, construct, alter, repair, move, convert or demolish any

3. Floor area

82 | t a x 2 fi n a l s

4. Height
Petitioner failed to demonstrate that the above bases of assessment were
arbitrarily determined or unrelated to the activity being regulated. Neither has
petitioner adduced evidence to show that the rates of building permit fees
imposed and collected by the respondents were unreasonable or in excess of the
cost of regulation and inspection.
In Chevron Philippines, Inc. v. Bases Conversion Development Authority, 29 this
Court explained:
In distinguishing tax and regulation as a form of police power, the determining
factor is the purpose of the implemented measure. If the purpose is primarily to
raise revenue, then it will be deemed a tax even though the measure results in
some form of regulation. On the other hand, if the purpose is primarily to
regulate, then it is deemed a regulation and an exercise of the police power of the
state, even though incidentally, revenue is generated. Thus, in Gerochi v.
Department of Energy, the Court stated:
"The conservative and pivotal distinction between these two (2) powers rests in
the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that revenue is incidentally raised does
not make the imposition a tax."30 (Emphasis supplied.)

The remaining eighty percent shall be deposited with the provincial, city or
municipal treasurer and shall accrue to the General Fund of the province, city or
municipality concerned.
Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise
misplaced. Said provision states:
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
(Emphasis supplied.)
Considering that exemption from payment of regulatory fees was not among
those "incentives" granted to petitioner under R.A. No. 6055, there is no such
incentive that is retained under the Local Government Code of 1991.
Consequently, no reversible error was committed by the CA in ruling that
petitioner is liable to pay the subject building permit and related fees.
Now, on petitioners claim that it is exempted from the payment of real property
tax assessed against its real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:

Concededly, in the case of building permit fees imposed by the National

Government under the National Building Code, revenue is incidentally generated
for the benefit of local government units. Thus:
Section 208. Fees
Every Building Official shall keep a permanent record and accurate account of all
fees and other charges fixed and authorized by the Secretary to be collected and
received under this Code.
Subject to existing budgetary, accounting and auditing rules and regulations, the
Building Official is hereby authorized to retain not more than twenty percent of his
collection for the operating expenses of his office.

83 | t a x 2 fi n a l s

xxxx
(3) Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation.
x x x x (Emphasis supplied.)
Section 234(b) of the Local Government Code of 1991 implements the foregoing
constitutional provision by declaring that --

SECTION 234. Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
xxxx
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
x x x x (Emphasis supplied.)
In Lung Center of the Philippines v. Quezon City, 31 this Court held that only
portions of the hospital actually, directly and exclusively used for charitable
purposes are exempt from real property taxes, while those portions leased to
private entities and individuals are not exempt from such taxes. We explained the
condition for the tax exemption privilege of charitable and educational
institutions, as follows:
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and "exclusively" is defined, "in a
manner to exclude; as enjoying a privilege exclusively." If real property is used for
one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation. The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively" without doing violence to
the Constitutions and the law. Solely is synonymous with exclusively.1wphi1
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself
to the purposes for which the charitable institution is organized. It is not the use
of the income from the real property that is determinative of whether the property
is used for tax-exempt purposes.32 (Emphasis and underscoring supplied.)
Petitioner failed to discharge its burden to prove that its real property is actually,
directly and exclusively used for educational purposes. While there is no

84 | t a x 2 fi n a l s

allegation or proof that petitioner leases the land to its present occupants, still
there is no compliance with the constitutional and statutory requirement that said
real property is actually, directly and exclusively used for educational purposes.
The respondents correctly assessed the land for real property taxes for the
taxable period during which the land is not being devoted solely to petitioners
educational activities. Accordingly, the CA did not err in ruling that petitioner is
likewise not entitled to a refund of the real property tax it paid under protest.
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and
Resolution dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No.
90591 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 192945

September 5, 2012

CITY OF IRIGA, Petitioner,

vs. CAMARINES SUR III ELECTRIC COOPERATIVE, INC. (CASURECO
III), Respondent.
PERLAS-BERNABE, J.:

The Court reiterates that a franchise tax is a tax levied on the exercise by an
entity of the rights or privileges granted to it by the government. 1 In the absence
of a clear and subsisting legal provision granting it tax exemption, a franchise
holder, though non-profit in nature, may validly be assessed franchise tax by a
local government unit.
Before the Court is a petition filed under Rule 45 of the Revised Rules of Court
seeking to set aside the February 11, 2010 Decision 2 and July 12, 2010
Resolution3 of the Court of Appeals (CA), which reversed the February 7, 2005
Decision of the Regional Trial Court (RTC) of Iriga City, Branch 36 and ruled that
respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO III) is exempt
from payment of local franchise tax.

The Facts

85 | t a x 2 fi n a l s

CASURECO III is an electric cooperative duly organized and existing by virtue of

Presidential Decree (PD) 269,4as amended, and registered with the National
Electrification Administration (NEA). It is engaged in the business of electric power
distribution to various end-users and consumers within the City of Iriga and the
municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of
Camarines Sur, otherwise known as the "Rinconada area."5
Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a
report of its gross receipts for the period 1997-2002 to serve as the basis for the
computation of franchise taxes, fees and other charges. 6 The latter complied7 and
was subsequently assessed taxes.
On January 7, 2004, petitioner made a final demand on CASURECO III to pay
franchise taxes due for the period 1998-2003 and real property taxes due for
period 1995-2003.8 CASURECO III, however, refused to pay said taxes on
ground that it is an electric cooperative provisionally registered with
Cooperative Development Authority (CDA), 9 and therefore exempt from
payment of local taxes.10

the
the
the
the
the

On March 15, 2004, petitioner filed a complaint for collection of local taxes
against CASURECO III before the RTC, citing its power to tax under the Local
Government Code (LGC) and the Revenue Code of Iriga City. 11
It alleged that as of December 31, 2003, CASURECO IIIs franchise and real
property taxes liability, inclusive of penalties, surcharges and interest, amounted
to Seventeen Million Thirty-Seven Thousand Nine Hundred Thirty-Six Pesos and
Eighty-Nine Centavos (P 17,037,936.89) and Nine Hundred Sixteen Thousand Five
Hundred Thirty-Six Pesos and Fifty Centavos (P 916,536.50), respectively.12
In its Answer, CASURECO III denied liability for the assessed taxes, asserting that
the computation of the petitioner was erroneous because it included 1) gross
receipts from service areas beyond the latters territorial jurisdiction; 2) taxes
that had already prescribed; and 3) taxes during the period when it was still
exempt from local government tax by virtue of its then subsisting registration
with the CDA.13

86 | t a x 2 fi n a l s

Ruling of the Trial Court

In its Decision dated February 7, 2005, the RTC ruled that the real property taxes
due for the years 1995-1999 had already prescribed in accordance with Section
19414 of the LGC. However, it found CASURECO III liable for franchise taxes for the
years 2000-2003 based on its gross receipts from Iriga City and the Rinconada
area on the ground that the "situs of taxation is the place where the privilege is
exercised."15 The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing, defendant is hereby made liable to pay
plaintiff real property taxes and franchise taxes on its receipts, including those
from service area covering Nabua, Bato, Baao and Buhi for the years 2000 up to
the present. The realty taxes for the years 1995 and 1999 is hereby declared
prescribed. The City Assessor is hereby directed to make the proper classification
of defendants real property in accordance with Ordinance issued by the City
Council.
SO ORDERED.16
Only CASURECO III appealed from the RTC Decision, questioning its liability for
franchise taxes.

Ruling of the Court of Appeals

In its assailed Decision, the CA found CASURECO III to be a non-profit entity, not
falling within the purview of "businesses enjoying a franchise" pursuant to Section
137 of the LGC. It explained that CASURECO IIIs non-profit nature is diametrically
opposed to the concept of a "business," which, as defined under Section 131 of
the LGC, is a "trade or commercial activity regularly engaged in as a means of
livelihood or with a view to profit." Consequently, it relieved CASURECO III from
liability to pay franchise taxes.
Petitioner moved for reconsideration, which the CA denied in its July 12, 2010
Resolution for being filed a day late, hence, the instant petition.

Issues Before the Court

belatedly filed is inconsequential, because a void and non-existent decision would

never have acquired finality.21

Petitioner raises two issues for resolution, which the Court restates as follows: (1)
whether or not an electric cooperative registered under PD 269 but not under RA
693817 is liable for the payment of local franchise taxes; and (2) whether or not
the situs of taxation is the place where the franchise holder exercises its franchise
regardless of the place where its services or products are delivered.

The foregoing procedural lapses would have been sufficient to dismiss the instant
petition outright and declare the decision of the RTC final. However, the
substantial merits of the case compel us to dispense with these lapses and
instead, exercise the Courts power of judicial review.

CASURECO III, on the other hand, raises the procedural issue that since the
motion for reconsideration of the CA Decision was filed out of time, the same had
attained finality.

CASURECO III is not exempt from payment of franchise tax

The Courts Ruling

The petition is meritorious.
Before delving into the substantive issues, the Court notes the procedural lapses
extant in the present case.

Proper Mode of Appeal from the Decision of the Regional Trial Court
involving local taxes
18

RA 9282, which took effect on April 23, 2004, expanded the jurisdiction of the
Court of Tax Appeals (CTA) to include, among others, the power to review by
appeal decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction.19
Considering that RA 9282 was already in effect when the RTC rendered its
decision on February 7, 2005, CASURECO III should have filed its appeal, not with
the CA, but with the CTA Division in accordance with the applicable law and the
rules of the CTA. Resort to the CA was, therefore, improper, rendering its decision
null and void for want of jurisdiction over the subject matter. A void judgment has
no legal or binding force or efficacy for any purpose or at any place. 20 Hence, the
fact that petitioner's motion for reconsideration from the CA Decision was

87 | t a x 2 fi n a l s

PD 269, which took effect on August 6, 1973, granted electric cooperatives

registered with the NEA, like CASURECO III, several tax privileges, one of which is
exemption from the payment of "all national government, local government and
municipal taxes and fees, including franchise, filing, recordation, license or permit
fees or taxes."22
On March 10, 1990, Congress enacted into law RA 6938, 23 otherwise known as the
"Cooperative Code of the Philippines," and RA 6939 24 creating the CDA. The latter
law vested the power to register cooperatives solely on the CDA, while the former
provides that electric cooperatives registered with the NEA under PD 269 which
opt not to register with the CDA shall not be entitled to the benefits and privileges
under the said law.
On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax
exemptions or incentives previously enjoyed by "all persons, whether natural or
juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions."25
In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The
Secretary, Department of Interior and Local Government, 26 the Court held that the
tax privileges granted to electric cooperatives registered with NEA under PD 269
were validly withdrawn and only those registered with the CDA under RA 6938
may continue to enjoy the tax privileges under the Cooperative Code.
Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local
taxes. Moreover, its provisional registration with the CDA which granted it

exemption for the payment of local taxes was extended only until May 4, 1992.
Thereafter, it can no longer claim any exemption from the payment of local taxes,
including the subject franchise tax.1wphi1
Indisputably, petitioner has the power to impose local taxes. The power of the
local government units to impose and collect taxes is derived from the
Constitution itself which grants them "the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and
limitation as the Congress may provide." 27 This explicit constitutional grant of
power to tax is consistent with the basic policy of local autonomy and
decentralization of governance. With this power, local government units have the
fiscal mechanisms to raise the funds needed to deliver basic services to their
constituents and break the culture of dependence on the national government.
Thus, consistent with these objectives, the LGC was enacted granting the local
government units, like petitioner, the power to impose and collect franchise tax,
to wit:
SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. xxx
SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code,
the city, may levy the taxes, fees, and charges which the province or municipality
may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code. The rates of
taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
Taking a different tack, CASURECO III maintains that it is exempt from payment of
franchise tax because of its nature as a non-profit cooperative, as contemplated
in PD 269,28 and insists that only entities engaged in business, and not non-profit
entities like itself, are subject to the said franchise tax.
The Court is not persuaded.

88 | t a x 2 fi n a l s

In National Power Corporation v. City of Cabanatuan, 29 the Court declared that "a
franchise tax is a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state." 30 It is not levied on the
corporation simply for existing as a corporation, upon its property or its income,
but on its exercise of the rights or privileges granted to it by the government. 31 "It
is within this context that the phrase tax on businesses enjoying a franchise in
Section 137 of the LGC should be interpreted and understood."32
Thus, to be liable for local franchise tax, the following requisites should concur:
(1) that one has a "franchise" in the sense of a secondary or special franchise;
and (2) that it is exercising its rights or privileges under this franchise within the
territory of the pertinent local government unit. 33
There is a confluence of these requirements in the case at bar. By virtue of PD
269, NEA granted CASURECO III a franchise to operate an electric light and power
service for a period of fifty (50) years from June 6, 1979, 34 and it is undisputed
that CASURECO III operates within Iriga City and the Rinconada area. It is,
therefore, liable to pay franchise tax notwithstanding its non-profit nature.

CASURECO III is liable for franchise tax on gross receipts within Iriga
City and Rinconada area
CASURECO III further argued that its liability to pay franchise tax, if any, should
be limited to gross receipts received from the supply of the electricity within the
City of Iriga and not those from the Rinconada area.
Again, the Court is not convinced.
It should be stressed that what the petitioner seeks to collect from CASURECO III
is a franchise tax, which as defined, is a tax on the exercise of a privilege. As
Section 13735 of the LGC provides, franchise tax shall be based on gross receipts
precisely because it is a tax on business, rather than on persons or
property.36 Since it partakes of the nature of an excise tax/ 37 the situs of taxation
is the place where the privilege is exercised, in this case in the City of Iriga, where
CASURECO III has its principal office and from where it operates, regardless of the
place where its services or products are delivered. Hence, franchise tax covers all
gross receipts from Iriga City and the Rinconada area.

WHEREFORE, the petition is GRANTED. The assailed Decision dated February

11, 2010 and Resolution dated July 12, 2010 of the Court of Appeals are
hereby SET ASIDE and the Decision of the Regional Trial Court oflriga City,
Branch 36, is REINSTATED. SO ORDERED.

89 | t a x 2 fi n a l s