Period Covered Gross Receipts Gross Receipts Tax
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. SOLIDBANK CORPORATION, respondent.
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from passive
income are subject to a twenty percent final withholding tax
(20% FWT). This tax is withheld at source and is thus
not actuallyand physically received by the banks, because it is
paid directly to the government by the entities from which the
banks derived the income. Apart from the 20% FWT, banks are
also subject to a five percent gross receipts tax (5% GRT) which
is imposed by the Tax Code on their gross receipts, including the
passive income.
Since the 20% FWT is constructively received by the banks
and forms part of their gross receipts or earnings, it follows that
it is subject to the 5% GRT. After all, the amount withheld is paid
to the government on their behalf, in satisfaction of their
withholding taxes. That they do not actually receive the amount
does not alter the fact that it is remitted for their benefit in
satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no
withholding tax system in place in this country, this 20 percent
portion of the passive income of banks would actually be paid to
the banks and then remitted by them to the government in
payment of their income tax. The institution of the withholding
tax system does not alter the fact that the 20 percent portion of
their passive income constitutes part of their actual earnings,
except that it is paid directly to the government on their behalf in
satisfaction of the 20 percent final income tax due on their
passive incomes.
The Case
Before us is a Petition for Review[1] under Rule 45 of the
Rules of Court, seeking to annul the July 18, 2000 Decision[2] and
the May 8, 2001 Resolution[3] of the Court of Appeals[4] (CA) in
CA-GR SP No. 54599. The decretal portion of the assailed
Decision reads as follows:
WHEREFORE, we AFFIRM in toto the assailed decision and
resolution of the Court of Tax Appeals.[5]
The challenged Resolution denied petitioners Motion for
Reconsideration.
The Facts
Quoting petitioner, the CA[6] summarized the facts of this
case as follows:
For the calendar year 1995, [respondent] seasonably filed its
Quarterly Percentage Tax Returns reflecting gross receipts
(pertaining to 5% [Gross Receipts Tax] rate) in the total amount
of P1,474,691,693.44 with corresponding gross receipts tax
payments in the sum of P73,734,584.60, broken down as follows:
January to March 1994 P 188,406,061.95 P 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September
1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total P 1,474,691,693.44 P 73,734,584.60
[Respondent] alleges that the total gross receipts in the amount
of P1,474,691,693.44 included the sum of P350,807,875.15
representing gross receipts from passive income which was
already subjected to 20% final withholding tax.
On January 30, 1996, [the Court of Tax Appeals] rendered a
decision in CTA Case No. 4720 entitled Asian Bank Corporation vs.
Commissioner of Internal Revenue[,] wherein it was held that the
20% final withholding tax on [a] banks interest income should
not form part of its taxable gross receipts for purposes of
computing the gross receipts tax.
On June 19, 1997, on the strength of the aforementioned decision,
[respondent] filed with the Bureau of Internal Revenue [BIR] a
letter-request for the refund or issuance of [a] tax credit
certificate in the aggregate amount of P3,508,078.75,
representing allegedly overpaid gross receipts tax for the year
1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] P 3,508,078.75
Without waiting for an action from the [petitioner], [respondent]
on the same day filed [a] petition for review [with the Court of
Tax Appeals] in order to toll the running of the two-year
prescriptive period to judicially claim for the refund of [any]
overpaid internal revenue tax[,] pursuant to Section 230 [now
229] of the Tax Code [also National Internal Revenue Code] x x x.
xxxxxxxxx
After trial on the merits, the [Court of Tax Appeals], on August 6,
1999, rendered its decision ordering x x x petitioner to refund in
favor of x x x respondent the reduced amount of P1,555,749.65 as
overpaid [gross receipts tax] for the year 1995. The legal issue x x
x was resolved by the [Court of Tax Appeals], with Hon. Amancio
Q. Saga dissenting, on the strength of its earlier pronouncement
in x x x Asian Bank Corporation vs. Commissioner of Internal
Revenue x x x, wherein it was held that the 20% [final
withholding tax] on [a] banks interest income should not form
part of its taxable gross receipts for purposes of computing the
[gross receipts tax].[7]
Ruling of the CA
Page 1 of 29
 The CA held that the 20% FWT on a banks interest income (a) On interest, commissions and discounts from lending
did not form part of the taxable gross receipts in computing the activities as well as income from financial leasing, on the basis of
5% GRT, because the FWT was not actually received by the bank remaining maturities of instruments from which such receipts
but was directly remitted to the government. The appellate court are derived.
curtly said that while the Tax Code does not specifically state any
exemption, x x x the statute must receive a sensible construction Short-term maturity not in excess of two (2) years5%
such as will give effect to the legislative intention, and so as to Medium-term maturity over two (2) years
avoid an unjust or absurd conclusion.[8] but not exceeding four (4) years....3%
Hence, this appeal.[9] Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
Issue (b) On dividends...0%
(c) On royalties, rentals of property, real or
personal, profits from exchange
Petitioner raises this lone issue for our consideration: and all other items treated as
gross income under Section
28[14] of this
Whether or not the 20% final withholding tax on [a] banks
Code.......................................................
interest income forms part of the taxable gross receipts in
.............5%
computing the 5% gross receipts tax.[10]

Provided, however, That in case the maturity period referred to in

paragraph (a) is shortened thru pretermination, then the
The Courts Ruling maturity period shall be reckoned to end as of the date of
pretermination for purposes of classifying the transaction as
short, medium or long term and the correct rate of tax shall be
The Petition is meritorious. applied accordingly.

Nothing in this Code shall preclude the Commissioner from

Sole Issue: imposing the same tax herein provided on persons performing
Whether the 20% FWT Forms Part similar banking activities.
of the Taxable Gross Receipts
The 5% GRT[15] is included under Title V. Other Percentage
Taxes of the Tax Code and is not subject to withholding. The
Petitioner claims that although the 20% FWT on banks and non-bank financial intermediaries liable therefor shall,
respondents interest income was not actually received by under Section 125(a)(1),[16] file quarterly returns on the amount
respondent because it was remitted directly to the government, of gross receipts and pay the taxes due thereon within twenty
the fact that the amount redounded to the banks benefit makes it (20)[17] days after the end of each taxable quarter.
part of the taxable gross receipts in computing the 5%
GRT. Respondent, on the other hand, maintains that the CA The 20% FWT,[18] on the other hand, falls under Section
correctly ruled otherwise. 24(e)(1)[19] of Title II. Tax on Income. It is a tax on passive
income, deducted and withheld at source by the payor-
We agree with petitioner. In fact, the same issue has been corporation and/or person as withholding agent pursuant to
raised recently in China Banking Corporation v. CA,[11] where this Section 50,[20] and paid in the same manner and subject to the
Court held that the amount of interest income withheld in same conditions as provided for in Section 51.[21]
payment of the 20% FWT forms part of gross receipts in
computing for the GRT on banks. A perusal of these provisions clearly shows that two types
of taxes are involved in the present controversy: (1) the GRT,
which is a percentage tax; and (2) the FWT, which is an income
tax. As a bank, petitioner is covered by both taxes.
The FWT and the GRT:
Two Different Taxes A percentage tax is a national tax measured by a certain
percentage of the gross selling price or gross value in money of
goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of
The 5% GRT is imposed by Section 119[12] of the Tax
services.[22] It is not subject to withholding.
Code,[13] which provides:
An income tax, on the other hand, is a national tax imposed
SEC. 119. Tax on banks and non-bank financial on the net or the gross income realized in a taxable year.[23] It is
intermediaries. There shall be collected a tax on gross receipts subject to withholding.
derived from sources within the Philippines by all banks and
non-bank financial intermediaries in accordance with the In a withholding tax system, the payee is the taxpayer, the
following schedule: person on whom the tax is imposed; the payor, a separate entity,
acts as no more than an agent of the government for the
collection of the tax in order to ensure its payment. Obviously,
this amount that is used to settle the tax liability is deemed
Page 2 of 29
sourced from the proceeds constitutive of the tax base.[24] These
proceeds are either actual or constructive. Both parties herein
agree that there is no actual receipt by the bank of the amount
withheld. What needs to be determined is if there
is constructive receipt thereof. Since the payee -- not the payor --
is the real taxpayer, the rule on constructive receipt can be easily
rationalized, if not made clearly manifest.[25]
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-
84,[26] petitioner contends that there is constructive receipt of the
interest on deposits and yield on deposit
substitutes.[27]Respondent, however, claims that even if there is,
it is Section 4(e) of RR 12-80[28] that nevertheless governs the
situation.
Section 7 of RR 17-84 states:
SEC. 7. Nature and Treatment of Interest on Deposits and Yield on
Deposit Substitutes.
(a) The interest earned on Philippine Currency bank deposits and
yield from deposit substitutes subjected to the withholding taxes
in accordance with these regulations need not be included in the
gross income in computing the depositors/investors income tax
liability in accordance with the provision of Section
29(b),[29] (c)[30] and (d) of the National Internal Revenue Code, as
amended.
(b) Only interest paid or accrued on bank deposits, or yield from
deposit substitutes declared for purposes of imposing the
withholding taxes in accordance with these regulations shall be
allowed as interest expense deductible for purposes of
computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are
financial institutions, the same shall be included as part of the tax
base upon which the gross receipt[s] tax is imposed.
Section 4(e) of RR 12-80, on the other hand, states that the
tax rates to be imposed on the gross receipts of banks, non-bank
financial intermediaries, financing companies, and other non-
bank financial intermediaries not performing quasi-banking
activities shall be based on all items of
income actually received. This provision reads:
SEC. 4. x x x x x x x x x
(e) Gross receipts tax on banks, non-bank financial
intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities.
The rates of tax to be imposed on the gross receipts of such
financial institutions shall be based on all items of income
actually received. Mere accrual shall not be considered, but once
payment is received on such accrual or in cases of prepayment,
then the amount actually received shall be included in the tax
base of such financial institutions, as provided hereunder x x x.
Respondent argues that the above-quoted provision is plain
and clear: since there is no actual receipt, the FWT is not to be
included in the tax base for computing the GRT. There is
supposedly no pecuniary benefit or advantage accruing to the
bank from the FWT, because the income is subjected to a tax
burden immediately upon receipt through the withholding
process. Moreover, the earlier RR 12-80 covered matters not
falling under the later RR 17-84.[31]
We are not persuaded.
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531
and 532 of our Civil Code.
Under Article 531:[32]
Possession is acquired by the material occupation of a thing or
the exercise of a right, or by the fact that it is subject to the action
of our will, or by the proper acts and legal formalities established
for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy
it, by his legal representative, by his agent, or by any person
without any power whatever; but in the last case, the possession
shall not be considered as acquired until the person in whose
name the act of possession was executed has ratified the same,
without prejudice to the juridical consequences of negotiorum
gestio in a proper case.[33]
The last means of acquiring possession under Article 531
refers to juridical acts -- the acquisition of possession by
sufficient title to which the law gives the force of acts of
possession.[34] Respondent argues that only items of
income actually received should be included in its gross
receipts. It claims that since the amount had already been
withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides
that the acquisition of the right of possession is through the
proper acts and legal formalities established therefor. The
withholding process is one such act. There may not
be actual receipt of the income withheld; however, as provided
for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the
person in whose name the act of possession is executed.
In our withholding tax system, possession is acquired by
the payor as the withholding agent of the government, because
the taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt. The processes of
bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are indeed -- for
legal purposes -- tantamount to delivery, receipt or
remittance.[35] Besides, respondent itself admits that its income is
subjected to a tax burden immediately upon receipt, although it
claims that it derives no pecuniary benefit or advantage through
the withholding process. There being constructive receipt of such
income -- part of which is withheld -- RR 17-84 applies, and that
income is included as part of the tax base upon which the GRT is
imposed.
Page 3 of 29
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on
interest income constructively received.
In general, rules and regulations issued by administrative
or executive officers pursuant to the procedure or authority
conferred by law upon the administrative agency have the force
and effect, or partake of the nature, of a statute.[36] The reason is
that statutes express the policies, purposes, objectives, remedies
and sanctions intended by the legislature in general terms. The
details and manner of carrying them out are oftentimes left to the
administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who
promulgates the revenue regulations, upon recommendation of
the BIR commissioner. These regulations are the consequences of
a delegated power to issue legal provisions that have the effect of
law.[37]
A revenue regulation is binding on the courts as long as the
procedure fixed for its promulgation is followed. Even if the
courts may not be in agreement with its stated policy or innate
wisdom, it is nonetheless valid, provided that its scope is within
the statutory authority or standard granted by the
legislature.[38] Specifically, the regulation must (1) be germane to
the object and purpose of the law;[39] (2) not contradict, but
conform to, the standards the law prescribes;[40] and (3) be
issued for the sole purpose of carrying into effect the general
provisions of our tax laws.[41]
In the present case, there is no question about the
regularity in the performance of official duty. What needs to be
determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when
there is a declaration in a regulation -- usually in its repealing
clause -- that another regulation, identified by its number or title,
is repealed. All others are implied repeals.[42] An example of the
latter is a general provision that predicates the intended repeal
on a substantial conflict between the existing and the prior
regulations.[43]
As stated in Section 11 of RR 17-84, all regulations, rules,
orders or portions thereof that are inconsistent with the
provisions of the said RR are thereby repealed. This declaration
proceeds on the premise that RR 17-84 clearly reveals such an
intention on the part of the Department of Finance. Otherwise,
later RRs are to be construed as a continuation of, and not a
substitute for, earlier RRs; and will continue to speak, so far as
the subject matter is the same, from the time of the first
promulgation.[44]
There are two well-settled categories of implied repeals: (1)
in case the provisions are in irreconcilable conflict, the later
regulation, to the extent of the conflict, constitutes an implied
repeal of an earlier one; and (2) if the later regulation covers the
whole subject of an earlier one and is clearly intended as a substitute, it
will similarly operate as a repeal of the earlier one.[45] There is no
implied repeal of an earlier RR by the mere fact that its subject matter
is related to a later RR, which may simply be a cumulation or
continuation of the earlier one.[46]
Where a part of an earlier regulation embracing the same
subject as a later one may not be enforced without nullifying the
pertinent provision of the latter, the earlier regulation is deemed
impliedly amended or modified to the extent of the
repugnancy.[47] The unaffected provisions or portions of the
earlier regulation remain in force, while its omitted portions are
deemed repealed.[48] An exception therein that is amended by its
subsequent elimination shall now cease to be so and instead be
included within the scope of the general rule.[49]
Section 4(e) of the earlier RR 12-80 provides that only
items of income actually received shall be included in the tax base
for computing the GRT, but Section 7(c) of the later RR 17-84
makes no such distinction and provides that all interests earned
shall be included. The exception having been eliminated, the clear
intent is that the later RR 17-84 includes the exception within the
scope of the general rule.
Repeals by implication are not favored and will not be
indulged, unless it is manifest that the administrative agency
intended them. As a regulation is presumed to have been made
with deliberation and full knowledge of all existing rules on the
subject, it may reasonably be concluded that its promulgation
was not intended to interfere with or abrogate any earlier rule
relating to the same subject, unless it is either repugnant to or
fully inclusive of the subject matter of an earlier one, or unless
the reason for the earlier one is beyond peradventure
removed.[50] Every effort must be exerted to make all regulations
stand -- and a later rule will not operate as a repeal of an earlier
one, if by any reasonable construction, the two can be
reconciled.[51]
RR 12-80 imposes the GRT only on all items of
income actually received, as opposed to their mere accrual, while
RR 17-84 includes all interest income in computing the GRT. RR
12-80 is superseded by the later rule, because Section 4(e)
thereof is not restated in RR 17-84. Clearly therefore, as
petitioner correctly states, this particular provision was
impliedly repealed when the later regulations took effect.[52]
Reconciling the Two Regulations
Granting that the two regulations can be reconciled,
respondents reliance on Section 4(e) of RR 12-80 is misplaced
and deceptive. The accrual referred to therein should not be
equated with the determination of the amount to be used as tax
base in computing the GRT. Such accrual merely refers to an
accounting method that recognizes income as earned although
not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept
of constructive possession or receipt as earlier
discussed. Petitioner correctly points out that income that is
merely accrued -- earned, but not yet received -- does not form
part of the taxable gross receipts; income that has been received,
albeit constructively, does.[53]
The word actually, used confusingly in Section 4(e), will be
clearer if removed entirely. Besides, if actually is that
important, accrual should have been eliminated for being a mere
surplusage. The inclusion of accrual stresses the fact that Section
4(e) does not distinguish
between actual and constructive receipt. It merely focuses on the
method of accounting known as the accrual system.
Under this system, income is accrued or earned in the year
in which the taxpayers right thereto becomes fixed and definite,
even though it may not be actually received until a later year;
while a deduction for a liability is to be accrued or incurred and
Page 4 of 29
taken when the liability becomes fixed and certain, even though it
may not be actually paid until later.[54]
Under any system of accounting, no duty or liability to pay
an income tax upon a transaction arises until the taxable year in
which the event constituting the condition precedent
occurs.[55] The liability to pay a tax may thus arise at a certain
time and the tax paid within another given time.[56]
In reconciling these two regulations, the earlier one
includes in the tax base for GRT all income,
whether actually or constructively received, while the later one
includes specifically interest income. In computing the income
tax liability, the only exception cited in the later regulations is the
exclusion from gross income of interest income, which is already
subjected to withholding. This exception, however, refers to a
different tax altogether. To extend mischievously such exception
to the GRT will certainly lead to results not contemplated by the
legislators and the administrative body promulgating the
regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey
Club,[57] we held that the term gross receipts shall not include
money which, although delivered, has been especially earmarked
by law or regulation for some person other than the taxpayer.[58]
To begin, we have to nuance the definition of gross
receipts[59] to determine what it is exactly. In this regard, we note
that US cases have persuasive effect in our jurisdiction, because
Philippine income tax law is patterned after
its US counterpart.[60]
[G]ross receipts with respect to any period means the sum of: (a)
The total amount received or accrued during such period from
the sale, exchange, or other disposition of x x x other property of
a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the
ordinary course of its trade or business, and (b) The gross
income, attributable to a trade or business, regularly carried on
by the taxpayer, received or accrued during such period x x x.[61]
x x x [B]y gross earnings from operations x x x was intended all
operations xxx including incidental, subordinate, and subsidiary
operations, as well as principal operations.[62]
When we speak of the gross earnings of a person or corporation,
we mean the entire earnings or receipts of such person or
corporation from the business or operations to which we
refer.[63]
From these cases, gross receipts[64] refer to the total, as
opposed to the net, income.[65] These are therefore the total
receipts before any deduction[66] for the expenses of
management.[67] Websters New International Dictionary, in fact,
defines gross as whole or entire.
Statutes taxing the gross receipts, earnings, or income of
particular corporations are found in many jurisdictions.[68] Tax
thereon is generally held to be within the power of a state to
impose; or constitutional, unless it interferes with interstate
commerce or violates the requirement as to uniformity of
taxation.[69]
Moreover, we have emphasized that the BIR has
consistently ruled that gross receipts does not admit of any
deduction.[70] Following the principle of legislative approval by
reenactment,[71] this interpretation has been adopted by the
legislature throughout the various reenactments of then Section
119 of the Tax Code.[72]
Given that a tax is imposed upon total receipts and not upon
net earnings,[73] shall the income withheld be included in the tax
base upon which such tax is imposed? In other words, shall
interest income constructively received still be included in the tax
base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this
case. Earmarking is not the same
as withholding. Amounts earmarked do not form part of gross
receipts, because, although delivered or received, these are by
law or regulation reserved for some person other than the
taxpayer. On the contrary, amounts withheld form part of gross
receipts, because these are in constructivepossession and not
subject to any reservation, the withholding agent being merely a
conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on
Races, horse owners and jockeys amounts that never became the
property of the race track.[74] Unlike these amounts, the interest
income that had been withheld for the government became
property of the financial institutions
upon constructive possession thereof. Possession was indeed
acquired, since it was ratified by the financial institutions in
whose name the act of possession had been executed. The money
indeed belonged to the taxpayers; merely holding it in trust was
not enough.[75]
The government subsequently becomes the owner of the
money when the financial institutions pay the FWT to extinguish
their obligation to the government. As this Court has held before,
this is the consideration for the transfer of ownership of the FWT
from these institutions to the government.[76] It is ownership that
determines whether interest income forms part of taxable gross
receipts.[77] Being originally owned by these financial institutions
as part of their interest income, the FWT should form part of
their taxable gross receipts.
Besides, these amounts withheld are in payment of an
income tax liability, which is different from a percentage tax
liability. Commissioner of Internal Revenue v. Tours Specialists, Inc.
aptly held thus:[78]
x x x [G]ross receipts subject to tax under the Tax Code do not
include monies or receipts entrusted to the taxpayer which do
not belong to them and do not redound to the taxpayers benefit;
and it is not necessary that there must be a law or regulation
which would exempt such monies and receipts within the
meaning of gross receipts under the Tax Code.[79]
In the construction and interpretation of tax statutes and of
statutes in general, the primary consideration is to ascertain and
give effect to the intention of the legislature.[80] We ought to
impute to the lawmaking body the intent to obey the
constitutional mandate, as long as its enactments fairly admit of
Page 5 of 29
such construction.[81] In fact, x x x no tax can be levied without
express authority of law, but the statutes are to receive a
reasonable construction with a view to carrying out their
purpose and intent.[82]
Looking again into Sections 24(e)(1) and 119 of the Tax
Code, we find that the first imposes an income tax; the second, a
percentage tax. The legislature clearly intended two different
taxes. The FWT is a tax on passive income, while the GRT is on
business.[83] The withholding of one is not equivalent to the
payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very
existence of government. Certainly, one of the highest attributes
of sovereignty is the power of taxation,[84] which may legitimately
be exercised on the objects to which it is applicable to the utmost
extent as the government may choose.[85] Being an incident of
sovereignty, such power is coextensive with that to which it is an
incident.[86] The interest on deposits and yield on deposit
substitutes of financial institutions, on the one hand, and their
business as such, on the other, are the two objects over which the
State has chosen to extend its sovereign power. Those not so
chosen are, upon the soundest principles, exempt from
taxation.[87]
While courts will not enlarge by construction the
governments power of taxation,[88] neither will they place upon
tax laws so loose a construction as to permit evasions, merely on
the basis of fanciful and insubstantial distinctions.[89] When the
legislature imposes a tax on income and another on business, the
imposition must be respected. The Tax Code should be so
construed, if need be, as to avoid empty declarations or
possibilities of crafty tax evasion schemes. We have consistently
ruled thus:
x x x [I]t is upon taxation that the [g]overnment chiefly relies to
obtain the means to carry on its operations, and it is of the
utmost importance that the modes adopted to enforce the
collection of the taxes levied should be summary and interfered
with as little as possible. x x x.[90]
Any delay in the proceedings of the officers, upon whom the duty
is devolved of collecting the taxes, may derange the operations of
government, and thereby cause serious detriment to the
public.[91]
No government could exist if all litigants were permitted to delay
the collection of its taxes.[92]
A taxing act will be construed, and the intent and meaning
of the legislature ascertained, from its language.[93] Its clarity and
implied intent must exist to uphold the taxes as against a
taxpayer in whose favor doubts will be resolved.[94] No such
doubts exist with respect to the Tax Code, because the income
and percentage taxes we have cited earlier have been imposed in
clear and express language for that purpose.[95]
This Court has steadfastly adhered to the doctrine that its
first and fundamental duty is the application of the law according
to its express terms -- construction and interpretation being
called for only when such literal application is impossible or
inadequate without them.[96] In Quijano v. Development Bank of
the Philippines,[97] we stressed as follows:
No process of interpretation or construction need be resorted to
where a provision of law peremptorily calls for application. [98]
A literal application of any part of a statute is to be rejected
if it will operate unjustly, lead to absurd results, or contradict the
evident meaning of the statute taken as a whole.[99] Unlike the CA,
we find that the literal application of the aforesaid sections of the
Tax Code and its implementing regulations does not operate
unjustly or contradict the evident meaning of the statute taken as
a whole. Neither does it lead to absurd results. Indeed, our courts
are not to give words meanings that would lead to absurd or
unreasonable consequences.[100] We have repeatedly held thus:
x x x [S]tatutes should receive a sensible construction, such as
will give effect to the legislative intention and so as to avoid an
unjust or an absurd conclusion.[101]
While it is true that the contemporaneous construction placed
upon a statute by executive officers whose duty is to enforce it
should be given great weight by the courts, still if such
construction is so erroneous, x x x the same must be declared as
null and void.[102]
It does not even matter that the CTA, like in China Banking
Corporation,[103] relied erroneously on Manila Jockey Club. Under
our tax system, the CTA acts as a highly specialized body
specifically created for the purpose of reviewing tax
cases.[104] Because of its recognized expertise, its findings of fact
will ordinarily not be reviewed, absent any showing of gross
error or abuse on its part.[105] Such findings are binding on the
Court and, absent strong reasons for us to delve into facts, only
questions of law are open for determination.[106]
Respondent claims that it is entitled to a refund on the basis
of excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions.[107] Such
exemptions are strictly construed against the taxpayer, being
highly disfavored[108] and almost said to be odious to the
law.Hence, those who claim to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms
found in the statute. They must be able to point to some positive
provision, not merely a vague implication,[109] of the law creating
that right.[110]
The right of taxation will not be surrendered, except in
words too plain to be mistaken. The reason is that the State
cannot strip itself of this highest attribute of sovereignty -- its
most essential power of taxation -- by vague or ambiguous
language. Since tax refunds are in the nature of tax exemptions,
these are deemed to be in derogation of sovereign authority and
to be construed strictissimi juris against the person or entity
claiming the exemption.[111]
No less than our 1987 Constitution provides for the
mechanism for granting tax exemptions.[112] They certainly
cannot be granted by implication or mere administrative
regulation. Thus, when an exemption is claimed, it must
indubitably be shown to exist, for every presumption is against
it,[113] and a well-founded doubt is fatal to the claim.[114] In the
Page 6 of 29
instant case, respondent has not been able to satisfactorily show
that its FWT on interest income is exempt from the GRT. Like
China Banking Corporation, its argument creates a tax exemption
where none exists.[115]
No exemptions are normally allowed when a GRT is
imposed. It is precisely designed to maintain simplicity in the tax
collection effort of the government and to assure its steady
source of revenue even during an economic slump.[116]
No Double Taxation
We have repeatedly said that the two taxes, subject of this
litigation, are different from each other. The basis of their
imposition may be the same, but their natures are different, thus
leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice
when it should be taxed only once; that is, x x x taxing the same
person twice by the same jurisdiction for the same thing.[117] It is
obnoxious when the taxpayer is taxed twice, when it should be but
once.[118] Otherwise described as direct duplicate taxation,[119] the
two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and they must be of the same kind or
character.[120]
First, the taxes herein are imposed on two different subject
matters. The subject matter of the FWT is the passive income
generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is the privilege of
engaging in the business of banking.
A tax based on receipts is a tax on business rather than on
the property; hence, it is an excise[121] rather than a property
tax.[122] It is not an income tax, unlike the FWT. In fact, we have
already held that one can be taxed for engaging in business and
further taxed differently for the income derived
therefrom.[123] Akin to our ruling in Velilla v. Posadas,[124] these
two taxes are entirely distinct and are assessed under different
provisions.
Second, although both taxes are national in scope because
they are imposed by the same taxing authority -- the national
government under the Tax Code -- and operate within the same
Philippine jurisdiction for the same purpose of raising revenues,
the taxing periods they affect are different. The FWT is deducted
and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand,
the GRT is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or
characters. The FWT is an income tax subject to withholding,
while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no
taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods,
some of the property in the territory.[125] Subjecting interest
income to a 20% FWT and including it in the computation of the
5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. No costs.
G.R. No. L-24265 December 28, 1979
PROCTER & GAMBLE PHILIPPINE MANUFACTURING
CORPORATION, plaintiff-appellant,
vs.
THE MUNICIPALITY OF JAGNA, PROVINCE OF
BOHOL, defendant-appellee.
MELENCIO-HERRERA, J.:
A direct appeal by plaintiff company from the judgment of the
Court of First Instance of Manila, Branch VI, upholding the
validity of Ordinance No. 4, Series of 1957, enacted by defendant
Municipality, which imposed "storage fees on all exportable
copra deposited in the bodega within the jurisdiction of the
Municipality of Jagna Bohol.
Plaintiff-appellant is a domestic corporation with principal offices
in Manila. lt is a consolidated corporation of Procter & Gamble
Trading Company and Philippine Manufacturing Company, which
later became Procter & Gamble Trading Company, Philippines. It
is engaged in the manufacture of soap, edible oil, margarine and
other similar products, and for this purpose maintains a "bodega"
in defendant Municipality where it stores copra purchased in the
municipality and therefrom ships the same for its manufacturing
and other operations.
On December 13, 1957, the Municipal Council of Jagna enacted
Municipal Ordinance No. 4, Series of 1957, quoted hereinbelow:
AN ORDINANCE IMPOSING STORAGE FEES OF
ALL EXPORTABLE COPRA DEPOSITED IN THE
BODEGA WITHIN THE JURISDlCTI0N OF THE
MUNICIPALITY OF JAGNA BOHOL.
Be it ordained by the Municipal Council of
Jagna Bohol, that:
SECTION 1. Any person, firm or corporation
having a deposit of exportable copra in the
bodega, within the jurisdiction of the
Municipality of Jagna Bohol, shall pay to the
Municipal Treasury a storage fee of TEN
(P0.10) CENTAVOS FOR EVERY HUNDRED
(100) kilos;
SECTION 2. All exportable copra deposited in
the bodega within the Municipality of Jagna
Bohol, is part of the surveillance and lookout
of the Municipal Authorities;
SECTION 3. Any person, firm or corporation
found violating the provision of the preceding
section of this Ordinance shall be punished by
a fine of not less than TWO HUNDRED (P
200.00) PESOS, nor more than FOUR
HUNDRED (P400.00) PESOS, or an
imprisonment of hot less than ONE MONTH,
Page 7 of 29
 nor more than THREE MONTHS, or both fines
and imprisonment at the discretion of the
court.
SECTION 4. This Ordinance shall take effect on
January 1, 1958.
APPROVED December 13,1957.
(Sgd.) TEODORO B. GALACAR Municipal
Mayor 1
For a period of six years, from 1958 to 1963, plaintiff paid
defendant Municipality, allegedly under protest, storage fees in
the total sum of 1142,265.13, broken down as follows:
Procter & Gamble Trading Co. Procter & Gamble Philippine
Manufacturing Corp.
On March 3, 1964, plaintiff filed this suit in the Court of First
Instance of Manila, Branch VI, wherein it prayed that 1)
Ordinance No. 4 be declared inapplicable to it, or in the alter.
native, that it be pronounced ultra-vires and void for being
beyond the power of the Municipality to enact; and 2) that
defendant Municipality be ordered to refund to it the amount of
P42,265.13 which it had paid under protest; and costs.
For its part, defendant Municipality upheld its power to enact the
Ordinance in question; questioned the jurisdiction of the trial
Court to take cognizance of the action under section 44(h) of the
Judiciary Act in that it seeks to enjoin the enforcement of a
Municipal Ordinance; and pleaded prescription and laches for
plaintiff's failure to timely question the validity of the said
Ordinance.
After the parties had agreed to submit the case for judgment on
the pleadings, the trial Court upheld its jurisdiction as well as
defendant Municipality's power to enact the Ordinance in
question under section 2238 of the Revised Administrative Code,
otherwise known as the general welfare clause, and declared that
plaintiff's right of action had prescribed under the 5-year period
provided for by Article 1149 of the Civil Code.
In this appeal, plaintiff interposes the following Assignments of
Error:
I or municipal district council, and to collect
THE TRIAL COURT ERRED IN HOLDING THAT
ORDINANCE NO. 4, SERIES OF 1957, ENACTED
BY THE DEFENDANT MUNICIPALITY OF
JAGNA BOHOL, IS A VALID, LEGAL AND
ENFORCEABLE ORDINANCE AGAINST THE
PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING THAT
PAYMENT OF THE TAX UNDER ORDINANCE
NO. 4, SERIES OF 1957 WAS NOT DONE
UNDER PROTEST.
III
THE TRIAL COURT ERRED IN HOLDING THAT
THE ACTION OF THE PLAINTIFF TO ANNUL
AND TO DECLARE ORDINANCE NO. 4, SERIES
OF 1957 OF THE DEFENDANT HAS ALREADY
PRESCRIBED.
IV
AND, FINALLY, THE TRIAL COURT ERRED IN
NOT HOLDING ORDINANCE NO. 4. SERIES OF
1957 ULTRA-VIRES AND VOID AND IN NOT
ORDERING THE REFUND OF TAXES PAID
THEREUNDER. 3
It is plaintiff's submission that the subject Ordinance is
inapplicable to it as it is not engaged in the business or trade of
storing copra for others for compensation or profit and that the
only copra it stores is for its exclusive use in connection with its
business as manufacturer of soap, edible oil, margarine and other
similar products; that the levy is intended as an "export tax" as it
is collected on "exportable copra' , and, therefore, beyond the
power of the Municipality to enact; and that the fee of P0.10 for
every 100 kilos of copra stored in the bodega is excessive,
unreasonable and oppressive and is imposed more for revenue
than as a regulatory fee.
The main question to determine is whether defendant
Municipality was authorized to impose and collect the storage fee
provided for in the challenged Ordinance under the laws then
prevailing.
The validity of the Ordinance must be upheld pursuant to the
broad authority conferred upon municipalities by
Commonwealth Act No. 472, approved on June 16, 1939, which
was the prevailing law when the Ordinance was enacted (Procter
& Gamble Trading Co. vs. Municipality of Medina, 43 SCRA 130
11972]). Section 1 thereof reads:
Section 1. A municipal council or municipal
district council shall have the 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,
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 foregoing provision, a municipality is authorized to
impose three kinds of licenses: (1) a license for regulation of
useful occupation or enterprises; (2) license for restriction or
regulation of non-useful occupations or enterprises; and (3)
license for revenue. 4 It is thus unnecessary, as plaintiff would
have us do, to determine whether the subject storage fee is a tax
for revenue purposes or a license fee to reimburse defendant
Page 8 of 29
Municipality for service of supervision because defendant
Municipality is authorized not only to impose a license fee but
also to tax for revenue purposes.
The storage fee imposed under the question Ordinance is actually
a municipal license tax or fee on persons, firms and corporations,
like plaintiff, exercising the privilege of storing copra in a bodega
within the Municipality's territorial jurisdiction. For the term
"license tax" has not acquired a fixed meaning. It is often used
indiseriminately to designate impositions exacted for the
exercise of various privileges. In many instances, it refers to
revenue-raising exactions on privileges or activities. 5
Not only is the imposition of the storage fee authorized by the
general grant of authority under section 1 of CA No. 472. Neither
is the storage fee in question prohibited nor beyond the power of
the municipal councils and municipal district councils to impose,
as listed in section 3 of said CA No. 472. 6
Moreover, the business of buying and selling and storing copra is
property the subject of regulation within the police power
granted to municipalities under section 2238 of the Revised
Administrative Code or the "general welfare clause", which we
quote hereunder:
Section 2238. General power of council to enact
ordinances and make regulations. The
municipal council shall enact such ordinances
and make such regulations, not repugnant to
law, as may be necessary to carry into effect
and discharge the powers and duties
conferred upon it by law and such as shall
seem necessary and proper to provide for the
health and safety, promote the prosperity,
improve the morals, peace, good order,
comfort, and convenience of the municipality
and the inhabitants thereof, and for the
protection of property therein.
For it has been held that a warehouse used for keeping or storing
copra is an establishment likely to endanger the public safety or
likely to give rise to conflagration because the oil content of the
copra when ignited is difficult to put under control by water and
the use of chemicals is necessary to put out the fire. 7 And as the
Ordinance itself states, all exportable copra deposited within the
municipality is "part of the surveillance and lookout of municipal
authorities.
Plaintiff's argument that the imposition of P0.10 per 100 kilos of
copra stored in a bodega within defendant's territory is beyond
the cost of regulation and surveillance is not well taken. As
enunciated in the case of Victorias Milling Co. vs. Municipality of
Victorias, supra.
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'. And if it is,
and it is validly imposed, 'the rule that license
fees for regulation must bear a reasonable
relation to the expense of the regulation has
no application'.
Municipal corporations are allowed wide discretion in
determining the rates of imposable license fees even in cases of
purely police power measures. In the absence of proof as to
municipal conditions and the nature of the business being taxed
as well as other factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates, Courts will go slow in
writing off an Ordinance. 8 In the case at bar, appellant has not
sufficiently shown that the rate imposed by the questioned
Ordinance is oppressive, excessive and prohibitive.
Plaintiff's averment that the Ordinance, even if presumed valid, is
inapplicable to it because it is not engaged in the business or
occupation of buying or selling of copra but is only storing copra
in connection with its main business of manufacturing soap and
other similar products, and that to be compelled to pay the
storage fees would amount to double taxation, does not inspire
assent. The question of whether appellant is engaged in that
business or not is irrelevant because the storage fee, as
previously mentioned, is an imposition on the privilege of storing
copra in a bodega within defendant municipality by persons,
firms or corporations. Section 1 of the Ordinance in question
does not state that said persons, firms or corporations should be
engaged in the business or occupation of buying or selling copra.
Moreover, by plaintiff's own admission that it is a consolidated
corporation with its trading company, it will be hard to segregate
the copra it uses for trading from that it utilizes for
manufacturing.
Thus, it can be said that plaintiff's payment of storage fees
imposed by the Ordinance in question does not amount to double
taxation. For double taxation to exist, the same property must be
taxed twice, when it should be taxed but once. Double taxation
has also been defined as taxing the same person twice by the
same jurisdiction for the same thing. 9 Surely, a tax on plaintiff's
products is different from a tax on the privilege of storing copra
in a bodega situated within the territorial boundary of defendant
municipality.
Plaintiff's further contention that the storage fee imposed by the
Ordinance is actually intended to be an export tax, which is
expressly prohibited by section 2287 of the Revised
Administrative Code, is without merit. Said provision reads as
follows:
Section 2287 ...
It shall not be in the power of the municipal
council to impose a tax in any form whatever
upon goods and merchandise carried into the
municipality, or out of the same, and any
attempt to impose an import or export tax
upon such goods in the guise of an
unreasonable charge for wharfage use of
bridges or otherwise, shall be void.
xxx xxx xxx
We have held that only where there is a clear showing that what
is being taxed is an export to any foreign country would the
prohibition come into play. 10 When the Ordinance itself speaks of
"exportable" copra, the meaning conveyed is not exclusively
export to a foreign country but shipment out of the municipality.
The storage fee impugned is not a tax on export because it is
Page 9 of 29
imposed not only upon copra to be exported but also upon copra
sold and to be used for domestic purposes if stored in any
warehouse in the Municipality and the weight thereof is 100 kilos
or more. 11
Thus finding the Ordinance in question to be valid, legal and
enforceable, we find it unnecessary to discuss the ascribed error
that the Court a quo erred in declaring that appellant had not
paid the taxes under protest.
However, we find merit in plaintiff's contention that the lower
Court erred in ruling that its action has prescribed under Article
1149 of the Civil Code, which provides for a period of five years
for all actions whose periods are not fixed in that Code. The case
of Municipality of Opon vs. Caltex Phil., 12 is authority for the view
that the period for prescription of actions to recover municipal
license taxes is six years under Article 1145(2) of the Civil Code.
Thus, plaintiff's action brought within six years from the time the
right of action first accrued in 1958 has not yet prescribed.
WHEREFORE, affirming the judgment appealed, from, we sustain
the validity of Ordinance No. 4, Series of 1957, of defendant
Municipality of Jagna Bohol, under the laws then prevailing.
Costs against plaintiff-appellant.
THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN,
FLORENCE CHAVEZ, and MANUEL DJ SIAYNGCO in
their capacity as PROVINCIAL GOVERNOR,
PROVINCIAL TREASURER, PROVINCIAL LEGAL
ADVISE, respectively, petitioners, vs. THE
HONORABLE COURT OF APPEALS (FORMER SPECIAL
12TH DIVISION), PUBLIC CEMENT
CORPORATION, respondents.
ROMERO, J.:
Before us is a petition for certiorari seeking the reversal of
the decision of the Court of Appeals dated September 27, 1995
declaring petitioner without authority to levy taxes on stones,
sand, gravel, earth and other quarry resources extracted from
private lands, as well as the August 26, 1996 resolution of the
appellate court denying its motion for reconsideration.
The facts are as follows:
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan
passed Provincial Ordinance No. 3, known as "An ordinance
Enacting the Revenue Code of the Bulacan Province," which was
to take effect on July 1, 1992, section 21 of the ordinance
provides as follows:
Section 21. Imposition of Tax. There is hereby levied and
collected a tax of 10% of the fair market value in the locality per
cubic meter of ordinary stones, sand, gravel, earth and other
quarry resources, such, but not limited to marble, granite,
volcanic cinders, basalt, tuff and rock phosphate, extracted
from public lands or from beds of seas, lakes, rivers, streams,
creeks and other public waters within its territorial
jurisdiction. (Italics ours)
Pursuant thereto, the Provincial Treasurer of Bulacan, in a
letter dated November 11, 1993, assessed private respondent
Republic Cement Corporation (hereafter Republic
Cement) P2,524,692.13 for extracting limestone, shale and silica
from several parcels of private land in the province during the
third quarter of 1992 until the second quarter of 1993. Believing
that the province, on the basis of above-said ordinance, had no
authority to impose taxes on quarry resources extracted from
private lands, Republic Cement formally contested the same on
December 23, 1993. The same was, however, denied by the
Provincial Treasurer on January 17, 1994. Republic Cement,
consequently filed a petition for declaratory relief with the
Regional Trial Court of Bulacan on February 14, 1994. The
province filed a motion to dismiss Republic Cement's petition,
which was granted by the trial court on May 13, 1993, which
ruled that declaratory relief was improper, allegedly because a
breach of the ordinance had been committed by Republic
Cement.
On July 11, 1994, Republic Cement filed a petition
for certiorari with the Supreme Court seeking to reverse the trial
court's dismissal of their petition. The Court, in a resolution dated
July 27, 1994, referred the same to the Court of Appeals, where it
was docketed as CA G.R. SP No. 34915. The appellate court
required petitioners to file a comment, which they did on
September 7, 1994.
In the interim, the Province of Bulacan issued a warrant of
levy against Republic Cement, allegedly because of its unpaid tax
liabilities. Negotiations between Republic Cement and petitioners
resulted in an agreement and modus vivendi on December 12,
1994, whereby Republic Cement agreed to pay under
protest P1,262,346.00, 50% of the tax assessed by petitioner, in
exchange for the lifting of the warrant of levy. Furthermore,
Republic Cement and petitioners agreed to limit the issue for
resolution by the Court of Appeals to the question as to whether
or not the provincial government could impose and/or assess
taxes on quarry resources extracted by Republic Cement from
private lands pursuant to Section 21 of the Provincial Ordinance
No. 3. This agreement and modus vivendi were embodied in a
joint manifestation and motion signed by Governor Roberto
Pagdanganan, on behalf of the Province of Bulacan, by Provincial
Treasurer Florence Chavez, and by Provincial Legal Officer
Manuel Siayngco, as petitioner's counsel and filed with the Court
of Appeals on December 13, 1994. In a resolution dated
December 29, 1994, the appellate court approved the same and
limited the issue to be resolved to the question whether or not
the provincial government could impose taxes on stones, sand,
gravel, earth and other quarry resources extracted from private
lands.
After due trial, the Court of Appeals, on September 27,
1995, rendered the following judgment:
WHEREFORE, judgment is hereby rendered declaring
the Province of Bulacan under its Provincial
Ordinance No. 3 entitled "An Ordinance Enacting the
Revenue Code of Bulacan Province" to be without
legal authority to impose and assess taxes on quarry
resources extracted by RCC from private lands, hence
the interpretation of Respondent Treasurer of
Chapter II, Article D, Section 21 of the Ordinance, and
the assessment made by the Province of Bulacan
against RCC is null and void.
Petitioner's motion for reconsideration, as well as their
supplemental motion for reconsideration, was denied by the
appellate court on august 26, 1996, hence this appeal.
Petitioner's claim that the Court of Appeals erred in:
Page 10 of 29
 1. NOT HAVING OUTRIGHTLY DISMISSED THE
SUBJECT PETITION ON THE GROUND
THAT THE SAME IS NOT THE
APPROPRIATE REMEDY FROM THE
TRIAL COURT'S GRANT OF THE
PRIVATE RESPONDENTS' (HEREIN
PETITIONER) MOTION TO DISMISS;
2. NOT DISMISSING THE SUBJECT PETITION
FOR BEING VIOLATIVE OF CIRCULAR 2-
90 ISSUED BY THE SUPREME COURT;
3. NOT DISMISSING THE PETITION FOR
REVIEW ON THE GROUND THAT THE
TRIAL COURT'S ORDER OF MAY 13,
1994 HAD LONG BECOME FINAL AND
EXECUTORY;
4. GOING BEYOND THE PARAMETERS OF ITS
APPELLATE JURISDICTION IN
RENDERING THE SEPTEMBER 27, 1995
DECISION;
5. HOLDING THAT PRIVATE RESPONDENT
(HEREIN PETITIONER) ARE ESTOPPED
FROM RAISING THE PROCEDURAL
ISSUE IN THE MOTION FOR
RECONSIDERATION;
6. THE INTERPRETATION OF SECTION 134 OF
THE LOCAL GOVERNMENT CODE AS
STATED IN THE SECOND TO THE LAST
PARAGRAPH OF PAGE 5 OF ITS
SEPTEMBER 27, 1995 DECISION;
7. SUSTAINING THE ALLEGATIONS OF HEREIN
RESPONDENT WHICH UNJUSTLY
DEPRIVED PETITIONER THE POWER
TO CREATE ITS OWN SOURCES OF
REVENUE;
8. DECLARING THAT THE ASSESSMENT MADE
BY THE PROVINCE OF BULACAN
AGAINST RCC AS NULL AND VOID
WHICH IN EFFECT IS A COLLATERAL
ATTACK ON PROVINCIAL ORDINANCE
NO. 3; AND
9. FAILING TO CONSIDER THE REGALIAN
DOCTRINE IN FAVOR OF THE LOCAL
GOVERNMENT.
The issues raised by petitioners are devoid of merit. The
number and diversity of errors raised by appellants impel us,
however, to discuss the points raised seriatim.
In their first assignment of error, petitioners contend that
instead of filing a petition for certiorari with the Supreme Court,
Republic Cement should have appealed from the order of the trial
court dismissing their petition. Citing Martinez vs. CA,[1] they
allege that a motion to dismiss is a final order, the remedy against
which is not a petition for certiorari, but an appeal, regardless of
the questions sought to be raised on appeal, whether of fact or of
law, whether involving jurisdiction or grave abuse of discretion
of the trial court.
Petitioners' argument is misleading. While it is true that the
remedy against a final order is an appeal, and not a petition
for certiorari, the petition referred to is a petition for certiorari
under Rule 65. As stated in Martinez, the party aggrieved does
not have the option to substitute the special civil action
for certiorari under Rule 65 for the remedy of appeal. The
existence and availability of the right of appeal are antithetical to
the availment of the special civil action for certiorari.
Republic Cement did not, however, file a petition
for certiorari under Rule 65, but an appeal by certiorari under
Rule 45. Even law students know that certiorari under Rule 45 is
a mode of appeal, an appeal from the Regional Trial Court being
taken in either of two ways (a) by writ of error (involving
questions of fact and law) and (b) by certiorari (limited only to
issues of law), with an appeal by certiorari being brought to the
Supreme Court, there being no provision of law for taking
appeals by certiorari to the Court of Appeals.[2] It is thus clearly
apparent that Republic Cement correctly contested the trial
court's order of dismissal by filing an appeal by certiorari under
Rule 45. In fact, petitioners, in their second assignment of error,
admit that a petition for review on certiorari under Rule 45 is
available to a party aggrieved by an order granting a motion to
dismiss.[3] They claim, however, that Republic Cement could not
avail of the same allegedly because the latter raised issues of fact,
which is prohibited, Rule 45 providing that "(t)he petition shall
raise only questions of law which must be distinctly set
forth."[4] In this respect, petitioners claim that Republic Cement's
petition should have been dismissed by the appellate court,
Circular 2-90 providing:
4. Erroneous Appeals. - An appeal taken to either the
Supreme Court or the Court of Appeals by the wrong
or inappropriate mode shall be dismissed.
xxxxxxxxx
d) No transfer of appeals erroneously taken. -- No
transfers of appeals erroneously taken to the
Supreme Court or to the Court of Appeals to
whichever of these Tribunals has appropriate
appellate jurisdiction will be allowed; continued
ignorance or wilful disregard of the law on appeals
will not be tolerated.
Petitioners even fault the Court for referring Republic
Cement's petition to the Court of Appeals, claiming that the same
should have been dismissed pursuant to Circular 2-
90. Petitioners conveniently overlook the other provisions of
Circular 2-90, specifically 4b) thereof, which provides:
b) Raising factual issues in appeal by certiorari. -
Although submission of issues of fact in an appeal by
certiorari taken to the Supreme Court from the
regional trial court is ordinarily proscribed, the
Supreme Court nonetheless retains the option, in the
exercise of its sound discretion and considering the
attendant circumstances, either itself to take
cognizance of and decide such issues or to refer them
to the Court of Appeals for determination.
As can be clearly adduced from the foregoing, when an
appeal by certiorari under Rule 45 erroneously raises factual
issues, the Court has the option to refer the petition to the Court
of Appeals. The exercise by the Court of this option may not now
be questioned by petitioners.
As the trial court's order was properly appealed by
Republic Cement, the trial court's May 13, 1994 order never
became final and executory, rendering petitioner's third
assignment of error moot and academic.
Page 11 of 29
 Petitioners' fourth and fifth assignment of errors are
likewise without merit. Petitioners assert that the Court of
Appeals could only rule on the propriety of the trial court's
dismissal of Republic Cement's petition for declaratory relief,
allegedly because that was the sole relief sought by the latter in
its petition for certiorari. Petitioners claim that the appellate
court overstepped its jurisdiction when it declared null and void
the assessment made by the Province of Bulacan against Republic
Cement.
Petitioners gloss over the fact that, during the proceedings
before the Court of Appeals, they entered into an agreement
and modus vivendi whereby they limited the issue for resolution
to the question as to whether or not the provincial government
could impose and/or assess taxes on stones, sand, gravel, earth
and other quarry resources extracted by Republic Cement from
private lands. This agreement and modus vivendi were approved
by the appellate court on December 29, 1994. All throughout the
proceedings, petitioners never questioned the authority of the
Court of Appeals to decide this issue, an issue which it brought
itself within the purview of the appellate court. Only when an
adverse decision was rendered by the Court of Appeals did
petitioners question the jurisdiction of the former.
Petitioners are barred by the doctrine of estoppel from
contesting the authority of the Court of Appeals to decide the
instant case, as this Court has consistently held that "(a) party
cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to obtain
such relief, repudiate or question that same jurisdiction."[5] The
Supreme Court frowns upon the undesirable practice of a party
submitting his case for decision and then accepting the judgment,
only if favorable, and attacking it for lack of jurisdiction when
adverse.[6]
In a desperate attempt to ward off defeat, petitioners now
repudiate the above-mentioned agreement and modus vivendi,
claiming that the same was not binding in the Province of
Bulacan, not having been authorized by the Sangguniang
Panlalawigan of Bulacan. While it is true that the Provincial
Governor can enter into contract and obligate the province only
upon authority of the sangguniang panlalawigan,[7] the same is
inapplicable to the case at bar. The agreement and modus
vivendi may have been signed by petitioner Roberto
Pagdanganan, as Governor of the Province of Bulacan, without
authorization from the sangguniang panlalawigan, but it was also
signed by Manuel Siayngco, the Provincial Legal Officer, in his
capacity as such, and as counsel of petitioners.
It is a well-settled rule that all proceedings in court to
enforce a remedy, to bring a claim, demand, cause of action or
subject matter of a suit to hearing, trial, determination, judgment
and execution are within the exclusive control of the
attorney.[8] With respect to such matters of ordinary judicial
procedure, the attorney needs no special authority to bind his
client.[9] Such questions as what action or pleading to file, where
and when to file it, what are its formal requirements, what should
be the theory of the case, what defenses to raise, how may the
claim or defense be proved, when to rest the case, as well as
those affecting the competency of a witness, the sufficiency,
relevancy, materiality or immateriality of certain evidence and
the burden of proof are within the authority of the attorney to
decide.[10] Whatever decision an attorney makes on any of these
procedural questions, even if it adversely affects a client's case,
will generally bind a client. The agreement and modus
vivendi signed by petitioner's counsel is binding upon petitioners,
even if the Sanggunian had not authorized the same, limitation of
issues being a procedural question falling within the exclusive
authority of the attorney to decide.
In any case, the remaining issues raised by petitioner are
likewise devoid of merit, a province having no authority to
impose taxes on stones, sand, gravel, earth and other quarry
resources extracted from private lands. The pertinent provisions
of the Local Government Code are as follows:
Sec. 134. Scope of Taxing Powers. - Except as
otherwise provided in this Code, the province may
levy only the taxes, fees, and charges as provided in
this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry
Resources. - The province may levy and collect not
more than ten percent (10%) of fair market value in
the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as
amended, extracted from public lands or from the
beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.
x x x x x x x x x (Italics supplied)
The appellate court, on the basis of Section 134, ruled that a
province was empowered to impose taxes only on sand, gravel,
and other quarry resources extracted from public lands, its
authority to tax being limited by said provision only to those
taxes, fees and charges provided in Article One, Chapter 2, Title
One of Book II of the Local Government Code.[11] On the other
hand, petitioners claim that Sections 129[12] and 186[13] of the
Local Government Code authorizes the province to impose taxes
other than those specifically enumerated under the Local
Government Code.
The Court of Appeals erred in ruling that a province can
impose only the taxes specifically mentioned under the Local
Government Code. As correctly pointed out by petitioners,
Section 186 allows a province to levy taxes other than those
specifically enumerated under the Code, subject to the conditions
specified therein.
This finding, nevertheless, affords cold comfort to
petitioners as they are still prohibited from imposing taxes on
stones, sand, gravel, earth and other quarry resources extracted
from private lands. The tax imposed by the Province of Bulacan is
an excise tax, being a tax upon the performance, carrying on, or
exercise of an activity.[14] The Local Government Code provides:
Section 133. - Common Limitations on the Taxing
Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxxxxxxx
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
xxxxxxxxx
A province may not, therefore, levy excise taxes on articles
already taxed by the National Internal Revenue
Code. Unfortunately for petitioners, the National Internal
Revenue Code provides:
Page 12 of 29
Section 151. - Mineral Products. -
(A) Rates of Tax. - There shall be levied, assessed and
collected on minerals, mineral products and quarry
resources, excise tax as follows:
xxxxxxxxx
(2) On all nonmetallic minerals and quarry
resources, a tax of two percent (2%) based
on the actual market value of the gross
output thereof at the time of removal, in
case of those locally extracted or
produced; or the values used by the
Bureau of Customs in determining tariff
and customs duties, net of excise tax and
value-added tax, in the case of importation.
xxxxxxxxx
(B) [Definition of Terms]. - For purposes of this Section, the
term-
xxxxxxxxx
(4) Quarry resources shall mean any
common stone or other common mineral
substances as the Director of the Bureau of
Mines and Geo-Sciences may declare to be
quarry resources such as, but not
restricted to, marl, marble, granite,
volcanic cinders, basalt, tuff and rock
phosphate; Provided, That they contain no
metal or metals or other valuable minerals
in economically workable quantities.
It is clearly apparent from the above provision that the
National Internal Revenue Code levies a tax on all quarry
resources, regardless of origin, whether extracted from public or
private land. Thus, a province may not ordinarily impose taxes on
stones, sand, gravel, earth and other quarry resources, as the
same are already taxed under the National Internal Revenue
Code. The province can, however, impose a tax on stones, sand,
gravel, earth and other quarry resources extracted from public
land because it is expressly empowered to do so under the Local
Government Code. As to stones, sand, gravel, earth and other
quarry resources extracted from private land, however, it may
not do so, because of the limitation provided by Section 133 of
the Code in relation to Section 151 of the National Internal
Revenue Code.
Given the above disquisition, petitioners cannot claim that
the appellate court unjustly deprived them of the power to create
their sources of revenue, their assessment of taxes against
Republic Cement being ultra vires, traversing as it does the
limitations set by the Local Government Code.
Petitioners likewise aver that the appellate court's
declaration of nullity of its assessment against Republic Cement
is a collateral attack on Provincial Ordinance No. 3, which is
prohibited by public policy.[15] Contrary to petitioners' claim, the
legality of the ordinance was never questioned by the Court of
Appeals. Rather, what the appellate court questioned was
petitioners' assessment of taxes on Republic Cement on the basis
of Provincial Ordinance No. 3, not the ordinance itself.
Furthermore, Section 21 of Provincial Ordinance No. 3 is
practically only a reproduction of Section 138 of the Local
Government Code. A cursory reading of both would show that
both refer to ordinary sand, stone, gravel, earth and other quarry
resources extracted from public lands. Even if we disregard the
limitation set by Section 133 of the Local Government Code,
petitioners may not impose taxes on stones, sand, gravel, earth
and other quarry resources extracted from private lands on the
basis of Section 21 of Provincial Ordinance No. 3 as the latter
clearly applies only to quarry resources extracted from public
lands. Petitioners may not invoke the Regalian doctrine to extend
the coverage of their ordinance to quarry resources extracted
from private lands, for taxes, being burdens, are not to be
presumed beyond what the applicable statute expressly and
clearly declares, tax statutes being construed strictissimi
juris against the government.[16]
WHEREFORE, premises considered, the instant petition is
DISMISSED for lack of merit and the decision of the Court of
Appeals is hereby AFFIRMED in toto. Costs against petitioner.
CONTEX CORPORATION, petitioner, vs. HON. COMMISSIONER
OF INTERNAL REVENUE, respondent.
QUISUMBING, J.:
For review is the Decision[1] dated September 3, 2001, of
the Court of Appeals, in CA-G.R. SP No. 62823, which reversed
and set aside the decision[2] dated October 13, 2000, of the Court
of Tax Appeals (CTA). The CTA had ordered the Commissioner of
Internal Revenue (CIR) to refund the sum of P683,061.90 to
petitioner as erroneously paid input value-added tax (VAT) or in
the alternative, to issue a tax credit certificate for said
amount. Petitioner also assails the appellate courts
Resolution,[3] dated December 19, 2001, denying the motion for
reconsideration.
Petitioner is a domestic corporation engaged in the
business of manufacturing hospital textiles and garments and
other hospital supplies for export. Petitioners place of business is
at the Subic Bay Freeport Zone (SBFZ). It is duly registered with
the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay
Freeport Enterprise, pursuant to the provisions of Republic Act
No. 7227.[4] As an SBMA-registered firm, petitioner is exempt
from all local and national internal revenue taxes except for the
preferential tax provided for in Section 12 (c)[5] of Rep. Act No.
7227. Petitioner also registered with the Bureau of Internal
Revenue (BIR) as a non-VAT taxpayer under Certificate of
Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner
purchased various supplies and materials necessary in the
conduct of its manufacturing business. The suppliers of these
goods shifted unto petitioner the 10% VAT on the purchased
items, which led the petitioner to pay input taxes in the amounts
of P539,411.88 and P504,057.49 for 1997 and 1998,
respectively.[6]
Acting on the belief that it was exempt from all national and
local taxes, including VAT, pursuant to Rep. Act No. 7227,
petitioner filed two applications for tax refund or tax credit of the
VAT it paid. Mr. Edilberto Carlos, revenue district officer of
BIR RDO No. 19, denied the first application letter, dated
December 29, 1998.
Unfazed by the denial, petitioner on May 4, 1999, filed
another application for tax refund/credit, this time directly with
Page 13 of 29
Atty. Alberto Pagabao, the regional director of BIR Revenue
Region No. 4. The second letter sought a refund or issuance of a
tax credit certificate in the amount of P1,108,307.72,
representing erroneously paid input VAT for the period January
1, 1997 to November 30, 1998.
When no response was forthcoming from the BIR Regional
Director, petitioner then elevated the matter to the Court of Tax
Appeals, in a petition for review docketed as CTA Case No.
5895. Petitioner stressed that Section 112(A)[7] if read in relation
to Section 106(A)(2)(a)[8] of the National Internal Revenue Code,
as amended and Section 12(b)[9] and (c) of Rep. Act No. 7227
would show that it was not liable in any way for any value-added
tax.
In opposing the claim for tax refund or tax credit, the BIR
asked the CTA to apply the rule that claims for refund are strictly
construed against the taxpayer. Since petitioner failed to
establish both its right to a tax refund or tax credit and its
compliance with the rules on tax refund as provided for in
Sections 204[10] and 229[11] of the Tax Code, its claim should be
denied, according to the BIR.
On October 13, 2000, the CTA decided CTA Case No. 5895 as
follows:
WHEREFORE, in view of the foregoing, the Petition for Review is
hereby PARTIALLY GRANTED. Respondent is hereby ORDERED
to REFUND or in the alternative to ISSUE A TAX CREDIT
CERTIFICATE in favor of Petitioner the sum of P683,061.90,
representing erroneously paid input VAT.
SO ORDERED.[12]
In granting a partial refund, the CTA ruled that petitioner
misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The
tax court stressed that these provisions apply only to those
entities registered as VAT taxpayers whose sales are zero-
rated. Petitioner does not fall under this category, since it is a
non-VAT taxpayer as evidenced by the Certificate of
Registration RDO Control No. 95-180-000133 issued
by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay
Freeport Zone and thus it is exempt from VAT, pursuant to Rep.
Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt
from the imposition of input VAT on its purchases of supplies and
materials. It pointed out that under Section 12(c) of Rep. Act No.
7227 and the Implementing Rules and Regulations of the Bases
Conversion and Development Act of 1992, all that petitioner is
required to pay as a SBFZ-registered enterprise is a 5%
preferential tax.
The CTA also disallowed all refunds of input VAT paid by
the petitioner prior to June 29, 1997 for being barred by the two-
year prescriptive period under Section 229 of the Tax Code.The
tax court also limited the refund only to the input VAT paid by the
petitioner on the supplies and materials directly used by the
petitioner in the manufacture of its goods. It struck down all
claims for input VAT paid on maintenance, office supplies, freight
charges, and all materials and supplies shipped or delivered to
the petitioners Makati and Pasay City offices.
Respondent CIR then filed a petition, docketed as CA-G.R. SP
No. 62823, for review of the CTA decision by the Court of
Appeals. Respondent maintained that the exemption
of ContexCorp. under Rep. Act No. 7227 was limited only to direct
taxes and not to indirect taxes such as the input component of the
VAT. The Commissioner pointed out that from its very nature, the
value-added tax is a burden passed on by a VAT registered
person to the end users; hence, the direct liability for the tax lies
with the suppliers and not Contex.
Finding merit in the CIRs arguments, the appellate court
decided CA-G.R. SP No. 62823 in his favor, thus:
WHEREFORE, premises considered, the appealed decision is
hereby REVERSED AND SET ASIDE. Contexs claim for refund of
erroneously paid taxes is DENIED accordingly.
SO ORDERED.[13]
In reversing the CTA, the Court of Appeals held that the
exemption from duties and taxes on the importation of raw
materials, capital, and equipment of SBFZ-registered enterprises
under Rep. Act No. 7227 and its implementing rules covers only
the VAT imposable under Section 107 of the [Tax Code], which is
a direct liability of the importer, and in no way includes the
value-added tax of the seller-exporter the burden of which was
passed on to the importer as an additional costs of the
goods.[14] This was because the exemption granted by Rep. Act
No. 7227 relates to the act of importation and Section 107[15] of
the Tax Code specifically imposes the VAT on importations. The
appellate court applied the principle that tax exemptions are
strictly construed against the taxpayer. The Court of Appeals
pointed out that under the implementing rules of Rep. Act No.
7227, the exemption of SBFZ-registered enterprises from internal
revenue taxes is qualified as pertaining only to those for which
they may be directly liable. It then stated that apparently, the
legislative intent behind Rep. Act No. 7227 was to grant
exemptions only to direct taxes, which SBFZ-registered
enterprise may be liable for and only in connection with their
importation of raw materials, capital, and equipment as well as
the sale of their goods and services.
Petitioner timely moved for reconsideration of the Court of
Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our
resolution the following:
A. WHETHER OR NOT THE EXEMPTION FROM ALL
LOCAL AND NATIONAL INTERNAL REVENUE
TAXES PROVIDED IN REPUBLIC ACT
NO. 7227 COVERS THE VALUE ADDED TAX
PAID BY PETITIONER, A SUBIC
BAY FREEPORT ENTERPRISE ON ITS
PURCHASES OF SUPPLIES AND MATERIALS.
B. WHETHER OR NOT THE COURT OF TAX APPEALS
CORRECTLY HELD THAT PETITIONER IS
ENTITLED TO A TAX CREDIT OR REFUND OF
THE VAT PAID ON ITS PURCHASES OF
SUPPLIES AND RAW MATERIALS FOR THE
YEARS 1997 AND 1998.[16]
Simply stated, we shall resolve now the issues
concerning: (1) the correctness of the finding of the Court of
Appeals that the VAT exemption embodied in Rep. Act No. 7227
does not apply to petitioner as a purchaser; and (2) the
Page 14 of 29
entitlement of the petitioner to a tax refund on its purchases of
supplies and raw materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate courts
restrictive interpretation of petitioners VAT exemption as limited
to those covered by Section 107 of the Tax Code is erroneous and
devoid of legal basis. It contends that the provisions of Rep. Act
No. 7227 clearly and unambiguously mandate that no local and
national taxes shall be imposed upon SBFZ-registered firms and
hence, said law should govern the case. Petitioner calls our
attention to regulations issued by both the SBMA and BIR clearly
and categorically providing that the tax exemption provided for
by Rep. Act No. 7227 includes exemption from the imposition of
VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that
while Rep. Act No. 7227 does grant tax exemptions, such grant is
not all-encompassing but is limited only to those taxes for which
a SBFZ-registered business may be directly
liable. Hence, SBFZ locators are not relieved from the indirect
taxes that may be shifted to them by a VAT-registered seller.
At this juncture, it must be stressed that the VAT is an
indirect tax. As such, the amount of tax paid on the goods,
properties or services bought, transferred, or leased may be
shifted or passed on by the seller, transferor, or lessor to the
buyer, transferee or lessee.[17] Unlike a direct tax, such as the
income tax, which primarily taxes an individuals ability to pay
based on his income or net wealth, an indirect tax, such as the
VAT, is a tax on consumption of goods, services, or certain
transactions involving the same. The VAT, thus, forms a
substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish
between the liability for the tax and the burden of the tax. As
earlier pointed out, the amount of tax paid may be shifted or
passed on by the seller to the buyer. What is transferred in such
instances is not the liability for the tax, but the tax burden. In
adding or including the VAT due to the selling price, the seller
remains the person primarily and legally liable for the payment
of the tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax.[18]Stated
differently, a seller who is directly and legally liable for payment
of an indirect tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden of the
same tax. It is the final purchaser or consumer of such goods or
services who, although not directly and legally liable for the
payment thereof, ultimately bears the burden of the tax.[19]
Exemptions from VAT are granted by express provision of
the Tax Code or special laws. Under VAT, the transaction can
have preferential treatment in the following ways:
(a) VAT Exemption. An exemption means that the sale of goods or
properties and/or services and the use or lease of properties is
not subject to VAT (output tax) and the seller is not allowed any
tax credit on VAT (input tax) previously paid.[20] This is a case
wherein the VAT is removed at the exempt stage (i.e., at the point
of the sale, barter or exchange of the goods or properties).
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. On the other hand, a VAT-
registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input
tax on such purchase despite the issuance of a VAT invoice or
receipt.[21]
(b) Zero-rated Sales. These are sales by VAT-registered persons
which are subject to 0% rate, meaning the tax burden is not
passed on to the purchaser. A zero-rated sale by a VAT-registered
person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale
shall be available as tax credit or refund in accordance with these
regulations.[22]
Under Zero-rating, all VAT is removed from the zero-rated
goods, activity or firm. In contrast, exemption only removes the
VAT at the exempt stage, and it will actually increase, rather than
reduce the total taxes paid by the exempt firms business or non-
retail customers. It is for this reason that a sharp distinction must
be made between zero-rating and exemption in designating a
value-added tax.[23]
Apropos, the petitioners claim to VAT exemption in the
instant case for its purchases of supplies and raw materials is
founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227,
which basically exempts them from all national and local internal
revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue
Regulations No. 1-95.[24]
On this point, petitioner rightly claims that it is indeed VAT-
Exempt and this fact is not controverted by the respondent. In
fact, petitioner is registered as a NON-VAT taxpayer per
Certificate of Registration[25] issued by the BIR. As such, it is
exempt from VAT on all its sales and importations of goods and
services.
Petitioners claim, however, for exemption from VAT for its
purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities can
claim Input VAT Credit/Refund.
The point of contention here is whether or not the
petitioner may claim a refund on the Input VAT erroneously
passed on to it by its suppliers.
While it is true that the petitioner should not have been
liable for the VAT inadvertently passed on to it by its supplier
since such is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund.
Section 4.100-2 of BIRs Revenue Regulations 7-95, as
amended, or the Consolidated Value-Added Tax
Regulations provide:
Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-
registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input
tax on his purchases of goods, properties or services related to
such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations.
The following sales by VAT-registered persons shall be subject to
0%:
(a) Export Sales
Export Sales shall mean
Page 15 of 29
...
(5) Those considered export sales under Articles 23
and 77 of Executive Order No. 226, otherwise
known as the Omnibus Investments Code of
1987, and other special laws, e.g. Republic Act
No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.
...
(c) Sales to persons or entities whose exemption under
special laws, e.g. R.A. No. 7227 duly registered and
accredited enterprises with Subic Bay Metropolitan
Authority (SBMA) and Clark Development Authority
(CDA), R. A. No. 7916, Philippine Economic Zone
Authority (PEZA), or international agreements, e.g.
Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc. to which the Philippines
is a signatory effectively subject such sales to zero-
rate.
Since the transaction is deemed a zero-rated sale,
petitioners supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output
VAT may be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize
that the petitioner is registered as a NON-VAT taxpayer and thus,
is exempt from VAT. As an exempt VAT taxpayer, it is not allowed
any tax credit on VAT (input tax) previously paid. In fine, even if
we are to assume that exemption from the burden of VAT on
petitioners purchases did exist, petitioner is still not entitled to
any tax credit or refund on the input tax previously paid as
petitioner is an exempt VAT taxpayer.
Rather, it is the petitioners suppliers who are the proper
parties to claim the tax credit and accordingly refund the
petitioner of the VAT erroneously passed on to the latter.
Accordingly, we find that the Court of Appeals did not
commit any reversible error of law in holding that petitioners
VAT exemption under Rep. Act No. 7227 is limited to the VAT on
which it is directly liable as a seller and hence, it cannot claim any
refund or exemption for any input VAT it paid, if any, on its
purchases of raw materials and supplies.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision dated September 3, 2001, of the Court of Appeals in CA-
G.R. SP No. 62823, as well as its Resolution of December 19,
2001 are AFFIRMED. No pronouncement as to costs.
G.R. No. L-31092 February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX
APPEALS, respondents.
YAP, J.:
The question involved in this petition is whether respondent John
Gotamco & Sons, Inc. should pay the 3% contractor's tax under
Section 191 of the National Internal Revenue Code on the gross
receipts it realized from the construction of the World Health
Organization office building in Manila.
The World Health Organization (WHO for short) is an
international organization which has a regional office in Manila.
As an international organization, it enjoys privileges and
immunities which are defined more specifically in the Host
Agreement entered into between the Republic of the Philippines
and the said Organization on July 22, 1951. Section 11 of that
Agreement provides, inter alia, that "the Organization, its assets,
income and other properties shall be: (a) exempt from all direct
and indirect taxes. It is understood, however, that the
Organization will not claim exemption from taxes which are, in
fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own
offices, as well as the other United Nations offices stationed in
Manila, it entered into a further agreement with the Govermment
of the Republic of the Philippines on November 26, 1957. This
agreement contained the following provision (Article III,
paragraph 2):
The Organization may import into the country
materials and fixtures required for the
construction free from all duties and taxes and
agrees not to utilize any portion of the
international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the
Host Agreement concluded on July 22, 1951 which granted the
Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO
informed the bidders that the building to be constructed
belonged to an international organization with diplomatic status
and thus exempt from the payment of all fees, licenses, and taxes,
and that therefore their bids "must take this into account and
should not include items for such taxes, licenses and other
payments to Government agencies."
The construction contract was awarded to respondent John
Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958
for the stipulated price of P370,000.00, but when the building
was completed the price reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the
Commissioner of the Bureau of Internal Revenue stating that "as
the 3% contractor's tax is an indirect tax on the assets and
income of the Organization, the gross receipts derived by
contractors from their contracts with the WHO for the
construction of its new building, are exempt from tax in
accordance with . . . the Host Agreement." Subsequently, however,
on June 3, 1958, the Commissioner of Internal Revenue reversed
his opinion and stated that "as the 3% contractor's tax is not a
direct nor an indirect tax on the WHO, but a tax that is primarily
due from the contractor, the same is not covered by . . . the Host
Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter
alia,:
When the request for bids for the construction
of the World Health Organization office
Page 16 of 29
 building was called for, contractors were
informed that there would be no taxes or fees
levied upon them for their work in connection
with the construction of the building as this
will be considered an indirect tax to the
Organization caused by the increase of the
contractor's bid in order to cover these taxes.
This was upheld by the Bureau of Internal
Revenue and it can be stated that the
contractors submitted their bids in good faith
with the exemption in mind.
The undersigned, therefore, certifies that the
bid of John Gotamco & Sons, made under the
condition stated above, should be exempted
from any taxes in connection with the
construction of the World Health Organization
office building.
On January 17, 1961, the Commissioner of Internal Revenue sent
a letter of demand to Gotamco demanding payment of P
16,970.40, representing the 3% contractor's tax plus surcharges
on the gross receipts it received from the WHO in the
construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to
the Court of Tax Appeals, which after trial rendered a decision, in
favor of Gotamco and reversed the Commissioner's decision. The
Court of Tax Appeal's decision is now before us for review on
certiorari.
In his first assignment of error, petitioner questions the
entitlement of the WHO to tax exemption, contending that the
Host Agreement is null and void, not having been ratified by the
Philippine Senate as required by the Constitution. We find no
merit in this contention. While treaties are required to be ratified
by the Senate under the Constitution, less formal types of
international agreements may be entered into by the Chief
Executive and become binding without the concurrence of the
legislative body. 1 The Host Agreement comes within the latter
category; it is a valid and binding international agreement even
without the concurrence of the Philippine Senate.
The privileges and immunities granted to the WHO under the
Host Agreement have been recognized by this Court as legally
binding on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement
granting tax exemption to the WHO is valid and enforceable, the
3% contractor's tax assessed on Gotamco is not an "indirect tax"
within its purview. Petitioner's position is that the contractor's
tax "is in the nature of an excise tax which is a charge imposed
upon the performance of an act, the enjoyment of a privilege or
the engaging in an occupation. . . It is a tax due primarily and
directly on the contractor, not on the owner of the building. Since
this tax has no bearing upon the WHO, it cannot be deemed an
indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this
contention of the petitioner. Said the respondent court:
In context, direct taxes are those that are
demanded from the very person who, it is
intended or desired, should pay them; while
indirect taxes are those that are demanded in
the first instance from one person in the
expectation and intention that he can shift the
burden to someone else. (Pollock vs. Farmers,
L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law.
Ed. 759.) The contractor's tax is of course
payable by the contractor but in the last
analysis it is the owner of the building that
shoulders the burden of the tax because the
same is shifted by the contractor to the owner
as a matter of self-preservation. Thus, it is an
indirect tax. And it is an indirect tax on the
WHO because, although it is payable by the
petitioner, the latter can shift its burden on the
WHO. In the last analysis it is the WHO that
will pay the tax indirectly through the
contractor and it certainly cannot be said that
'this tax has no bearing upon the World Health
Organization.
Petitioner claims that under the authority of the Philippine
Acetylene Company versus Commissioner of Internal Revenue, et
al., 3 the 3% contractor's tax fans directly on Gotamco and cannot
be shifted to the WHO. The Court of Tax Appeals, however, held
that the said case is not controlling in this case, since the Host
Agreement specifically exempts the WHO from "indirect taxes."
We agree. The Philippine Acetylene case involved a tax on sales of
goods which under the law had to be paid by the manufacturer or
producer; the fact that the manufacturer or producer might have
added the amount of the tax to the price of the goods did not
make the sales tax "a tax on the purchaser." The Court held that
the sales tax must be paid by the manufacturer or producer even
if the sale is made to tax-exempt entities like the National Power
Corporation, an agency of the Philippine Government, and to the
Voice of America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO from
"indirect taxes," contemplates taxes which, although not imposed
upon or paid by the Organization directly, form part of the price
paid or to be paid by it. This is made clear in Section 12 of the
Host Agreement which provides:
While the Organization will not, as a general
rule, in the case of minor purchases, claim
exemption from excise duties, and from taxes
on the sale of movable and immovable
property which form part of the price to be
paid, nevertheless, when the Organization is
making important purchases for official use of
property on which such duties and taxes have
been charged or are chargeable the
Government of the Republic of the Philippines
shall make appropriate administrative
arrangements for the remission or return of the
amount of duty or tax. (Emphasis supplied).
The above-quoted provision, although referring only to
purchases made by the WHO, elucidates the clear intention of the
Agreement to exempt the WHO from "indirect" taxation.
The certification issued by the WHO, dated January 20, 1960,
sought exemption of the contractor, Gotamco, from any taxes in
connection with the construction of the WHO office building. The
Page 17 of 29
3% contractor's tax would be within this category and should be Price Stabilization Fund (OPSF) for the
viewed as a form of an "indirect tax" On the Organization, as the purpose of minimizing frequent price changes
payment thereof or its inclusion in the bid price would have brought about by exchange rate adjustments
meant an increase in the construction cost of the building. and/or changes in world market prices of
crude oil and imported petroleum products.
Accordingly, finding no reversible error committed by the The Oil Price Stabilization Fund may be
respondent Court of Tax Appeals, the appealed decision is hereby sourced from any of the following:
affirmed.
a) Any increase in the tax
G.R. No. 92585 May 8, 1992 collection from ad
valorem tax or customs
duty imposed on petroleum
CALTEX PHILIPPINES, INC., petitioner, products subject to tax
vs. under this Decree arising
THE HONORABLE COMMISSION ON AUDIT, HONORABLE from exchange rate
COMMISSIONER BARTOLOME C. FERNANDEZ and adjustment, as may be
HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents. determined by the Minister
of Finance in consultation
DAVIDE, JR., J.: with the Board of Energy;

This is a petition erroneously brought under Rule 44 of the Rules b) Any increase in the tax
of Court 1 questioning the authority of the Commission on Audit collection as a result of the
(COA) in disallowing petitioner's claims for reimbursement from lifting of tax exemptions of
the Oil Price Stabilization Fund (OPSF) and seeking the reversal government corporations,
of said Commission's decision denying its claims for recovery of as may be determined by
financing charges from the Fund and reimbursement of the Minister of Finance in
underrecovery arising from sales to the National Power consultation with the Board
Corporation, Atlas Consolidated Mining and Development of Energy;
Corporation (ATLAS) and Marcopper Mining Corporation (MAR-
COPPER), preventing it from exercising the right to offset its c) Any additional amount to
remittances against its reimbursement vis-a-vis the OPSF and be imposed on petroleum
disallowing its claims which are still pending resolution before products to augment the
the Office of Energy Affairs (OEA) and the Department of Finance resources of the Fund
(DOF). through an appropriate
Order that may be issued by
Pursuant to the 1987 Constitution, 2 any decision, order or ruling the Board of Energy
of the Constitutional Commissions 3 may be brought to this Court requiring payment by
on certiorari by the aggrieved party within thirty (30) days from persons or companies
receipt of a copy thereof. The certiorari referred to is the special engaged in the business of
civil action for certiorari under Rule 65 of the Rules of Court. 4 importing, manufacturing
and/or marketing
Considering, however, that the allegations that the COA acted petroleum products;
with:
(a) total lack of jurisdiction in completely ignoring and showing d) Any resulting peso cost
absolutely no respect for the findings and rulings of the differentials in case the
administrator of the fund itself and in disallowing a claim which actual peso costs paid by oil
is still pending resolution at the OEA level, and (b) "grave abuse companies in the
of discretion and completely without jurisdiction" 5 in declaring importation of crude oil and
that petitioner cannot avail of the right to offset any amount that petroleum products is less
it may be required under the law to remit to the OPSF against any than the peso costs
amount that it may receive by way of reimbursement therefrom computed using the
are sufficient to bring this petition within Rule 65 of the Rules of reference foreign exchange
Court, and, considering further the importance of the issues rate as fixed by the Board of
raised, the error in the designation of the remedy pursued will, in Energy.
this instance, be excused.
The Fund herein created shall be used for the
The issues raised revolve around the OPSF created under Section following:
8 of Presidential Decree (P.D.) No. 1956, as amended by
Executive Order (E.O.) No. 137. As amended, said Section 8 reads 1) To reimburse the oil
as follows: companies for cost
increases in crude oil and
Sec. 8 . There is hereby created a Trust imported petroleum
Account in the books of accounts of the products resulting from
Ministry of Energy to be designated as Oil exchange rate adjustment
Page 18 of 29
and/or increase in world as may
market prices of crude oil; be
determin
2) To reimburse the oil ed by the
companies for possible cost Ministry
under-recovery incurred as of
a result of the reduction of Finance
domestic prices of to result
petroleum products. The in cost
magnitude of the underrec
underrecovery, if any, shall overy.
be determined by the
Ministry of Finance. "Cost The Oil Price Stabilization Fund (OPSF) shall
underrecovery" shall be administered by the Ministry of Energy.
include the following:
The material operative facts of this case, as gathered from the
i. pleadings of the parties, are not disputed.
Reductio
n in oil On 2 February 1989, the COA sent a letter to Caltex Philippines,
company Inc. (CPI), hereinafter referred to as Petitioner, directing the
take as latter to remit to the OPSF its collection, excluding that
directed unremitted for the years 1986 and 1988, of the additional tax on
by the petroleum products authorized under the aforesaid Section 8 of
Board of P.D. No. 1956 which, as of 31 December 1987, amounted to
Energy P335,037,649.00 and informing it that, pending such remittance,
without all of its claims for reimbursement from the OPSF shall be held in
the abeyance. 6
correspo
nding
reductio On 9 March 1989, the COA sent another letter to petitioner
n in the informing it that partial verification with the OEA showed that
landed the grand total of its unremitted collections of the above tax is
cost of P1,287,668,820.00, broken down as follows:
oil
inventori directing it to remit the same, with interest and surcharges
es in the thereon, within sixty (60) days from receipt of the letter; advising
possessi it that the COA will hold in abeyance the audit of all its claims for
on of the reimbursement from the OPSF; and directing it to desist from
oil further offsetting the taxes collected against outstanding claims
compani in 1989 and subsequent periods. 7
es at the
time of In its letter of 3 May 1989, petitioner requested the COA for an
the price early release of its reimbursement certificates from the OPSF
change; covering claims with the Office of Energy Affairs since June 1987
up to March 1989, invoking in support thereof COA Circular No.
ii. 89-299 on the lifting of pre-audit of government transactions of
Reductio national government agencies and government-owned or
n in controlled corporations. 8
internal
ad In its Answer dated 8 May 1989, the COA denied petitioner's
valorem t request for the early release of the reimbursement certificates
axes as a from the OPSF and repeated its earlier directive to petitioner to
result of forward payment of the latter's unremitted collections to the
foregoin OPSF to facilitate COA's audit action on the reimbursement
g claims. 9
governm
ent
mandate By way of a reply, petitioner, in a letter dated 31 May 1989,
d price submitted to the COA a proposal for the payment of the
reductio collections and the recovery of claims, since the outright payment
ns; of the sum of P1.287 billion to the OEA as a prerequisite for the
processing of said claims against the OPSF will cause a very
serious impairment of its cash position. 10 The proposal reads:
iii. Other
factors
Page 19 of 29
 We, therefore, very respectfully propose the
following:
(1) Any procedural
arrangement acceptable to
COA to facilitate monitoring
of payments and
reimbursements will be
administered by the
ERB/Finance Dept./OEA, as
agencies designated by law
to administer/regulate
OPSF.
(2) For the retroactive
period, Caltex will deliver to
OEA, P1.287 billion as
payment to OPSF, similarly
OEA will deliver to Caltex
the same amount in cash
reimbursement from OPSF.
(3) The COA audit will
commence immediately
and will be conducted
expeditiously.
(4) The review of current
claims (1989) will be
conducted expeditiously to
preclude further
accumulation of
reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part,
handed down Decision No. 921 accepting the above-stated
proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing
years. 11 Decision No. 921 reads:
This pertains to the within separate requests
of Mr. Manuel A. Estrella, President, Petron
Corporation, and Mr. Francis Ablan, President
and Managing Director, Caltex (Philippines)
Inc., for reconsideration of this Commission's
adverse action embodied in its letters dated
February 2, 1989 and March 9, 1989, the
former directing immediate remittance to the
Oil Price Stabilization Fund of collections
made by the firms pursuant to P.D. 1956, as
amended by E.O. No. 137, S. 1987, and the
latter reiterating the same directive but
further advising the firms to desist from
offsetting collections against their claims with
the notice that "this Commission will hold in
abeyance the audit of all . . . claims for
reimbursement from the OPSF."
It appears that under letters of authority
issued by the Chairman, Energy Regulatory
Board, the aforenamed oil companies were
allowed to offset the amounts due to the Oil
Price Stabilization Fund against their
outstanding claims from the said Fund for the
calendar years 1987 and 1988, pending with
the then Ministry of Energy, the government
entity charged with administering the OPSF.
This Commission, however, expressing serious
doubts as to the propriety of the offsetting of
all types of reimbursements from the OPSF
against all categories of remittances, advised
these oil companies that such offsetting was
bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in
support thereof clearly manifest their intent to
make arrangements for the remittance to the
Office of Energy Affairs of the amount of
collections equivalent to what has been
previously offset, provided that this
Commission authorizes the Office of Energy
Affairs to prepare the corresponding checks
representing reimbursement from the OPSF. It
is alleged that the implementation of such an
arrangement, whereby the remittance of
collections due to the OPSF and the
reimbursement of claims from the Fund shall
be made within a period of not more than one
week from each other, will benefit the Fund
and not unduly jeopardize the continuing daily
cash requirements of these firms.
Upon a circumspect evaluation of the
circumstances herein obtaining, this
Commission perceives no further
objectionable feature in the proposed
arrangement, provided that 15% of whatever
amount is due from the Fund is retained by the
Office of Energy Affairs, the same to be
answerable for suspensions or disallowances,
errors or discrepancies which may be noted in
the course of audit and surcharges for late
remittances without prejudice to similar
future retentions to answer for any deficiency
in such surcharges, and provided further that
no offsetting of remittances and
reimbursements for the current and ensuing
years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the
following letter to Executive Director Wenceslao R. De la Paz of
the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision
No. 921 dated June 7, 1989, and based on our
initial verification of documents submitted to
us by your Office in support of Caltex
(Philippines), Inc. offsets (sic) for the year
1986 to May 31, 1989, as well as its
outstanding claims against the Oil Price
Stabilization Fund (OPSF) as of May 31, 1989,
we are pleased to inform your Office that
Caltex (Philippines), Inc. shall be required to
remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which
were offset against its claims reimbursements
Page 20 of 29
(net of unsubmitted claims). In addition, the 20, 1987 as covered by subsequent ERB
Commission hereby authorize (sic) the Office Resolution No. 88-12 dated November 18,
of Energy Affairs (OEA) to cause payment of 1988 has allowed Caltex to include in their
P1,959,182,612 to Caltex, representing claims domestic sales volumes to international
initially allowed in audit, the details of which vessels/airlines and claim the corresponding
are presented hereunder: . . . reimbursements from OPSF during the period.
It is our opinion that the effectivity of the said
As presented in the foregoing computation the resolution should be February 7, 1987.
disallowances totalled P387,683,535, which
included P130,420,235 representing those c. Inventory losses Settlement of Ad Valorem
claims disallowed by OEA, details of which is
(sic) shown in Schedule 1 as summarized as We reviewed the system of handling Borrow
follows: and Loan (BLA) transactions including the
related BLA agreement, as they affect the
Disallowance of COA claims for reimbursements of ad
Particulars Amount valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA
Recovery of financing transaction (sic). Loan balances therefore are
charges P162,728,475 /a not tax paid inventories of Caltex subject to
Product sales 48,402,398 reimbursements but those of the borrower.
/b Hence, we recommend reduction of the claim
Inventory losses for July, August, and November, 1987
Borrow loan arrangement amounting to P14,034,786.
14,034,786 /c
Sales to Atlas/Marcopper d. Sales to Atlas/Marcopper
32,097,083 /d
Sales to NPC 558 LOI No. 1416 dated July 17, 1984 provides that
"I hereby order and direct the suspension of
P257,263,300 payment of all taxes, duties, fees, imposts and
other charges whether direct or indirect due
Disallowances of OEA and payable by the copper mining companies
130,420,235 in distress to the national and local
governments." It is our opinion that LOI 1416
which implements the exemption from
Total P387,683,535 payment of OPSF imposts as effected by OEA
has no legal basis.
The reasons for the disallowances are
discussed hereunder: Furthermore, we wish to emphasize that
payment to Caltex (Phil.) Inc., of the amount as
a. Recovery of Financing Charges herein authorized shall be subject to
availability of funds of OPSF as of May 31,
1989 and applicable auditing rules and
Review of the provisions of P.D. 1596 as regulations. With regard to the disallowances,
amended by E.O. 137 seems to indicate that it is further informed that the aggrieved party
recovery of financing charges by oil companies has 30 days within which to appeal the
is not among the items for which the OPSF decision of the Commission in accordance with
may be utilized. Therefore, it is our view that law.
recovery of financing charges has no legal
basis. The mechanism for such claims
is provided in DOF Circular 1-87. On 8 September 1989, petitioner filed an Omnibus Request for
the Reconsideration of the decision based on the following
grounds: 13
b. Product Sales Sales to International
Vessels/Airlines
A) COA-DISALLOWED CLAIMS ARE
AUTHORIZED UNDER EXISTING RULES,
BOE Resolution No. 87-01 dated February 7, ORDERS, RESOLUTIONS, CIRCULARS ISSUED
1987 as implemented by OEA Order No. 87- BY THE DEPARTMENT OF FINANCE AND THE
03-095 indicating that (sic) February 7, 1987 ENERGY REGULATORY BOARD PURSUANT TO
as the effectivity date that (sic) oil companies EXECUTIVE ORDER NO. 137.
should pay OPSF impost on export sales of
petroleum products. Effective February 7,
1987 sales to international vessels/airlines xxx xxx xxx
should not be included as part of its domestic
sales. Changing the effectivity date of the B) ADMINISTRATIVE INTERPRETATIONS IN
resolution from February 7, 1987 to October THE COURSE OF EXERCISE OF EXECUTIVE
Page 21 of 29
 POWER BY DEPARTMENT OF FINANCE AND
ENERGY REGULATORY BOARD ARE LEGAL
AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY
COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE
EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a
Supplemental Omnibus Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking
no part and with Commissioner Fernandez dissenting in part,
handed down Decision No. 1171 affirming the disallowance for
recovery of financing charges, inventory losses, and sales to
MARCOPPER and ATLAS, while allowing the recovery of product
sales or those arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you
contend that Caltex Phil. Inc. has the .authority
to recover financing charges from the OPSF on
the basis of Department of Finance (DOF)
Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of
financing working capital associated with
crude oil shipments," and provided a schedule
of reimbursement in terms of peso per barrel.
It appears that on November 6, 1989, the DOF
issued a memorandum to the President of the
Philippines explaining the nature of these
financing charges and justifying their
reimbursement as follows:
As part of your program to
promote economic
recovery, . . . oil companies
(were authorized) to
refinance their imports of
crude oil and petroleum
products from the normal
trade credit of 30 days up
to 360 days from date of
loading . . . Conformably . . .,
the oil companies deferred
their foreign exchange
remittances for purchases
by refinancing their import
bills from the normal 30-
day payment term up to the
desired 360 days. This
refinancing of importations
carried additional costs
(financing charges) which
then became, due to
government mandate, an
inherent part of the cost of
the purchases of our
country's oil requirement.
We beg to disagree with such contention. The
justification that financing charges increased
oil costs and the schedule of reimbursement
rate in peso per barrel (Exhibit 1) used to
support alleged increase (sic) were not
validated in our independent inquiry. As
manifested in Exhibit 2, using the same
formula which the DOF used in arriving at the
reimbursement rate but using comparable
percentages instead of pesos, the ineluctable
conclusion is that the oil companies are
actually gaining rather than losing from the
extension of credit because such extension
enables them to invest the collections in
marketable securities which have much higher
rates than those they incur due to the
extension. The Data we used were obtained
from CPI (CALTEX) Management and can
easily be verified from our records.
With respect to product sales or those arising
from sales to international vessels or airlines, . .
., it is believed that export sales (product
sales) are entitled to claim refund from the
OPSF.
As regard your claim for underrecovery arising
from inventory losses, . . . It is the considered
view of this Commission that the OPSF is not
liable to refund such surtax on inventory
losses because these are paid to BIR and not
OPSF, in view of which CPI (CALTEX) should
seek refund from BIR. . . .
Finally, as regards the sales to Atlas and
Marcopper, it is represented that you are
entitled to claim recovery from the OPSF
pursuant to LOI 1416 issued on July 17, 1984,
since these copper mining companies did not
pay CPI (CALTEX) and OPSF imposts which
were added to the selling price.
Upon a circumspect evaluation, this
Commission believes and so holds that the CPI
(CALTEX) has no authority to claim
reimbursement for this uncollected OPSF
impost because LOI 1416 dated July 17, 1984,
which exempts distressed mining companies
from "all taxes, duties, import fees and other
charges" was issued when OPSF was not yet in
existence and could not have contemplated
OPSF imposts at the time of its formulation.
Moreover, it is evident that OPSF was not
created to aid distressed mining companies
but rather to help the domestic oil industry by
stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990
the present petition wherein it imputes to the COA the
commission of the following errors: 16
Page 22 of 29
 I 2) To reimburse the oil companies for possible
RESPONDENT COMMISSION ERRED IN
DISALLOWING RECOVERY OF FINANCING
CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN
DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF
UNDERRECOVERY ARISING FROM SALES TO
NPC.
III
RESPONDENT COMMISSION ERRED IN
DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON SALES TO ATLAS AND
MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN
PREVENTING CPI FROM EXERCISING ITS
LEGAL RIGHT TO OFFSET ITS REMITTANCES
AGAINST ITS REIMBURSEMENT VIS-A-
VIS THE OPSF.
V charges for "in essence, financing charges constitute unrecovered
RESPONDENT COMMISSION ERRED IN
DISALLOWING CPI's CLAIMS WHICH ARE
STILL PENDING RESOLUTION BY (SIC) THE
OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the
respondents to comment on the petition within ten (10) days
from notice. 18
On 6 September 1990, respondents COA and Commissioners
Fernandez and Cruz, assisted by the Office of the Solicitor
General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May
1991 and required the parties to file their respective Memoranda
within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor
General prays that the Comment filed on 6 September 1990 be
considered as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14
August 1991.
I. Petitioner dwells lengthily on its first assigned error
contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to
Executive Order No. 137, which added a second purpose, to wit:
cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum
products. The magnitude of the
underrecovery, if any, shall be determined by
the Ministry of Finance. "Cost underrecovery"
shall include the following:
i. Reduction in oil company
take as directed by the
Board of Energy without
the corresponding
reduction in the landed cost
of oil inventories in the
possession of the oil
companies at the time of
the price change;
ii. Reduction in internal ad
valorem taxes as a result of
foregoing government
mandated price reductions;
iii. Other factors as may be
determined by the Ministry
of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by
the Ministry (now Department) of Finance may include financing
cost of acquisition of crude oil incurred by the oil companies," as
explained in the 6 November 1989 Memorandum to the
President of the Department of Finance; they "directly translate
to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest
income increases. The relationship is such that the presence of
underrecovery or overrecovery is directly dependent on the
amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal and
factual basis; it was filed on the basis of Department of Finance
Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of
financing working capital associated with
crude oil shipments, the following guidelines
on the utilization of the Oil Price Stabilization
Fund pertaining to the payment of the
foregoing (sic) exchange risk premium and
recovery of financing charges will be
implemented:
1. The OPSF foreign
exchange premium shall be
reduced to a flat rate of one
(1) percent for the first (6)
months and 1/32 of one
percent per month
thereafter up to a maximum
period of one year, to be
applied on crude oil'
Page 23 of 29
shipments from January 1,
1987. Shipments with
outstanding financing as of
January 1, 1987 shall be
charged on the basis of the
fee applicable to the
remaining period of
financing.

2. In addition, for The COA can neither ignore these issuances nor formulate its
shipments loaded after own interpretation of the laws in the light of the determination of
January 1987, oil executive agencies. The determination by the Department of
companies shall be allowed Finance and the OEA that financing charges are recoverable from
to recover financing the OPSF is entitled to great weight and consideration. 27 The
charges directly from the function of the COA, particularly in the matter of allowing or
OPSF per barrel of crude oil disallowing certain expenditures, is limited to the promulgation
based on the following of accounting and auditing rules for, among others, the
schedule: disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and
properties. 28

(3) Denial of petitioner's claim for reimbursement

F would be
inequitable. Additionally, COA's claim that petitioner
i is gaining,
instead of losing, from the extension of credit, nis belatedly raised
and not supported by expert analysis. a
n
In impeaching the validity of petitioner'sc assertions, the
respondents argue that: i
n
1. The Constitution gives g the COA
discretionary power to disapprove irregular
or unnecessary governmentPexpenditures and
as the monetary claims of epetitioner are not
allowed by law, the COA r acted within its
jurisdiction in denying them;i
o
d
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financingRcharges from the
OPSF; e
i
3. Under the principle of ejusdem
m generis, the
"other factors" mentionedb in the second
purpose of the OPSF pursuantu to E.O. No. 137
can only include "factors rwhich are of the
same nature or analogous s to those
enumerated;" e
m
4. In allowing reimbursemente of financing
charges from OPSF, Circular n No. 1-87 of the
t
Department of Finance violates P.D. No. 1956
and E.O. No. 137; and
R
a
5. Department of Finance t rules and
regulations implementing P.D.
e No. 1956 do not
likewise allow reimbursement of financing
charges. 29 P
e
We find no merit in the first assigned error. s
o
s resolved in view
As to the power of the COA, which must first be
of its primacy, We find the theory of petitioner that such does
not extend to the disallowance of irregular, p unnecessary,
e
Page 24 of 29
excessive, extravagant, or unconscionable expenditures, or use of
government funds and properties, but only to the promulgation
of accounting and auditing rules for, among others, such
disallowance to be untenable in the light of the provisions of
the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution
expressly provides:
Sec. 2(l). The Commission on Audit shall have
the power, authority, and duty to examine,
audit, and settle all accounts pertaining to the
revenue and receipts of, and expenditures or
uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or
any of its subdivisions, agencies, or
instrumentalities, including government-
owned and controlled corporations with
original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices
that have been granted fiscal autonomy under
this Constitution; (b) autonomous state
colleges and universities; (c) other
government-owned or controlled corporations
and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or
equity, directly or indirectly, from or through
the government, which are required by law or
the granting institution to submit to such audit
as a condition of subsidy or equity. However,
where the internal control system of the
audited agencies is inadequate, the
Commission may adopt such measures,
including temporary or special pre-audit, as
are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts,
of the Government and, for such period as may
be provided by law, preserve the vouchers and
other supporting papers pertaining thereto.
(2) The Commission shall have exclusive
authority, subject to the limitations in this
Article, to define the scope of its audit and
examination, establish the techniques and
methods required therefor, and promulgate
accounting and auditing rules and regulations,
including those for the prevention and
disallowance of irregular, unnecessary,
excessive, extravagant, or, unconscionable
expenditures, or uses of government funds
and properties.
These present powers, consistent with the declared
independence of the Commission, 30 are broader and more
extensive than that conferred by the 1973 Constitution. Under
the latter, the Commission was empowered to:
Examine, audit, and settle, in accordance with
law and regulations, all accounts pertaining to
the revenues, and receipts of, and
expenditures or uses of funds and property,
owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions,
agencies, or instrumentalities including
government-owned or controlled
corporations, keep the general accounts of the
Government and, for such period as may
be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting
and auditing rules and regulations including
those for the prevention of irregular,
unnecessary, excessive, or extravagant
expenditures or uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and
authority of the COA's precursor, the General Auditing Office,
were, unfortunately, limited; its very role was markedly passive.
Section 2 of Article XI thereofprovided:
Sec. 2. The Auditor General shall examine,
audit, and settle all accounts pertaining to the
revenues and receipts from whatever source,
including trust funds derived from bond
issues; and audit, in accordance with law and
administrative regulations, all expenditures of
funds or property pertaining to or held in trust
by the Government or the provinces or
municipalities thereof. He shall keep the
general accounts of the Government and the
preserve the vouchers pertaining thereto. It
shall be the duty of the Auditor General to
bring to the attention of the proper
administrative officer expenditures of funds or
property which, in his opinion, are irregular,
unnecessary, excessive, or extravagant. He
shall also perform such other functions as may
be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary,
excessive or extravagant expenditures or uses of funds, the 1935
Constitution did not grant the Auditor General the power to issue
rules and regulations to prevent the same. His was merely to
bring that matter to the attention of the proper administrative
officer.
The ruling on this particular point, quoted by petitioner from the
cases of Guevarra vs. Gimenez 32 and Ramos vs. Aquino, 33 are no
longer controlling as the two (2) were decided in the light of the
1935 Constitution.
There can be no doubt, however, that the audit power of the
Auditor General under the 1935 Constitution and the
Commission on Audit under the 1973 Constitution authorized
them to disallow illegal expenditures of funds or uses of funds
and property. Our present Constitution retains that same power
and authority, further strengthened by the definition of the COA's
general jurisdiction in Section 26 of the Government Auditing
Code of the Philippines 34 and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting and
auditing rules and regulations for the prevention of irregular,
unnecessary, excessive or extravagant expenditures or uses of
funds, 36 the COA promulgated on 29 March 1977 COA Circular
No. 77-55. Since the COA is responsible for the enforcement of
the rules and regulations, it goes without saying that failure to
comply with them is a ground for disapproving the payment of
the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr.
Joaquin G. Bernas: 37
Page 25 of 29
 It should be noted, however, that whereas
under Article XI, Section 2, of the 1935
Constitution the Auditor General could not
correct "irregular, unnecessary, excessive or
extravagant" expenditures of public funds but
could only "bring [the matter] to the attention
of the proper administrative officer," under
the 1987 Constitution, as also under the 1973
Constitution, the Commission on Audit can
"promulgate accounting and auditing rules
and regulations including those for the
prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or
unconscionable expenditures or uses of
government funds and properties." Hence,
since the Commission on Audit must
ultimately be responsible for the enforcement
of these rules and regulations, the failure to
comply with these regulations can be a ground
for disapproving the payment of a proposed
expenditure.
Indeed, when the framers of the last two (2) Constitutions
conferred upon the COA a more active role and invested it with
broader and more extensive powers, they did not intend merely
to make the COA a toothless tiger, but rather envisioned a
dynamic, effective, efficient and independent watchdog of the
Government.
The issue of the financing charges boils down to the validity of
Department of Finance Circular No. 1-87, Department of Finance
Circular No. 4-88 and the implementing circulars of the OEA,
issued pursuant to Section 8, P.D. No. 1956, as amended by E.O.
No. 137, authorizing it to determine "other factors" which may
result in cost underrecovery and a consequent reimbursement
from the OPSF.
The Solicitor General maintains that, following the doctrine
of ejusdem generis, financing charges are not included in "cost
underrecovery" and, therefore, cannot be considered as one of
the "other factors." Section 8 of P.D. No. 1956, as amended by E.O.
No. 137, does not explicitly define what "cost underrecovery" is.
It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the
following:
i. Reduction in oil company takes as directed
by the Board of Energy without the
corresponding reduction in the landed cost of
oil inventories in the possession of the oil
companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated
price reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of the
same class or nature as the two specifically enumerated in
subparagraphs (i) and (ii). A common characteristic of both is
that they are in the nature of government mandated price
reductions. Hence, any other factor which seeks to be a part of
the enumeration, or which could qualify as a cost underrecovery,
must be of the same class or nature as those specifically
enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant
the Department of Finance broad and unrestricted authority to
determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words
follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not to be
construed in their widest extent, but are held to be as applying
only to persons or things of the same kind or class as those
specifically mentioned. 38A reading of subparagraphs (i) and (ii)
easily discloses that they do not have a common characteristic.
The first relates to price reduction as directed by the Board of
Energy while the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be limited by
the enumeration in these subparagraphs. What should be
considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the
Section which explicitly allows cost underrecovery only if such
were incurred as a result of the reduction of domestic prices of
petroleum products.
Although petitioner's financing losses, if indeed incurred, may
constitute cost underrecovery in the sense that such were
incurred as a result of the inability to fully offset financing
expenses from yields in money market placements, they do not,
however, fall under the foregoing provision of P.D. No. 1956, as
amended, because the same did not result from the reduction of
the domestic price of petroleum products. Until paragraph (2),
Section 8 of the decree, as amended, is further amended by
Congress, this Court can do nothing. The duty of this Court is not
to legislate, but to apply or interpret the law. Be that as it may,
this Court wishes to emphasize that as the facts in this case have
shown, it was at the behest of the Government that petitioner
refinanced its oil import payments from the normal 30-day trade
credit to a maximum of 360 days. Petitioner could be correct in
its assertion that owing to the extended period for payment, the
financial institution which refinanced said payments charged a
higher interest, thereby resulting in higher financing expenses for
the petitioner. It would appear then that equity considerations
dictate that petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained because it
accommodated the request of the Government. Although under
Section 29 of the National Internal Revenue Code such losses may
be deducted from gross income, the effect of that loss would be
merely to reduce its taxable income, but not to actually wipe out
such losses. The Government then may consider some positive
measures to help petitioner and others similarly situated to
obtain substantial relief. An amendment, as aforestated, may then
be in order.
Upon the other hand, to accept petitioner's theory of
"unrestricted authority" on the part of the Department of Finance
to determine or define "other factors" is to uphold an undue
delegation of legislative power, it clearly appearing that the
subject provision does not provide any standard for the exercise
Page 26 of 29
of the authority. It is a fundamental rule that delegation of
legislative power may be sustained only upon the ground that
some standard for its exercise is provided and that the
legislature, in making the delegation, has prescribed the manner
of the exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the
extensive credit is rendered irrelevant by reason of the foregoing
disquisitions. It may nevertheless be stated that petitioner failed
to disprove COA's claim that it had in fact gained in the process.
Otherwise stated, petitioner failed to sufficiently show that it
incurred a loss. Such being the case, how can petitioner claim for
reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power
Corporation, We find for the petitioner. The respondents
themselves admit in their Comment that underrecovery arising
from sales to NPC are reimbursable because NPC was granted full
exemption from the payment of taxes; to prove this, respondents
trace the laws providing for such exemption. 40 The last law cited
is the Fiscal Incentives Regulatory Board's Resolution No. 17-87
of 24 June 1987 which provides, in part, "that the tax and duty
exemption privileges of the National Power Corporation,
including those pertaining to its domestic purchases of petroleum
and petroleum products . . . are restored effective March 10,
1987." In a Memorandum issued on 5 October 1987 by the Office
of the President, NPC's tax exemption was confirmed and
approved.
Furthermore, as pointed out by respondents, the intention to
exempt sales of petroleum products to the NPC is evident in the
recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. 41 The
pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject
to the following conditions:
(1) That the Fund shall be
used to reimburse the oil
companies for (a) cost
increases of imported crude
oil and finished petroleum
products resulting from
foreign exchange rate
adjustments and/or
increases in world market
prices of crude oil; (b) cost
underrecovery incurred as a
result of fuel oil sales to the
National Power Corporation
(NPC); and (c) other cost
underrecoveries incurred
as may be finally decided by
the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of
petroleum products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS
and MARCOPPER, petitioner relies on Letter of Instruction (LOI)
1416, dated 17 July 1984, which ordered the suspension of
payments of all taxes, duties, fees and other charges, whether
direct or indirect, due and payable by the copper mining
companies in distress to the national government. Pursuant to
this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued
Memorandum Circular No. 84-11-22 advising the oil companies
that Atlas Consolidated Mining Corporation and Marcopper
Mining Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and
MARCOPPER, the COA, in its 18 August 1989 letter to Executive
Director Wenceslao R. de la Paz, states that "it is our opinion that
LOI 1416 which implements the exemption from payment of
OPSF imposts as effected by OEA has no legal basis;" 42 in its
Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no
authority to claim reimbursement for this uncollected impost
because LOI 1416 dated July 17, 1984, . . . was issued when OPSF
was not yet in existence and could not have contemplated OPSF
imposts at the time of its formulation." 43 It is further stated that:
"Moreover, it is evident that OPSF was not created to aid
distressed mining companies but rather to help the domestic oil
industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that
LOI 1416 could not have intended to exempt said distressed
mining companies from the payment of OPSF dues for the
following reasons:
a. LOI 1416 granting the alleged exemption
was issued on July 17, 1984. P.D. 1956 creating
the OPSF was promulgated on October 10,
1984, while E.O. 137, amending P.D. 1956, was
issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist
distressed copper mining companies in line
with the government's effort to prevent the
collapse of the copper industry. P.D No. 1956,
as amended, was issued for the purpose of
minimizing frequent price changes brought
about by exchange rate adjustments and/or
changes in world market prices of crude oil
and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes,
duties, fees, imposts and other charges,
whether direct or indirect, due and payable by
the copper mining companies in distress to the
Notional and Local Governments . . ." On the
other hand, OPSF dues are not payable by (sic)
distressed copper companies but by oil
companies. It is to be noted that the copper
mining companies do not pay OPSF dues.
Rather, such imposts are built in or already
incorporated in the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the
payment of taxes by distressed mining companies, it does not
accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from
such reasons, however, it is apparent that LOI 1416 was never
Page 27 of 29
published in the Official Gazette 45 as required by Article 2 of the
Civil Code, which reads:
Laws shall take effect after fifteen days
following the completion of their publication
in the Official Gazette, unless it is
otherwise provided. . . .
In applying said provision, this Court ruled in the case of Taada
vs. Tuvera: 46
WHEREFORE, the Court hereby orders
respondents to publish in the Official Gazette
all unpublished presidential issuances which
are of general application, and unless so
published they shall have no binding force and
effect.
Resolving the motion for reconsideration of said decision, this
Court, in its Resolution promulgated on 29 December
1986, 47 ruled:
We hold therefore that all statutes, including
those of local application and private laws,
shall be published as a condition for their
effectivity, which shall begin fifteen days after
publication unless a different effectivity date is
fixed by the legislature.
Covered by this rule are presidential decrees
and executive orders promulgated by the
President in the exercise of legislative powers
whenever the same are validly delegated by
the legislature or, at present, directly
conferred by the Constitution. Administrative
rules and regulations must also be published if
their purpose is to enforce or implement
existing laws pursuant also to a valid
delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all
laws as above defined shall immediately upon
their approval, or as soon thereafter as
possible, be published in full in the Official
Gazette, to become effective only after fifteen
days from their publication, or on another date
specified by the legislature, in accordance with
Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never
published in the Official Gazette after its issuance or at any time
after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by
Executive Order No. 200, issued on 18 June 1987. As amended,
the said provision now reads:
Laws shall take effect after fifteen days
following the completion of their publication
either in the Official Gazette or in a newspaper
of general circulation in the Philippines, unless
it is otherwiseprovided.
We are not aware of the publication of LOI 1416 in any
newspaper of general circulation pursuant to Executive Order No.
200.
Furthermore, even granting arguendo that LOI 1416 has force
and effect, petitioner's claim must still fail. Tax exemptions as a
general rule are construed strictly against the grantee and
liberally in favor of the taxing authority. 48 The burden of proof
rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed. The party claiming
exemption must therefore be expressly mentioned in the
exempting law or at least be within its purview by clear
legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a
consequence of its sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416. Though LOI 1416
may suspend the payment of taxes by copper mining companies,
it does not give petitioner the same privilege with respect to the
payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00,
petitioner maintains that the Department of Finance has still to
issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted
beyond its jurisdiction. 49 Respondents, on the other hand,
contend that said amount was already disallowed by the OEA for
failure to substantiate it. 50 In fact, when OEA submitted the
claims of petitioner for pre-audit, the abovementioned amount
was already excluded.
An examination of the records of this case shows that petitioner
failed to prove or substantiate its contention that the amount of
P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of
respondents that said amount has already been passed upon by
the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is whether or not the
amounts due to the OPSF from petitioner may be offset against
petitioner's outstanding claims from said fund. Petitioner
contends that it should be allowed to offset its claims from the
OPSF against its contributions to the fund as this has been
allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the
provisions of the New Civil Code on compensation and Section
21, Book V, Title I-B of the Revised Administrative Code which
provides for "Retention of Money for Satisfaction of Indebtedness
to Government." 52 Petitioner also mentions communications
from the Board of Energy and the Department of Finance that
supposedly authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and
Fernandez, 53 contend that there can be no offsetting of taxes
against the claims that a taxpayer may have against the
government, as taxes do not arise from contracts or depend upon
the will of the taxpayer, but are imposed by law. Respondents
also allege that petitioner's reliance on Section 21, Book V, Title I-
Page 28 of 29
B of the Revised Administrative Code, is misplaced because
"while this provision empowers the COA to withhold payment of
a government indebtedness to a person who is also indebted to
the government and apply the government indebtedness to the
satisfaction of the obligation of the person to the government,
like authority or right to make compensation is not given to the
private person." 54 The reason for this, as stated in Commissioner
of Internal Revenue vs. Algue, Inc., 55 is that money due the
government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus,
instead of giving petitioner a reason for compensation or set-off,
the Revised Administrative Code makes it the respondents' duty
to collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the
amounts due from it do not arise as a result of taxation because
"P.D. 1956, amended, did not create a source of taxation; it
instead established a special fund . . .," 56 and that the OPSF
contributions do not go to the general fund of the state and are
not used for public purpose, i.e., not for the support of the
government, the administration of law, or the payment of public
expenses. This alleged lack of a public purpose behind OPSF
exactions distinguishes such from a tax. Hence, the ruling in
the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price
Standby Fund to support the OPSF; the said law provides in part
that:
Sec. 2. Application of the fund shall be subject
to the following conditions:
xxx xxx xxx
(3) That no amount of the
Petroleum Price Standby
Fund shall be used to pay
any oil company which has
an outstanding obligation
to the Government without
said obligation being offset
first, subject to the
requirements of
compensation or offset
under the Civil Code.
We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go to a
special fund of the government. Taxation is no longer envisioned
as a measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory purpose
to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be
within the police power of the state. 57 There can be no doubt
that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated increase in oil
prices could hurt the lives of a majority of the people and cause
economic crisis of untold proportions. It would have a chain
reaction in terms of, among others, demands for wage increases
and upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which the state,
via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly
provides that the source of OPSF is taxation. No amount of
semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government. 58Taxes cannot
be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes
for the OPSF, the oil companies merely act as agents for the
Government in the latter's collection since the taxes are, in
reality, passed unto the end-users the consuming public. In
that capacity, the petitioner, as one of such companies, has the
primary obligation to account for and remit the taxes collected to
the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its
collection for the OPSF vis-a-vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, the Government
and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated. Under Article
1279 of the Civil Code, in order that compensation may be
proper, it is necessary that:
(1) each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) both debts consist in a sum of :money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
That compensation had been the practice in the past can set no
valid precedent. Such a practice has no legal basis. Lastly, R.A. No.
6952 does not authorize oil companies to offset their claims
against their OPSF contributions. Instead, it prohibits the
government from paying any amount from the Petroleum Price
Standby Fund to oil companies which have outstanding
obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is
hereby rendered AFFIRMING the challenged decision of the
Commission on Audit, except that portion thereof disallowing
petitioner's claim for reimbursement of underrecovery arising
from sales to the National Power Corporation, which is hereby
allowed.
Page 29 of 29