G.R. No.

88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive
Secretary, Office of the President; HON. VICENTE R. JAYME, in his
capacity as Secretary of the Department of Finance; HON. SALVADOR
MISON, in his capacity as Commissioner, Bureau of Customs; HON.
JOSE U. ONG, in his capacity as Commissioner of Internal Revenue;
NATIONAL POWER CORPORATION; the FISCAL INCENTIVES
REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum
Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.
Villamor & Villamor Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum
Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:
This petition seeks to nullify certain decisions, orders, rulings, and
resolutions of respondents Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs and the
Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.
The relevant facts are not in dispute.
On November 3, 1986, Commonwealth Act No. 120 created the NPC as a
public corporation to undertake the development of hydraulic power and the
production of power from other sources.1
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty
exemption privileges under
Sec. 2. To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees, imposts,
charges and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the
NPC wherein Congress declared as a national policy the total electrification
of the Philippines through the development of power from all sources to
meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.2 The
corporate existence of NPC was extended to carry out this policy,
specifically to undertake the development of hydro electric generation of
power and the production of electricity from nuclear, geothermal and other
sources, as well as the transmission of electric power on a nationwide
basis.3 Being a non-profit corporation, Section 13 of the law provided in
detail the exemption of the NPC from all taxes, duties, fees, imposts and
other charges by the government and its instrumentalities.
On January 22, 1974, Presidential Decree No. 380 amended section 13,
paragraphs (a) and (d) of Republic Act No. 6395 by specifying, among
others, the exemption of NPC from such taxes, duties, fees, imposts and
other charges imposed "directly or indirectly," on all petroleum products
used by NPC in its operation. Presidential Decree No. 938 dated May 27,
1976 further amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax
exemption privileges granted in favor of government-owned or controlled
corporations including their subsidiaries.4 However, said law empowered
the President and/or the then Minister of Finance, upon recommendation of
the FIRB to restore, partially or totally, the exemption withdrawn, or
otherwise revise the scope and coverage of any applicable tax and duty.
Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No.
10-85 restoring the tax and duty exemption privileges of NPC from June 11,
1984 to June 30, 1985. On January 7, 1986, the FIRB issued resolution No.
1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again
withdrew all tax and duty incentives granted to government and private
entities which had been restored under Presidential Decree Nos. 1931 and
1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's
tax and duty exemption privileges effective March 10, 1987. On October 5,
1987, the President, through respondent Executive Secretary Macaraig, Jr.,
confirmed and approved FIRB Resolution No. 17-87.
As alleged in the petition, the following are the background facts:
The following are the facts relevant to NPC's questioned claim for
refunds of taxes and duties originally paid by respondents Caltex,
Petrophil and Shell for specific and ad valorem taxes to the BIR; and
for Customs duties and ad valorem taxes paid by PNOC, Shell and
Caltex to the Bureau of Customs on its crude oil importation.
Many of the factual statements are reproduced from the Senate
Committee on Accountability of Public Officers and Investigations
(Blue Ribbon) Report No. 474 dated January 12, 1989 and approved
by the Senate on April 21, 1989 (copy attached hereto as Annex "A")
and are identified in quotation marks:
1. Since May 27, 1976 when P.D. No. 938 was issued until June 11,
1984 when P.D. No. 1931 was promulgated abolishing the tax
exemptions of all government-owned or-controlled corporations, the
oil firms never paid excise or specific and ad valorem taxes for
petroleum products sold and delivered to the NPC. This non-payment
of taxes therefore spanned a period of eight (8) years. (par. 23, p. 7,
Annex "A")
During this period, the Bureau of Internal Revenue was not collecting
specific taxes on the purchases of NPC of petroleum products from
the oil companies on the erroneous belief that the National Power
Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo
Villa to the NPC dated October 29, 1980 granting blanket authority to
the NPC to purchase petroleum products from the oil companies
without payment of specific tax (copy of this letter is attached hereto
as petitioner's Annex "B").
2. The oil companies started to pay specific and ad valorem taxes on
their sales of oil products to NPC only after the promulgation of P.D.
No. 1931 on June 11, 1984, withdrawing all exemptions granted in
favor of government-owned or-controlled corporations and
empowering the FIRB to recommend to the President or to the
Minister of Finance the restoration of the exemptions which were
withdrawn. "Specifically, Caltex paid the total amount of
P58,020,110.79 in specific and ad valorem taxes for deliveries of
petroleum products to NPC covering the period from October 31,
1984 to April 27, 1985." (par. 23, p. 7, Annex "A")
3. Caltex billings to NPC until June 10, 1984 always included customs
duty without the tax portion. Beginning June 11, 1984, when P.D.
1931 was promulgated abolishing NPC's tax exemptions, Caltex's
billings to NPC always included both duties and taxes. (Caturla, tsn,
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")
4. For the sales of petroleum products delivered to NPC during the
period from October, 1984 to April, 1985, NPC was billed a total of
P522,016,77.34 (sic) including both duties and taxes, the specific tax
component being valued at P58,020,110.79. (par. 25, p. 8, Annex
"A").
5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated
February 7, 1985, certified true copy of which is hereto attached as
Annex "C", restored the tax exemption privileges of NPC effective
retroactively to June 11, 1984 up to June 30, 1985. The first
paragraph of said resolution reads as follows:
1. Effective June 11, 1984, the tax and duty exemption
privileges enjoyed by the National Power Corporation under
C.A. No. 120, as amended, are restored up to June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on
September 11, 1985 with the BIR for a "refund of Specific Taxes paid
on petroleum products . . . in the total amount of P58,020,110.79.
(par. 26, pp. 8-9, Annex "A")
6. In a letter to the president of the NPC dated May 8, 1985 (copy
attached as petitioner's Annex "D"), Acting BIR Commissioner Ruben
Ancheta declared:
FIRB Resolution No. 10-85 serves as sufficient basis to allow
NPC to purchase petroleum products from the oil companies
free of specific and ad valorem taxes, during the period in
question.
The "period in question" is June 1 1, 1 984 to June 30, 1 985.
7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon,
wrote Mr. Cesar Virata, Chairman of the FIRB (Annex "E"),
requesting "the FIRB to resolve conflicting rulings on the tax
exemption privileges of the National Power Corporation (NPC)."
These rulings involve FIRB Resolutions No. 1-84 and 10-85. (par. 40,
p. 12, Annex "A")
8. In a letter to the President of NPC (Annex "F"), dated June 26,
1985, Minister Cesar Virata confirmed the ruling of May 8, 1985 of
Acting BIR Commissioner Ruben Ancheta, (par. 41, p. 12, Annex "A")
9. On October 22, 1985, however, under BIR Ruling No. 186-85,
addressed to Hanil Development Co., Ltd., a Korean contractor of
NPC for its infrastructure projects, certified true copy of which is
attached hereto as petitioner's Annex "E", BIR Acting Commissioner
Ruben Ancheta ruled:
In Reply please be informed that after a re-study of Section 13,
R.A. 6395, as amended by P.D. 938, this Office is of the
opinion, and so holds, that the scope of the tax exemption
privilege enjoyed by NPC under said section covers only taxes
for which it is directly liable and not on taxes which are only
shifted to it. (Phil. Acetylene vs. C.I.R. et al., G.R. L-19707,
Aug. 17, 1967) Since contractor's tax is directly payable by the
contractor, not by NPC, your request for exemption, based on
the stipulation in the aforesaid contract that NPC shall assume
payment of your contractor's tax liability, cannot be granted for
lack of legal basis." (Annex "H") (emphasis added)
Said BIR ruling clearly states that NPC's exemption privileges covers
(sic) only taxes for which it is directly liable and does not cover taxes
which are only shifted to it or for indirect taxes. The BIR, through
Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.
10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30,
1986, "addressed to Caltex (Annex "F"), the BIR Commissioner
declared that PAL's tax exemption is limited to taxes for which PAL is
directly liable, and that the payment of specific and ad valorem taxes
on petroleum products is a direct liability of the manufacturer or
producer thereof". (par. 51, p. 15, Annex "A")
11. On January 7, 1986, FIRB Resolution No. 1-86 was issued
restoring NPC's tax exemptions retroactively from July 1, 1985 to a
indefinite period, certified true copy of which is hereto attached as
petitioner's Annex "H".
12. NPC's total refund claim was P468.58 million but only a portion
thereof i.e. the P58,020,110.79 (corresponding to Caltex) was
approved and released by way of a Tax Credit Memo (Annex "Q")
dated July 7, 1986, certified true copy of which [is) attached hereto as
petitioner's Annex "F," which was assigned by NPC to Caltex. BIR
Commissioner Tan approved the Deed of Assignment on July 30,
1987, certified true copy of which is hereto attached as petitioner's
Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")
The Deed of Assignment stipulated among others that NPC is
assigning the tax credit to Caltex in partial settlement of its
outstanding obligations to the latter while Caltex, in turn, would apply
the assigned tax credit against its specific tax payments for two (2)
months. (per memorandum dated July 28, 1986 of DCIR Villa, copy
attached as petitioner Annex "G")
13. As a result of the favorable action taken by the BIR in the refund
of the P58.0 million tax credit assigned to Caltex, the NPC reiterated
its request for the release of the balance of its pending refunds of
taxes paid by respondents Petrophil, Shell and Caltex covering the
period from June 11, 1984 to early part of 1986 amounting to
P410.58 million. (The claim of the first two (2) oil companies covers
the period from June 11, 1984 to early part of 1986; while that of
Caltex starts from July 1, 1985 to early 1986). This request was
denied on August 18, 1986, under BIR Ruling 152-86 (certified true
copy of which is attached hereto as petitioner's Annex "I"). The BIR
ruled that NPC's tax free privilege to buy petroleum products covered
only the period from June 11, 1984 up to June 30, 1985. It further
declared that, despite FIRB No. 1-86, NPC had already lost its tax
and duty exemptions because it only enjoys special privilege for taxes
for which it is directly liable. This ruling, in effect, denied the P410
Million tax refund application of NPC (par. 28, p. 9, Annex "A")
14. NPC filed a motion for reconsideration on September 18, 1986.
Until now the BIR has not resolved the motion. (Benigna, II 3, Oct. 17,
1988, p. 2; Memorandum for the Complainant, Oct. 26, 1988, p. 15)."
(par. 29, p. 9, Annex "A")
15. On December 22, 1986, in a 2nd Indorsement to the Hon.
Fulgencio S. Factoran, Jr., BIR Commissioner Tan, Jr. (certified true
copy of which is hereto attached and made a part hereof as
petitioner's Annex "J"), reversed his previous position and states this
time that all deliveries of petroleum products to NPC are tax exempt,
regardless of the period of delivery.
16. On December 17, 1986, President Corazon C. Aquino enacted
Executive Order No. 93, entitled "Withdrawing All Tax and Duty
Incentives, Subject to Certain Exceptions, Expanding the Powers of
the Fiscal Incentives Review Board and Other Purposes."
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which
restored NPC's tax exemption privilege and included in the exemption
"those pertaining to its domestic purchases of petroleum and
petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto
attached and made a part hereof as Annex "K".
18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of
Justice, issued Opinion No. 77, series of 1987, opining that "the
power conferred upon Fiscal Incentives Review Board by Section 2a
(b), (c) and (d) of Executive order No. 93 constitute undue delegation
of legislative power and, therefore, [are] unconstitutional," a copy of
which is hereto attached and made a part hereof as Petitioner's
Annex "L."
19. On October 5, 1987, respondent Executive Secretary Macaraig,
Jr. in a Memorandum to the Chairman of the FIRB a certified true
copy of which is hereto attached and made a part hereof as
petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87
dated June 24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of
Executive Order No. 93.
20. Secretary Vicente Jayme in a reply dated May 20, 1988 to
Secretary Catalino Macaraig, who by letter dated May 2, 1988 asked
him to rule "on whether or not, as the law now stands, the National
Power Corporation is still exempt from taxes, duties . . . on its local
purchases of . . . petroleum products . . ." declared that "NPC under
the provisions of its Revised Charter retains its exemption from duties
and taxes imposed on the petroleum products purchased locally and
used for the generation of electricity," a certified true copy of which is
attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex
"A")
21. Respondent Executive Secretary came up likewise with a
confirmatory letter dated June 1 5, 1988 but without the usual official
form of "By the Authority of the President," a certified true copy of
which is hereto attached and made a part hereof as Petitioner's
Annex "O".
22. The actions of respondents Finance Secretary and the Executive
Secretary are based on the RESOLUTION No. 17-87 of FIRB
restoring the tax and duty exemption of the respondent NPC
pertaining to its domestic purchases of petroleum products
(petitioner's Annex K supra).
23. Subsequently, the newspapers particularly, the Daily Globe, in its
issue of July 11, 1988 reported that the Office of the President and
the Department of Finance had ordered the BIR to refund the tax
payments of the NPC amounting to Pl.58 Billion which includes the
P410 Million Tax refund already rejected by BIR Commissioner Tan,
Jr., in his BIR Ruling No. 152-86. And in a letter dated July 28, 1988
of Undersecretary Marcelo B. Fernando to BIR Commissioner Tan,
Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31,
p. 1 0, Annex "A")
24. On August 8, 1988, petitioner "wrote both Undersecretary
Fernando and Commissioner Tan requesting them to hold in
abeyance the release of the Pl.58 billion and await the outcome of the
investigation in regard to Senate Resolution No. 227," copies
attached as Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex
"A").
Reacting to this letter of the petitioner, Undersecretary Fernando
wrote Commissioner Tan of the BIR dated August, 1988 requesting
him to hold in abeyance the release of the tax refunds to NPC until
after the termination of the Blue Ribbon investigation.
25. In the Bureau of Customs, oil companies import crude oil and
before removal thereof from customs custody, the corresponding
customs duties and ad valorem taxes are paid. Bunker fuel oil is one
of the petroleum products processed from the crude oil; and same is
sold to NPC. After the sale, NPC applies for tax credit covering the
duties and ad valorem exemption under its Charter. Such applications
are processed by the Bureau of Customs and the corresponding tax
credit certificates are issued in favor of NPC which, in turn assigns it
to the oil firm that imported the crude oil. These certificates are
eventually used by the assignee-oil firms in payment of their other
duty and tax liabilities with the Bureau of Customs. (par. 70, p. 19,
Annex "A")
A lesser amount totalling P740 million, covering the period from 1985
to the present, is being sought by respondent NPC for refund from
the Bureau of Customs for duties paid by the oil companies on the
importation of crude oil from which the processed products sold
locally by them to NPC was derived. However, based on figures
submitted to the Blue Ribbon Committee of the Philippine Senate
which conducted an investigation on this matter as mandated by
Senate Resolution No. 227 of which the herein petitioner was the
sponsor, a much bigger figure was actually refunded to NPC
representing duties and ad valorem taxes paid to the Bureau of
Customs by the oil companies on the importation of crude oil from
1979 to 1985.
26. Meantime, petitioner, as member of the Philippine Senate
introduced P.S. Res. No. 227, entitled:
Resolution Directing the Senate Blue Ribbon Committee, In Aid
of Legislation, To conduct a Formal and Extensive Inquiry into
the Reported Massive Tax Manipulations and Evasions by Oil
Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and
Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC)
from Indirect Taxes, Resulting Recently in Their Obtaining A
Tax Refund Totalling P1.55 Billion From the Department of
Finance, Their Refusal to Pay Since 1976 Customs Duties
Amounting to Billions of Pesos on Imported Crude Oil
Purportedly for the Use of the National Power Corporation, the
Non-Payment of Surtax on Windfall Profits from Increases in
the Price of Oil Products in August 1987 amounting Maybe to
as Much as Pl.2 Billion Surtax Paid by Them in 1984 and For
Other Purposes.
27. Acting on the above Resolution, the Blue Ribbon Committee of
the Senate did conduct a lengthy formal inquiry on the matter, calling
all parties interested to the witness stand including representatives
from the different oil companies, and in due time submitted its
Committee Report No. 474 . . . The Blue Ribbon Committee
recommended the following courses of action.
1. Cancel its approval of the tax refund of P58,020,110.70 to
the National Power Corporation (NPC) and its approval of Tax
Credit memo covering said amount (Annex "P" hereto), dated
July 7, 1986, and cancel its approval of the Deed of Assignment
(Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and
collect from Caltex its tax liabilities which were erroneously
treated as paid or settled with the use of the tax credit
certificate that NPC assigned to said firm.:
 1.1. NPC did not have any indirect tax exemption since
May 27, 1976 when PD 938 was issued. Therefore, the
grant of a tax refund to NPC in the amount of P58 million
was illegal, and therefore, null and void. Such refund was
a nullity right from the beginning. Hence, it never
transferred any right in favor of NPC.
2. Stop the processing and/or release of Pl.58 billion tax refund
to NPC and/or oil companies on the same ground that the NPC,
since May 27, 1976 up to June 17, 1987 was never granted any
indirect tax exemption. So, the P1.58 billion represent taxes
legally and properly paid by the oil firms.
3. Start collection actions of specific or excise and ad
valorem taxes due on petroleum products sold to NPC from
May 27, 1976 (promulgation of PD 938) to June 17, 1987
(issuance of EO 195).
B. For the Bureau of Customs (BOC) to do the following:
1. Start recovery actions on the illegal duty refunds or duty credit
certificates for purchases of petroleum products by NPC and
allegedly granted under the NPC charter covering the years 1978-
1988 . . .
28. On March 30, 1989, acting on the request of respondent Finance
Secretary for clearance to direct the Bureau of Internal Revenue and
of Customs to proceed with the processing of claims for tax
credits/refunds of the NPC, respondent Executive Secretary rendered
his ruling, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and,
accordingly, unless restrained by proper authorities, that department and/or
its line-tax bureaus may now proceed with the processing of the claims of
the National Power Corporation for duty and tax free exemption and/or tax
credits/ refunds, if there be any, in accordance with the ruling of that
Department dated May 20,1988, as confirmed by this Office on June 15,
1988 . . .5
Hence, this petition for certiorari, prohibition and mandamus with prayer for
a writ of preliminary injunction and/or restraining order, praying among
others that:
1. Upon filing of this petition, a temporary restraining order forthwith
be issued against respondent FIRB Executive Secretary Macaraig,
and Secretary of Finance Jayme restraining them and other persons
acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:
A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's
Annex "K");
B. Memorandum-Order of the Office of the President dated
October 5, 1987 (petitioner's Annex "M");
C. Order of the Executive Secretary dated June 15, 1988
(petitioner's Annex "O");
D. Order of the Executive Secretary dated March 30, l989
(petitioner's Annex "Q"); and
E. Ruling of the Finance Secretary dated May 20, 1988
(petitioner's Annex "N").
2. Said temporary restraining order should also include respondent
Commissioners of Customs Mison and Internal Revenue Ong
restraining them from processing and releasing any pending claim or
application by respondent NPC for tax and duty refunds.
3. Thereafter, and during the pendency of this petition, to issue a writ
or preliminary injunction against above-named respondents and all
persons acting for and in their behalf.
4. A decision be rendered in favor of the petitioner and against the
respondents:
A. Declaring that respondent NPC did not enjoy indirect tax
exemption privilege since May 27, 1976 up to the present;
B. Nullifying the setting aside the following:
1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's
Annex "K");
2. Memorandum-Order of the Office of the President dated
October 5, 1987 (petitioner's Annex "M");
3. Order of the Executive Secretary dated June 15, 1988
(petitioner's Annex "O");
4. Order of the Executive Secretary dated March 30, 1989
(petitioner's Annex "Q");
5. Ruling of the Finance Secretary dated May 20, 1988
(petitioner's Annex "N"
 6. Tax Credit memo dated July 7, 1986 issued to respondent
NPC representing tax refund for P58,020,110.79 (petitioner's
Annex "F");
7. Deed of Assignment of said tax credit memo to respondent
Caltex dated July 30, 1987 (petitioner's Annex "G");
8. Application of the assigned tax credit of Caltex in payment of
its tax liabilities with the Bureau of Internal Revenue and
9. Illegal duty and tax refunds issued by the Bureau of Customs
to respondent NPC by way of tax credit certificates from 1979
up to the present.
C. Declaring as illegal and null and void the pending claims for tax
and duty refunds by respondent NPC with the Bureau of Customs
and the Bureau of Internal Revenue;
D. Prohibiting respondents Commissioner of Customs and
Commissioner of Internal Revenue from enforcing the
abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing
and releasing respondent NPC's tax and duty refunds;
E. Ordering the respondent Commissioner of Customs to deny as
being null and void the pending claims for refund of respondent NPC
with the Bureau of Customs covering the period from 1985 to the
present; to cancel and invalidate the illegal payment made by
respondents Caltex, Shell and PNOC by using the tax credit
certificates assigned to them by NPC and to recover from
respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax
liabilities with the Bureau of Customs.
F. Ordering respondent Commissioner of Internal Revenue to deny
as being null and void the pending claims for refund of respondent
NPC with the Bureau of Internal Revenue covering the period from
June 11, 1984 to June 17, 1987.
PETITIONER prays for such other relief and remedy as may be just
and equitable in the premises.6
The issues raised in the petition are the following:
To determine whether respondent NPC is legally entitled to the
questioned tax and duty refunds, this Honorable Court must resolve
the following issues:
 Main issue
Whether or not the respondent NPC has ceased to enjoy indirect tax
and duty exemption with the enactment of P.D. No. 938 on May 27,
1976 which amended P.D. No. 380, issued on January 11, 1974.
Corollary issues
1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985
which restored NPC's tax exemption privilege effective June 11, 1984
to June 30, 1985 and FIRB Resolution No. 1-86 dated January 7,
1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and
2. Whether or not FIRB could validly and legally issue Resolution No.
17-87 dated June 24, 1987 which restored NPC's tax exemption
privilege effective March 10, 1987; and if said Resolution was validly
issued, the nature and extent of the tax exemption privilege restored
to NPC.7
In a resolution dated June 6, 1989, the Court, without giving due course to
the petition, required respondents to comment thereon, within ten (10) days
from notice. The respondents having submitted their comment, on October
10, 1989 the Court required petitioner to file a consolidated reply to the
same. After said reply was filed by petitioner on November 15, 1989 the
Court gave due course to the petition, considering the comments of
respondents as their answer to the petition, and requiring the parties to file
simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the
petition was deemed submitted for resolution.
First the preliminary issues.
Public respondents allege that petitioner does not have the standing to
challenge the questioned orders and resolution.
In the petition it is alleged that petitioner is "instituting this suit in his
capacity as a taxpayer and a duly-elected Senator of the Philippines."
Public respondent argues that petitioner must show he has sustained direct
injury as a result of the action and that it is not sufficient for him to have a
mere general interest common to all members of the public.8
The Court however agrees with the petitioner that as a taxpayer he may file
the instant petition following the ruling in Lozada when it involves illegal
expenditure of public money. The petition questions the legality of the tax
refund to NPC by way of tax credit certificates and the use of said assigned
tax credits by respondent oil companies to pay for their tax and duty
liabilities to the BIR and Bureau of Customs.
Assuming petitioner has the personality to file the petition, public
respondents also allege that the proper remedy for petitioner is an appeal
to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this
petition. However Section 11 of said law provides
Sec. 11. Who may appeal; effect of appealAny person, association
or corporation adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Collector of Customs
(Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals
within thirty days after receipt of such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision
or ruling of the Commissioner of Internal Revenue, the Commissioner of
Customs or any provincial or city Board of Assessment Appeal who may
appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.
Public respondents also contend that mandamus does not lie to compel the
Commissioner of Internal Revenue to impose a tax assessment not found
by him to be proper. It would be tantamount to a usurpation of executive
functions.9
Even in Meralco, this Court recognizes the situation when mandamus can
control the discretion of the Commissioners of Internal Revenue and
Customs when the exercise of discretion is tainted with arbitrariness and
grave abuse as to go beyond statutory authority.10
Public respondents then assert that a writ of prohibition is not proper as its
function is to prevent an unlawful exercise of jurisdiction11 or to prevent the
oppressive exercise of legal authority.12 Precisely, petitioner questions the
lawfulness of the acts of public respondents in this case.
Now to the main issue.
It may be useful to make a distinction, for the purpose of this disposition,
between a direct tax and an indirect tax. A direct tax is a tax for which a
taxpayer is directly liable on the transaction or business it engages in.
Examples are the custom duties and ad valorem taxes paid by the oil
companies to the Bureau of Customs for their importation of crude oil, and
the specific and ad valorem taxes they pay to the Bureau of Internal
Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who
can shift the burden upon someone else ."13 For example, the excise and ad
valorem taxes that oil companies pay to the Bureau of Internal Revenue
upon removal of petroleum products from its refinery can be shifted to its
buyer, like the NPC, by adding them to the "cash" and/or "selling price."
The main thrust of the petition is that under the latest amendment to the
NPC charter by Presidential Decree No. 938, the exemption of NPC from
indirect taxation was revoked and repealed. While petitioner concedes that
NPC enjoyed broad exemption privileges from both direct and indirect
taxes on the petroleum products it used, under Section 13 of Republic Act
No, 6395 and more so under Presidential Decree No. 380, however, by the
deletion of the phrases "directly or indirectly" and "on all petroleum
products used by the Corporation in the generation, transmission, utilization
and sale of electric power" he contends that the exemption from indirect
taxes was withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC provided in Section 13
of Presidential Decree No. 938 regarding the payments of "all forms of
taxes, etc." cannot be interpreted to include indirect tax exemption. He
cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue.14 Petitioner emphasizes the principle in taxation that the
exception contained in the tax statutes must be strictly construed against
the one claiming the exemption, and that the rule that a tax statute granting
exemption must be strictly construed against the one claiming the
exemption is similar to the rule that a statute granting taxing power is to be
construed strictly, with doubts resolved against its existence.15 Petitioner
cites rulings of the BIR that the phrase exemption from "all taxes, etc." from
"all forms of taxes" and "in lieu of all taxes" covers only taxes for which the
taxpayer is directly liable.16
On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86
issued under Presidential Decree No. 1931, the relevant provision of which
are to wit:
P.D. No. 1931 provides as follows:
Sec. 1. The provisions of special or general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes . . .
heretofore granted in favor of government-owned or controlled
corporations are hereby withdrawn. (Emphasis supplied.)
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives Review
 Board . . . is hereby empowered to restore, partially or totally, the
exemptions withdrawn by Section 1 above . . . (Emphasis supplied.)
The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the
following:
Resolution. No. 10-85
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed
by the National Power Corporation under C.A. No. 120 as amended are
restored up to June 30, 1985.
2. Provided, That to restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB
Resolution No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international
financing agreements, the NPC is hereby required to furnish the FIRB on a
periodic basis the particulars of items received or to be received through
such arrangements, for purposes of tax and duty exemptions privileges.17
Resolution No. 1-86
BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by
the National Power Corporation (NPC) under Commonwealth Act No. 120,
as amended, are restored: Provided, That importations of fuel oil (crude oil
equivalent), and coal of the herein grantee shall be subject to the basic and
additional import duties; Provided, further, that the following shall remain
fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and
yield or any other monetary benefits from deposit substitutes, trust
funds and other similar arrangements.
2. The NPC as a government corporation is exempt from the real property
tax on land and improvements owned by it provided that the beneficial use
of the property is not transferred to another pursuant to the provisions of
Sec. 10(a) of the Real Property Tax Code, as amended.18
Petitioner does not question the validity and enforceability of FIRB
Resolution Nos. 10-85 and 1-86. Indeed, they were issued in compliance
with the requirement of Section 2, P.D. No. 1931, whereby the FIRB should
make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not
appear to have been approved by the President, they were nevertheless
approved by the Minister of Finance who is also duly authorized to approve
the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions.19
The observation of Mr. Justice Sarmiento in the dissenting opinion that
FIRB Resolution Nos. 10-85 and 1-86 which were promulgated by then
Acting Minister of Finance Alfredo de Roda, Jr. and Minister of Finance
Cesar E.A Virata, as Chairman of FIRB respectively, should be separately
approved by said Minister of Finance as required by P.D. 1931 is, a
superfluity. An examination of the said resolutions which are reproduced in
full in the dissenting opinion show that the said officials signed said
resolutions in the dual capacity of Chairman of FIRB and Minister of
Finance.
Mr. Justice Sarmiento also makes reference to the case National Power
Corporation vs. Province of Albay,20wherein the Court observed that under
P.D. No. 776 the power of the FIRB was only recommendatory and
requires the approval of the President to be valid. Thus, in said case the
Court held that FIRB Resolutions Nos. 10-85 and 1-86 not having been
approved by the President were not valid and effective while the validity of
FIRB 17-87 was upheld as it was duly approved by the Office of the
President on October 5, 1987.
However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove
reproduced, which amended P.D. No. 776, it is clearly provided for that
such FIRB resolution, may be approved by the "President of the Philippines
and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos. 10-85
and 1-86 were duly approved by the Minister of Finance, hence they are
valid and effective. To this extent, this decision modifies or supersedes the
Court's earlier decision in Albay afore-referred to.
Petitioner, however, argues that under both FIRB resolutions, only the tax
and duty exemption privileges enjoyed by the NPC under its charter, C.A.
No. 120, as amended, are restored, that is, only its direct tax exemption
privilege; and that it cannot be interpreted to cover indirect taxes under the
principle that tax exemptions are construed stricissimi juris against the
taxpayer and liberally in favor of the taxing authority.
Petitioner argues that the release by the BIR of the P58.0 million refund to
respondent NPC by way of a tax credit certificate21 which was assigned to
respondent Caltex through a deed of assignment approved by the BIR22 is
patently illegal. He also contends that the pending claim of respondent
NPC in the amount of P410.58 million with respondent BIR for the sale and
delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex from
July 1, 1985 up to 1986, being illegal, should not be released.
Now to the second corollary issue involving the validity of FIRB Resolution
No. 17-87 issued on June 24, 1987. It was issued under authority of
Executive Order No. 93 dated December 17, 1986 which grants to the
FIRB among others, the power to recommend the restoration of the tax and
duty exemptions/incentives withdrawn thereunder.
Petitioner stresses that on August 6, 1987 the Secretary of Justice
rendered Opinion No. 77 to the effect that the powers conferred upon the
FIRB by Section 2(a), (b), and (c) and (4) of Executive Order No. 93
"constitute undue delegation of legislative power and is, therefore,
unconstitutional." Petitioner observes that the FIRB did not merely
recommend but categorically restored the tax and duty exemption of the
NPC so that the memorandum of the respondent Executive Secretary
dated October 5, 1987 approving the same is a surplusage.
Further assuming that FIRB Resolution No. 17-87 to have been legally
issued, following the doctrine in Philippine Aceytelene, petitioner avers that
the restoration cannot cover indirect taxes and it cannot create new indirect
tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.
The petition is devoid of merit.
The NPC is a non-profit public corporation created for the general good and
welfare23 wholly owned by the government of the Republic of the
Philippines.24 From the very beginning of its corporate existence, the NPC
enjoyed preferential tax treatment25 to enable the Corporation to pay the
indebtedness and obligation and in furtherance and effective
implementation of the policy enunciated in Section one of "Republic Act No.
6395"26 which provides:
Sec. 1. Declaration of PolicyCongress hereby declares that (1) the
comprehensive development, utilization and conservation of
Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines through
the development of power from all sources to meet the need of rural
 electrification are primary objectives of the nation which shall be
pursued coordinately and supported by all instrumentalities and
agencies of the government including its financial institutions.
From the changes made in the NPC charter, the intention to strengthen its
preferential tax treatment is obvious.
Under Republic Act No. 358, its exemption is provided as follows:
Sec. 2. To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities."
Under Republic Act No. 6395:
Sec. 13. Non-profit Character of the Corporation; Exemption from all
Taxes, Duties, Fees, Imposts and other Charges by Government and
Governmental Instrumentalities. The Corporation shall be non-profit
and shall devote all its returns from its capital investment, as well as
excess revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in
Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges,
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid
to the National Government, its provinces, cities, municipalities and
other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities,
on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis
supplied.)
Under Presidential Decree No. 380:
 Sec. 13. Non-profit Character of the Corporation: Exemption from all
Taxes, Duties, Fees, Imposts and other Charges by the Government
and Government Instrumentalities. The Corporation shall be non-
profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in
Section one of this Act, the Corporation, including its subsidiaries, is
hereby declared, exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges,
costs and services fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid
to the National Government, its provinces, cities, municipalities and
other governmental agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operation and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum produced used by the Corporation
in the generation, transmission, utilization, and sale of electric
power. (Emphasis supplied.)
Under Presidential Decree No. 938:
Sec. 13. Non-profit Character of the Corporation: Exemption from All
Taxes, Duties, Fees, Imposts and Other Charges by the Government
and Government Instrumentalities.The Corporation shall be non-
profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion. To enable
the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in
Section One of this Act, the Corporation, including its subsidiaries
hereby declared exempt from the payment of all forms of taxes,
duties, fees, imposts as well as costs and service fees including filing
 fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied.)
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in
general terms, as to cover "all taxes, duties, fees, imposts, charges, etc. . .
." However, the amendment under Republic Act No. 6395 enumerated the
details covered by the exemption. Subsequently, P.D. No. 380, made even
more specific the details of the exemption of NPC to cover, among
others, both direct and indirect taxes on all petroleum products used in its
operation. Presidential Decree No. 938 amended the tax exemption by
simplifying the same law in general terms. It succinctly exempts NPC from
"all forms of taxes, duties, fees, imposts, as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the
law to give NPC all the tax exemptions it has been enjoying before. The
rationale for this exemption is that being non-profit the NPC "shall devote
all its returns from its capital investment as well as excess revenues from
its operation, for expansion. To enable the Corporation to pay the
indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, . . ."27
The preamble of P.D. No. 938 states
WHEREAS, in the application of the tax exemption provision of the
Revised Charter, the non-profit character of the NPC has not been
fully utilized because of restrictive interpretations of the taxing
agencies of the government on said provisions. . . . (Emphasis
supplied.)
It is evident from the foregoing that the lawmaker did not intend that the
said provisions of P.D. No. 938 shall be construed strictly against NPC. On
the contrary, the law mandates that it should be interpreted liberally so as
to enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to
the interpretation of statutes granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation
does not apply in the case of exemptions in favor of a government political
subdivision or instrumentality.28
The basis for applying the rule of strict construction to statutory
provisions granting tax exemptions or deductions, even more obvious
 than with reference to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions
to government agencies may be construed liberally, in favor of non
tax liability of such agencies.29
In the case of property owned by the state or a city or other public
corporations, the express exemption should not be construed with the
same degree of strictness that applies to exemptions contrary to the policy
of the state, since as to such property "exemption is the rule and taxation
the exception."30
The contention of petitioner that the exemption of NPC from indirect taxes
under Section 13 of R.A. No. 6395 and P.D. No. 380, is deemed repealed
by P.D. No. 938 when the reference to it was deleted is not well-taken.
Repeal by implication is not favored unless it is manifest that the legislature
so intended. As laws are presumed to be passed with deliberation and with
knowledge of all existing ones on the subject, it is logical to conclude that in
passing a statute it is not intended to interfere with or abrogate a former law
relating to the same subject matter, unless the repugnancy between the
two is not only irreconcilable but also clear and convincing as a result of the
language used, or unless the latter Act fully embraces the subject matter of
the earlier.31 The first effort of a court must always be to reconcile or adjust
the provisions of one statute with those of another so as to give sensible
effect to both provisions.32
The legislative intent must be ascertained from a consideration of the
statute as a whole, and not of an isolated part or a particular provision
alone.33 When construing a statute, the reason for its enactment should be
kept in mind and the statute should be construed with reference to its
intended scope and purpose34 and the evil sought to be remedied.35
The NPC is a government instrumentality with the enormous task of
undertaking development of hydroelectric generation of power and
production of electricity from other sources, as well as the transmission of
electric power on a nationwide basis, to improve the quality of life of the
people pursuant to the State policy embodied in Section E, Article II of the
1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to
maintain the tax exemption of NPC from all forms of taxes including indirect
taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain
its goals.
Further, the construction of P.D. No. 938 by the Office charged with its
implementation should be given controlling weight.36
Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the
Secretary of Finance of June 26, 1985 confirming said ruling, the letters of
the BIR of August 18, 1986, and December 22, 1986, the letter of the
Secretary of Finance of February 19, 1987, the Memorandum of the
Executive Secretary of October 9, 1987, by authority of the President,
confirming and approving FIRB Resolution No. 17-87, the letter of the
Secretary of Finance of May 20, 1988 to the Executive Secretary rendering
his opinion as requested by the latter, and the latter's reply of June 15,
1988, it was uniformly held that the grant of tax exemption to NPC under
C.A. No. 120, as amended, included exemption from payment of all taxes
relative to NPC's petroleum purchases including indirect taxes.37 Thus, then
Secretary of Finance Vicente Jayme in his letter of May 20, 1988 to the
Executive Secretary Macaraig aptly stated the justification for this tax
exemption of NPC
The issue turns on the effect to the exemption of NPC from taxes of
the deletion of the phrase 'taxes imposed indirectly on oil products
and its exemption from 'all forms of taxes.' It is suggested that the
change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil
purchased by it; since taxes on fuel-oil purchased by NPC locally are
levied on and paid by its oil suppliers, NPC thereby lost its exemption
from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal
Revenue, 20 SCRA 1056.
First of all, tracing the changes made through the years in the
Revised Charter, the strengthening of NPC's preferential tax
treatment was clearly the intention. To the extent that the explanatory
"whereas clauses" may disclose the intent of the law-maker, the
changes effected by P.D. 938 can only be read as being expansive
rather than restrictive, including its version of Section 13.
Our Tax Code does not recognize that there are taxes directly
imposed and those imposed indirectly. The textbook distinction
between a direct and an indirect tax may be based on the possibility
of shifting the incidence of the tax. A direct tax is one which is
demanded from the very person intended to be the payor, although it
may ultimately be shifted to another. An example of a direct tax is the
personal income tax. On the other hand, indirect taxes are those
which are demanded from one person in the expectation and
intention that he shall indemnify himself at the expense of another. An
example of this type of tax is the sales tax levied on sales of a
commodity.
The distinction between a direct tax and one indirectly imposed (or an
indirect tax) is really of no moment. What is more relevant is that
when an "indirect tax" is paid by those upon whom the tax ultimately
falls, it is paid not as a tax but as an additional part of the cost or of
the market price of the commodity.
This distinction was made clear by Chief Justice Castro in the
Philippine Acetylene case, when he analyzed the nature of the
percentage (sales) tax to determine whether it is a tax on the
producer or on the purchaser of the commodity. Under out Tax Code,
the sales tax falls upon the manufacturer or producer. The phrase
"pass on" the tax was criticized as being inaccurate. Justice Castro
says that the tax remains on the manufacturer alone. The purchaser
does not pay the tax; he pays an amount added to the price because
of the tax. Therefore, the tax is not "passed on" and does not for that
reason become an "indirect tax" on the purchaser. It is eminently
possible that the law maker in enacting P.D. 938 in 1976 may have
used lessons from the analysis of Chief Justice Castro in 1967
Philippine Acetylene case.
When P.D. 938 which exempted NPC from "all forms of taxes" was
issued in May 1976, the so-called oil crunch had already drastically
pushed up crude oil Prices from about $1.00 per bbl in 1971 to about
$10 and a peak (as it turned out) of about $34 per bbl in 1981. In
1974-78, NPC was operating the Meralco thermal plants under a
lease agreement. The power generated by the leased plants was sold
to Meralco for distribution to its customers. This lease and sale
arrangement was entered into for the benefit of the consuming public,
by reducing the burden on the swiftly rising world crude oil prices.
This objective was achieved by the use of NPC's "tax umbrella under
its Revised Charterthe exemption from specific taxes on locally
purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was
already entitled and which exemption Government in fact was utilizing
to soften the burden of high crude prices.
There is one other consideration which I consider pivotal. The taxes
paid by oil companies on oil products sold to NPC, whether paid to
them by NPC or no never entered into the rates charged by NPC to
its customers not even during those periods of uncertainty
engendered by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax
status. No tax component on the fuel have been charged or
recovered by NPC through its rates.
There is an import duty on the crude oil imported by the local
refineries. After the refining process, specific and ad valorem taxes
are levied on the finished products including fuel oil or residue upon
their withdrawal from the refinery. These taxes are paid by the oil
companies as the manufacturer thereof.
In selling the fuel oil to NPC, the oil companies include in their billings
the duty and tax component. NPC pays the oil companies' invoices
including the duty component but net of the tax component. NPC then
applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the
products purchased. The tax credit is assigned to the oil companies
as payment, in effect, of the tax component shown in the sales
invoices. (NOTE: These procedures varied over timeThere were
instances when NPC paid the tax component that was shifted to it
and then applied for tax credit. There were also side issues raised
because of P.D. 1931 and E.O. 93 which withdrew all exemptions of
government corporations. In these latter instances, the resolutions of
the Fiscal Incentives Review Board (FIRB) come into play. These
incidents will not be touched upon for purposes of this discussion).
NPC rates of electricity are structured such that changes in its cost of
fuel are automatically (without need of fresh approvals) reflected in
the subsequent months billing rates.
This Fuel Cost Adjustment clause protects NPC's rate of return. If
NPC should ever accept liability to the tax and duty component on the
oil products, such amount will go into its fuel cost and be passed on
to its customers through corresponding increases in rates. Since
1974, when NPC operated the oil-fired generating stations leased
from Meralco (which plants it bought in 1979), until the present time,
no tax on fuel oil ever went into NPC's electric rates.
That the exemption of NPC from the tax on fuel was not withdrawn by
P.D. 938 is impressed upon me by yet another circumstance. It is
conceded that NPC at the very least, is exempt from taxes to which it
is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would
have been no question in such a case as to its exemption from all
duties and taxes, even under the strictest interpretation that can be
put forward. However, at the time P.D. 938 was issued in 1976, there
were already operating in the Philippines three oil refineries. The
establishment of these refineries in the Philippines involved heavy
investments, were economically desirable and enabled the country to
import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The
refining process produced as its largest output, in volume, fuel oil or
residue, whose conventional economic use was for burning in electric
or steam generating plants. Had there been no use locally for the
residue, the oil refineries would have become largely unviable.
Again, in this circumstances, I cannot accept that P.D. 938 would
have in effect forced NPC to by-pass the local oil refineries and
import its fossil fuel requirements directly in order to avail itself of its
exemption from "direct taxes." The oil refineries had to keep
operating both for economic development and national security
reasons. In fact, the restoration by the FIRB of NPC's exemption after
P.D. 1931 and E.O. 93 expressly excluded direct fuel oil importations,
so as not to prejudice the continued operations of the local oil
refineries.
To answer your query therefore, it is the opinion of this Department
that NPC under the provisions of its Revised Charter retains its
exemption from duties and taxes imposed on the petroleum products
purchased locally and used for the generation of electricity.
The Department in issuing this ruling does so pursuant to its power
and function to supervise and control the collection of government
revenues by the application and implementation of revenue laws. It is
prepared to take the measures supplemental to this ruling necessary
to carry the same into full effect.
 As presented rather extensively above, the NPC electric power rates
did not carry the taxes and duties paid on the fuel oil it used. The
point is that while these levies were in fact paid to the government, no
part thereof was recovered from the sale of electricity produced. As a
consequence, as of our most recent information, some P1.55 B in
claims represent amounts for which the oil suppliers and NPC are
"out-of-pocket. There would have to be specific order to the Bureaus
concerned for the resumption of the processing of these claims."38
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the
then Secretary of Finance, the said opinion ruling of the latter was
confirmed and its implementation was directed.39
The Court finds and so holds that the foregoing reasons adduced in the
aforestated letter of the Secretary of Finance as confirmed by the then
Executive Secretary are well-taken. When the NPC was exempted from all
forms of taxes, duties, fees, imposts and other charges, under P.D. No.
938, it means exactly what it says, i.e., all forms of taxes including those
that were imposed directly or indirectly on petroleum products used in its
operation.
Reference is made in the dissenting opinion to contrary rulings of the BIR
that the exemption of the NPC extends only to taxes for which it is directly
liable and not to taxes merely shifted to it. However, these rulings are
predicated on Philippine Acytelene.
The doctrine in Philippine Acytelene decided in 1967 by this Court cannot
apply to the present case. It involved the sales tax of products the plaintiff
sold to NPC from June 2, 1953 to June 30,1958 when NPC was enjoying
tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove
reproduced.
In said case, this Court held, that the sales tax is due from the
manufacturer and not the buyer, so plaintiff cannot claim exemptions simply
because the NPC, the buyer, was exempt.
However, on September 10, 1971, Republic Act No. 6395 was passed as
the revised charter of NPC whereby Section 13 thereof was amended by
emphasizing its non-profit character and expanding the extent of its tax
exemption.
As petitioner concedes, Section 13(d) aforestated of this amendment under
Republic Act No. 6345 spells out clearly the exemption of the NPC from
indirect taxes. And as hereinabove stated, in P.D. No. 380, the exemption
of NPC from indirect taxes was emphasized when it was specified to
include those imposed "directly and indirectly."
Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated
under Section 13 defining the same in general terms to cover "all forms of
taxes, duties, fees, imposts, etc." which, as hereinabove discussed,
logically includes exemption from indirect taxes on petroleum products
used in its operation.
This is the status of the tax exemptions the NPC was enjoying when P.D.
No. 1931 was passed, on the authority of which FIRB Resolution Nos. 10-
85 and 1-86 were issued, and when Executive Order No. 93 was
promulgated, by which FIRB Resolution 17-87 was issued.
Thus, the ruling in Philippine Acetylene cannot apply to this case due to the
different environmental circumstances. As a matter of fact, the
amendments of Section 13, under R.A. No. 6395, P.D. No, 380 and P.D.
No. 838 appear to have been brought about by the earlier inconsistent
rulings of the tax agencies due to the doctrine in Philippine Acetylene, so
as to leave no doubt as to the exemption of the NPC from indirect taxes on
petroleum products it uses in its operation. Effectively, said amendments
superseded if not abrogated the ruling in Philippine Acetylene that the tax
exemption of NPC should be limited to direct taxes only.
In the light of the foregoing discussion the first corollary issue must
consequently be resolved in the affirmative, that is, FIRB Resolution No.
10-85 dated February 7, 1985 and FIRB Resolution No. 1-86 dated
January 7, 1986 which restored NPC's tax exemption privileges included
the restoration of the indirect tax exemption of the NPC on petroleum
products it used.
On the second corollary issue as to the validity of FIRB resolution No. 17-
87 dated June 24, 1987 which restored NPC's tax exemption privilege
effective March 10, 1987, the Court finds that the same is valid and
effective.
It provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and
duty exemption privileges of the National Power Corporation,
including those pertaining to its domestic purchases of petroleum and
petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power
Corporation, defining its powers, objectives and functions, and for
 other purposes), as amended, are restored effective March 10, 1987,
subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not
apply to the following:
1.1. Importation of fuel oil (crude equivalent) and coal;
1.2. Commercially-funded importations (i.e., importations which
include but are not limited to those financed by the NPC's own
internal funds, domestic borrowings from any source
whatsoever, borrowing from foreign-based private financial
institutions, etc.); and
1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion
program, including details of disposition of relieved tax and duty
payments for such expansion on an annual basis or as often as the
FIRB may require it to do so. This report shall be in addition to the
usual FIRB reporting requirements on incentive availment.40
Executive Order No. 93 provides as follows
Sec. 1. The provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted " to government
and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the
Constitution;
b) those conferred by effective international agreements to
which the Government of the Republic of the Philippines is a
signatory;
c) those enjoyed-by enterprises registered with:
(i) the Board of Investments pursuant to Presidential
Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66, as amended;
(iii) the Philippine Veterans Investment Development
Corporation Industrial Authority pursuant to Presidential
Decree No. 538, as amended;
d) those enjoyed by the copper mining industry pursuant to the
provisions of Letter of Instruction No. 1416;
 e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation
of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under
Presidential Decree No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in
whole or in part;
b) revise the scope and coverage of tax and/of duty exemption
that may be restored.
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date or period of effectivity of the restoration of
tax and/or duty exemption;
e) formulate and submit to the President for approval, a
complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the restoration of
tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries
and the terms and conditions for the grant thereof taking into
consideration the international commitments of the Philippines
and the necessary precautions such that the grant of subsidies
does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal
Incentives Review Board shall take into account any or all of the
following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue
generation effort;
c) nature of the activity the beneficiary is engaged;
d) in general, the greater national interest to be served.
True it is that the then Secretary of Justice in Opinion No. 77 dated August
6, 1977 was of the view that the powers conferred upon the FIRB by
Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue
delegation of legislative power and is therefore unconstitutional. However,
he was overruled by the respondent Executive Secretary in a letter to the
Secretary of Finance dated March 30, 1989. The Executive Secretary, by
authority of the President, has the power to modify, alter or reverse the
construction of a statute given by a department secretary.41
A reading of Section 3 of said law shows that it set the policy to be the
greater national interest. The standards of the delegated power are also
clearly provided for.
The required "standard" need not be expressed. In Edu vs. Ericta42 and
in De la Llana vs. Alba43 this Court held: "The standard may be either
express or implied. If the former, the non-delegated objection is easily met.
The standard though does not have to be spelled out specifically. It could
be implied from the policy and purpose of the act considered as a whole."
In People vs. Rosenthal44 the broad standard of "public interest" was
deemed sufficient. In Calalang vs. Williams,45, it was "public welfare" and
in Cervantes vs. Auditor General,46 it was the purpose of promotion of
"simplicity, economy and efficiency." And, implied from the purpose of the
law as a whole, "national security" was considered sufficient standard47 and
so was "protection of fish fry or fish eggs.48
The observation of petitioner that the approval of the President was not
even required in said Executive Order of the tax exemption privilege
approved by the FIRB unlike in previous similar issuances, is not well-
taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be
approved by the President. In this case, FIRB Resolution No. 17-87 was
approved by the respondent Executive Secretary, by authority of the
President, on October 15, 1987.49
Mr. Justice Isagani A. Cruz commenting on the delegation of legislative
power stated
The latest in our jurisprudence indicates that delegation of legislative
power has become the rule and its non-delegation the exception. The
reason is the increasing complexity of modern life and many technical
fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature
to cope directly with the many problems demanding its attention. The
 growth of society has ramified its activities and created peculiar and
sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has
become necessary. To many of the problems attendant upon present
day undertakings, the legislature may not have the competence, let
alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50
Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the
rationale in favor of delegation of legislative functions
One thing however, is apparent in the development of the principle of
separation of powers and that is that the maxim of delegatus non
potest delegare or delegati potestas non potest delegare, adopted
this practice (Delegibus et Consuetudiniis Anglia edited by G.E.
Woodline, Yale University Press, 1922, Vol. 2, p. 167) but which is
also recognized in principle in the Roman Law d. 17.18.3) has been
made to adapt itself to the complexities of modern government, giving
rise to the adoption, within certain limits, of the principle of
subordinate legislation, not only in the United States and England but
in practically all modern governments. (People vs. Rosenthal and
Osmea, 68 Phil. 318, 1939). Accordingly, with the growing
complexities of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering
the laws, there is a constantly growing tendency toward the
delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)
The legislative authority could not or is not expected to state all the detailed
situations wherein the tax exemption privileges of persons or entities would
be restored. The task may be assigned to an administrative body like the
FIRB.
Moreover, all presumptions are indulged in favor of the constitutionality and
validity of the statute. Such presumption can be overturned if its invalidity is
proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor
of constitutionality of legislation should be adopted.52
E.O. No. 93 is complete in itself and constitutes a valid delegation of
legislative power to the FIRB And as above discussed, the tax exemption
privilege that was restored to NPC by FIRB Resolution No. 17-87 of June
1987 includes exemption from indirect taxes and duties on petroleum
products used in its operation.
Indeed, the validity of Executive Order No. 93 as well as of FIRB
Resolution No. 17-87 has been upheld in Albay.53
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos.
1931 and 1955 issued by President Marcos in 1984 are invalid as they
were presumably promulgated under the infamous Amendment No. 6 and
that as they cover tax exemption, under Section 17(4), Article VIII of the
1973 Constitution, the same cannot be passed "without the concurrence of
the majority of all the members of the Batasan Pambansa." And, even
conceding that the reservation of legislative power in the President was
valid, it is opined that it was not validly exercised as there is no showing
that such presidential encroachment was justified under the conditions then
existing. Consequently, it is concluded that Executive Order No. 93, which
was intended to implement said decrees, is also illegal. The authority of the
President to sub-delegate to the FIRB powers delegated to him is also
questioned.
In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776
and 1931. The latter decree withdrew tax exemptions of government-
owned or controlled corporations including their subsidiaries but authorized
the FIRB to restore the same. Nevertheless, in Albay, as above-discussed,
this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85
and 1-86 cannot be enforced as said resolutions were only
recommendatory and were not duly approved by the President of the
Philippines as required by P.D. No. 776.55 The Court also sustained
in Albaythe validity of Executive Order No. 93, and of the tax exemptions
restored under FIRB Resolution No. 17-87 which was issued pursuant
thereto, as it was duly approved by the President as required by said
executive order.
Moreover, under Section 3, Article XVIII of the Transitory Provisions of the
1987 Constitution, it is provided that:
All existing laws, decrees, executive orders, proclamation, letters of
instructions, and other executive issuances not inconsistent with this
constitution shall remain operative until amended, repealed or
revoked.
Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown
that they are inconsistent with the Constitution.
1wphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order
No. 93 are not valid and are unconstitutional, the result would be the same,
as then the latest applicable law would be P.D. No. 938 which amended the
NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on
petroleum products used in its operation. This is as it should be, if We are
to hold as invalid and inoperative the withdrawal of such tax exemptions
under P.D. No. 1931 as well as under Executive Order No. 93 and the
delegation of the power to restore these exemptions to the FIRB.
The Court realizes the magnitude of the consequences of this decision. To
reiterate, in Albay this Court ruled that the NPC is liable for real estate
taxes as of June 11, 1984 (the date of promulgation of P.D. No. 1931)
when NPC had ceased to enjoy tax exemption privileges since FIRB
Resolution Nos. 1085 and 1-86 were not validly issued. The real estate tax
liability of NPC from June 11, 1984 to December 1, 1990 is estimated to
amount to P7.49 billion plus another P4.76 billion in fuel import duties the
firm had earlier paid to the government which the NPC now proposed to
pass on to the consumers by another 33-centavo increase per kilowatt hour
in power rates on top of the 17-centavo increase per kilowatt hour that took
effect just over a week ago.,56 Hence, another case has been filed in this
Court to stop this proposed increase without a hearing.
As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86
were issued, P.D. No. 776 dated August 24, 1975 was already amended by
P.D. No. 1931 ,57 wherein it is provided that such FIRB resolutions may be
approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of
Finance in his own right and also in his capacity as FIRB Chairman. Thus,
a separate approval thereof by the Minister of Finance or by the President
is unnecessary.
As earlier stated a reexamination of the ruling in Albay on this aspect is
therefore called for and consequently, Albaymust be considered
superseded to this extent by this decision. This is because P.D. No. 938
which is the latest amendment to the NPC charter granting the NPC
exemption from all forms of taxes certainly covers real estate taxes which
are direct taxes.
This tax exemption is intended not only to insure that the NPC shall
continue to generate electricity for the country but more importantly, to
assure cheaper rates to be paid by the consumers.
The allegation that this is in effect allowing tax evasion by oil companies is
not quite correct. There are various arrangements in the payment of crude
1a\^/phi 1

oil purchased by NPC from oil companies. Generally, the custom duties
paid by the oil companies are added to the selling price paid by NPC. As to
the specific and ad valorem taxes, they are added a part of the seller's
price, but NPC pays the price net of tax, on condition that NPC would seek
a tax refund to the oil companies. No tax component on fuel had been
charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of
tax relief for the NPC. The billions of pesos involved in these exemptions
will certainly inure to the ultimate good and benefit of the consumers who
are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.
The fear of the serious implication of this decision in that NPC's suppliers,
importers and contractors may claim the same privilege should be dispelled
by the fact that (a) this decision particularly treats of only the exemption of
the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its
operation; and (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of P.D.
No. 380, both specifically exempt the NPC from all taxes, duties, fees,
imposts and all other charges imposed by the government on all petroleum
products used in its operation only, which is the very exemption which this
Court deems to be carried over by the passage of P.D. No. 938. As a
matter of fact in Section 13(d) of P.D. No. 380 it is specified that the
aforesaid exemption from taxes, etc. covers those "directly or indirectly"
imposed by the "Republic of the Philippines, its provincies, cities,
municipalities and other government agencies and instrumentalities" on
said petroleum products. The exemption therefore from direct and indirect
tax on petroleum products used by NPC cannot benefit the suppliers,
importers and contractors of NPC of other products or services.
The Court realizes the laudable objective of petitioner to improve the
revenue of the government. The amount of revenue received or expected
to be received by this tax exemption is, however, not going to any of the oil
companies. There would be no loss to the government. The said amount
shall accrue to the benefit of the NPC, a government corporation, so as to
enable it to sustain its tremendous task of providing electricity for the
country and at the least cost to the consumers. Denying this tax exemption
would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased
power rates to be shouldered by the consumers if the NPC is to survive
and continue to provide our power requirements.59 The greater interest of
the people must be paramount.
WHEREFORE, the petition is DISMISSED for lack of merit. No
pronouncement as to costs.
SO ORDERED.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive
Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET
AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell
Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some
instances, this matter of indirect tax exemption of the private respondent
National Power Corporation (NPC) is brought to this Court a second time.
Unfazed by the Decision We promulgated on May 31, 19911 petitioner
Ernesto Maceda asks this Court to reconsider said Decision. Lest We be
criticized for denying due process to the petitioner. We have decided to
take a second look at the issues. In the process, a hearing was held on
July 9, 1992 where all parties presented their respective arguments. Etched
in this Court's mind are the paradoxical claims by both petitioner and
private respondents that their respective positions are for the benefit of the
Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to
its tax exemption provisions, at the risk of being repetitious is, therefore, in
order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating
the National Power Corporation, a public corporation, mainly to develop
hydraulic power from all water sources in the Philippines.2 The sum of
P250,000.00 was appropriated out of the funds in the Philippine Treasury
for the purpose of organizing the NPC and conducting its preliminary
work.3 The main source of funds for the NPC was the flotation of bonds in
the capital markets4 and these bonds
. . . issued under the authority of this Act shall be exempt from
the payment of all taxes by the Commonwealth of the
Philippines, or by any authority, branch, division or political
subdivision thereof and subject to the provisions of the Act of
Congress, approved March 24, 1934, otherwise known as the
Tydings McDuffle Law, which facts shall be stated upon the
face of said bonds. . . . .5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00
the funds needed for the initial operations of the NPC and reiterating the
provision of the flotation of bonds as soon as the first construction of any
hydraulic power project was to be decided by the NPC Board.6 The
provision on tax exemption in relation to the issuance of the NPC bonds
was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision
on the payment of the bond's principal and interest in "gold coins" but
adding that payment could be made in United States dollars.7 The provision
on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the
President of the Philippines to guarantee, absolutely and unconditionally,
as primary obligor, the payment of any and all NPC loans.8 He was also
authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the
accomplishment of NPC's corporate objectives9 and for the reconstruction
and development of the economy of the country. 10 It was expressly stated
that:
Any such loan or loans shall be exempt from taxes, duties,
fees, imposts, charges, contributions and restrictions of the
Republic of the Philippines, its provinces, cities and
municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the
NPC, for the first time, to incur other types of indebtedness, aside from
indebtedness incurred by flotation of bonds. 12 As to the pertinent tax
exemption provision, the law stated as follows:
 To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees,
imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in
that, aside from the IBRD, the President of the Philippines was authorized
to negotiate, contract and guarantee loans with the Export-Import Bank of
of Washigton, D.C., U.S.A., or any other international financial
institution. 14 The tax provision for repayment of these loans, as stated in
R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's
tax exemption for real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, except real property
tax, and from all duties, fees, imposts, charges, and restrictions
of the Republic of the Philippines, its provinces, cities, and
municipalities.15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC
projects to be funded by the increased indebtedness 16 should bear the
National Economic Council's stamp of approval. The tax exemption
provision related to the payment of this total indebtedness was not
amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount
of foreign loans NPC was authorized to incur to US$100,000,000.00 from
the US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related
to the repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of
NPC to December 31, 2000. 18 All laws or provisions of laws and executive
orders contrary to said R.A. No. 2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a
public corporation into a stock corporation with an authorized capital stock
of P100,000,000.00 divided into 1,000.000 shares having a par value of
P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-
mentioned authorized capital stock to P250,000,000.00 with the increase to
be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was
increased again to P300,000,000.00, the increase to be wholly subscribed
by the Government. No tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of
the NPC, C.A. No. 120, as amended. Declared as primary objectives of the
nation were:
Declaration of Policy. Congress hereby declares that (1) the
comprehensive development, utilization and conservation of
Philippine water resources for all beneficial uses, including
power generation, and (2) the total electrification of the
Philippines through the development of power from all sources
to meet the needs of industrial development and dispersal and
the needs of rural electrification are primary objectives of the
nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the
financial institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into
sections 8 (a) (Authority to incur Domestic Indebtedness) and Section 8 (b)
(Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a),
states as follows:
The bonds issued under the authority of this subsection shall be
exempt from the payment of all taxes by the Republic of the
Philippines, or by any authority, branch, division or political
subdivision thereof which facts shall be stated upon the face of
said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No.
5, Section 8(b), states as follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedeness incurred
under this Act, shall also be exempt from all taxes, fees,
imposts, other charges and restrictions, including import
 restrictions, by the Republic of the Philippines, or any of its
agencies and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A.
No. 6395, which declares the non-profit character and tax exemptions of
NPC as follows:
The Corporation shall be non-profit and shall devote all its
returns from its capital investment, as well as excess revenues
from its operation, for expansion. To enable the Corporation to
pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one
of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts,
charges costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties
to the Republic of the Philippines, its provinces, cities, and
municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to
be paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced
sales tax, and wharfage fees on import of foreign goods
required for its operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges
its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used
by the Corporation in the generation, transmission, utilization,
and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued
declaring that the electrification of the entire country was one of
the primary concerns of the country. And in connection with
this, it was specifically stated that:
The setting up of transmission line grids and the construction of
associated generation facilities in Luzon, Mindanao and major
islands of the country, including the Visayas, shall be the
 responsibility of the National Power Corporation (NPC) as the
authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and
operate as a single integrated system all generating facilities
supplying electric power to the entire area embraced by any
grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the
NPC to enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized
capital stock was raised to P2,000,000,000.00, 29 its total domestic
indebtedness was pegged at a maximum of P3,000,000,000.00 at any one
time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as
follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from
all direct and indirect taxes, fees, imposts, other charges and
restrictions, including import restrictions previously and
presently imposed, and to be imposed by the Republic of the
Philippines, or any of its agencies and political
subdivisions. 32(Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts,
charges and restrictions to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies
and instrumentalities including the taxes, duties, fees, imposts
and other charges provided for under the Tariff and Customs
Code of the Philippines, Republic Act Numbered Nineteen
Hundred Thirty-Seven, as amended, and as further amended
by Presidential Decree No. 34 dated October 27, 1972, and
Presidential Decree No. 69, dated November 24, 1972, and
costs and service fees in any court or administrative
proceedings in which it may be a party;
 xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used
by the Corporation in the generation, transmission, utilization
and sale of electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain
restrictions in the NPC's sale of electricity to its different customers. 34 No
tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00
would be appropriated annually to cover the unpaid subscription of the
Government in the NPC authorized capital stock, which amount would be
taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued
by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation
and transmission facilities which includes nuclear power
generation, the present capitalization of National Power
Corporation (NPC) and the ceilings for domestic and foreign
borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the
Revised Charter, the non-profit character of NPC has not been
fully utilized because of restrictive interpretation of the taxing
agencies of the government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and
attain the declared objective of total electrification of the
country, further amendments of certain sections of Republic Act
No. 6395, as amended by Presidential Decrees Nos. 380, 395
and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total
domestic indebtedness ceiling was increased to P12,000,000,000.00, 40 the
total foreign loan ceiling was raised to US$4,000,000,000.00 41 and Section
13 of R.A. No. 6395, was amended to read as follows:
 The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess revenues
from its operation, for expansion. To enable the Corporation to
pay to its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one
of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of all forms of taxes, duties,
fees, imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are
P.D. Nos. 882, 1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax
exemption of NPC with regard to imports as follows:
WHEREAS, importations by certain government agencies,
including government-owned or controlled corporation, are
exempt from the payment of customs duties and compensating
tax; and
WHEREAS, in order to reduce foreign exchange spending and
to protect domestic industries, it is necessary to restrict and
regulate such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of
the Philippines, by virtue of the powers vested in me by the
Constitution, and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including
government-owned or controlled corporations which are exempt
from the payment of customs duties and internal revenue taxes,
shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following
conditions:
(a) That no such article of local manufacture are available in
sufficient quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually
needed and will be used exclusively by the grantee of the
exemption for its operations and projects or in the conduct of its
functions; and
 (c) The shipping documents covering the importation are in the
name of the grantee to whom the goods shall be delivered
directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and
control the tax-free importation of government agencies in
accordance with the conditions set forth in Section 1 hereof and
the regulations to be promulgated to implement the provisions
of this Decree. Provided, however, That any government
agency or government-owned or controlled corporation, or any
local manufacturer or business firm adversely affected by any
decision or ruling of the Inter-Agency Committee may file an
appeal with the Office of the President within ten days from the
date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all
similar provisions of all general and special laws and decrees
are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement
a National Budget that is an instrument of national
development, reflective of national objectives, strategies and
plans. The budget shall be supportive of and consistent with the
socio-economic development plan and shall be oriented
towards the achievement of explicit objectives and expected
results, to ensure that funds are utilized and operations are
conducted effectively, economically and efficiently. The national
budget shall be formulated within a context of a regionalized
government structure and of the totality of revenues and other
receipts, expenditures and borrowings of all levels of
government-owned or controlled corporations. The budget shall
likewise be prepared within the context of the national long-term
plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled
corporations, shall pay income taxes, customs duties and other taxes and
fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may ask
for a subsidy from the General Fund in the exact amount of taxes/duties
due: provided, further, that a procedure shall be established by the
Secretary of Finance and the Commissioner of the Budget, whereby such
subsidies shall automatically be considered as both revenue and
expenditure of the General Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or
parts thereof which are inconsistent with the provisions of the
Decree are hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government
found itself in after the Aquino assassination, P.D. No. 1931 was issued to
reiterate that:
WHEREAS, Presidential Decree No. 1177 has already
expressly repealed the grant of tax privileges to any
government-owned or controlled corporation and all other units
of government; 46
and since there was a
. . . need for government-owned or controlled corporations and
all other units of government enjoying tax privileges to share in
the requirements of development, fiscal or otherwise, by paying
the duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties,
taxes, fees, imposts and other charges heretofore granted in
favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives
Review Board created under Presidential Decree No. 776, is
hereby empowered to restore, partially or totally, the
exemptions withdrawn by Section 1 above, any applicable tax
and duty, taking into account, among others, any or all of the
following:
1) The effect on the relative price levels;
 2) The relative contribution of the corporation to the revenue
generation effort;
3) The nature of the activity in which the corporation is engaged
in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well
as all other laws, decrees, executive orders, administrative
orders, rules, regulations or parts thereof which are inconsistent
with this Decree are hereby repealed, amended or modified
accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to
correct presidential restoration or grant of tax exemption to other
government and private entities without benefit of review by the Fiscal
Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on
June 11, 1984 and October 14, 1984, respectively, withdrew
the tax and duty exemption privileges, including the preferential
tax treatment, of government and private entities with certain
exceptions, in order that the requirements of national economic
development, in terms of fiscals and other resources, may be
met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption
privileges were restored by the Fiscal Incentives Review Board
(FIRB), a number of affected entities, government and private,
had their tax and duty exemption privileges restored or granted
by Presidential action without benefit or review by the Fiscal
Incentives Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better
provided where necessary by explicit subsidy and budgetary
support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government
operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the
contrary notwithstanding, all tax and duty incentives granted to
government and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the
Constitution;
b) those conferred by effective internation agreement to which
the Government of the Republic of the Philippines is a
signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential
Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant
to Presidential Decree No. 66 as amended;
(iii) the Philippine Veterans Investment
Development Corporation Industrial Authority
pursuant to Presidential Decree No. 538, was
amended.
d) those enjoyed by the copper mining industry pursuant to the
provisions of Letter of Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as
amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the
recommendation of the Fiscal Incentives Review
Board.
Sec. 2. The Fiscal Incentives Review Board created under
Presidential Decree No. 776, as amended, is hereby authorized
to:
a) restore tax and/or duty exemptions withdrawn hereunder in
whole or in part;
 b) revise the scope and coverage of tax and/or duty exemption
that may be restored;
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date of period of effectivity of the restoration of
tax and/or duty exemption;
e) formulate and submit to the President for approval, a
complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the restoration of
tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries
and the terms and conditions for the grant thereof taking into
consideration the international commitment of the Philippines
and the necessary precautions such that the grant of subsidies
does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal
Incentives Review Board shall take into account any or all of
the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue
generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or
parts thereof inconsistent with this Executive Order are hereby
repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of
the rules and regulations, to be issued by the Ministry of Finance. 49 Said
rules and regulations were promulgated and published in the Official
Gazette
on February 23, 1987. These became effective on the 15th day after
promulgation 50 in the Official Gasetter, 51 which 15th day was March 10,
1987.
III
Now to some definitions. We refer to the very simplistic approach that all
would-be lawyers, learn in their TAXATION I course, which fro convenient
reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax
really pays it. WITHOUT transferring the burden to someone
else.
Examples: Individual income tax, corporate income tax, transfer
taxes (estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for
it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax,
percentage taxes, (VAT) and the tariff and customs indirect
taxes (import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for
reconsideration can be reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption
of NPC as the phrase "all forms of taxes etc.," in its section 10, amending
Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not
expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the
lawmaker's intention that the NPC was to be completely tax exempt from all
forms of taxes direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float
to finance its operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign
financing, any loans obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds
aside issuance of bonds it was again specifically exempted from all
types of taxes "to facilitate payment of its indebtedness." Even when the
ceilings for domestic and foreign borrowings were periodically increased,
the tax exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically
withdrawn by Rep. Act No. 987, as above stated. The exemption was,
however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of
the tax exemptions allowed NPC. Its section 13(d) is the starting point of
this bone of contention among the parties. For easy reference, it is
reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale
of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d),
which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used
by the Corporation in the generation, transmission, utilization
and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into
one very simple paragraph as follows:
The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess revenues
from its operation, for expansion. To enable the Corporation to
 pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one
of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of ALL FORMS OF taxes,
duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive
and Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same
person, it would have been very easy for him to retain the same
or similar language used in P.D. No. 380 P.D. No. 938 if his
intention were to preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President
Marcos no matter what his fault were. It should be noted that section 13,
R.A. No. 6395, provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and
projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL
FORMS OF TAXES, ETC.,", included 13(a) under the "as well as" clause
and added PNOC subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws
in the order of enactment or issuance as narrated above in part I hereof.
President Marcos must have considered all the NPC statutes from C.A. No.
120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No.
759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as
amended by P.D. No. 938.
One common theme in all these laws is that the NPC must be enable to
pay its indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total
domestic indebtedness, at any one time, and U$4 Billion in total foreign
loans at any one time. The NPC must be and has to be exempt from all
forms of taxes if this goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It
must be remembered that to pay the government share in its capital stock
P.D. No. 758 was issued mandating that P200 Million would be
appropriated annually to cover the said unpaid subscription of the
Government in NPC's authorized capital stock. And significantly one of the
sources of this annual appropriation of P200 million is TAX MONEY
accruing to the General Fund of the Government. It does not stand to
reason then that former President Marcos would order P200 Million to be
taken partially or totally from tax money to be used to pay the Government
subscription in the NPC, on one hand, and then order the NPC to pay all its
indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13
(b), 13 (c) and (d) into the phrase "All FORMS OF" is supported by the fact
that he did not do the same for the tax exemption provision for the foreign
loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395,
reads as follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all taxes, fees,
imposts, other charges and restrictions, including import
restrictions, by the Republic of the Philippines, or any of its
agencies and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection
and the payment of the principal, interest and other charges
thereon, as well as the importation of machinery, equipment,
materials, supplies and services, by the Corporation, paid from
the proceeds of any loan, credit or indebtedness incurred under
this Act, shall also be exempt from all direct and indirect taxes,
fees, imposts, other charges and restrictions, including import
restrictions previously and presently imposed, and to be
 imposed by the Republic of the Philippines, or any of its
agencies and political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision
in Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands.
Since the subject matter of this particular Section 8 (b) had to do only with
loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP
WITH, and so, the tax exemption stood as is with the express mention of
"direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption
privilege extended to "taxes, fees, imposts, other charges . . . to be
imposed" in the future surely, an indication that the lawmakers wanted
the NPC to be exempt from ALL FORMS of taxes direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption
privileges for both direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government
decided to rationalize government receipts and expenditures by formulating
and implementing a National Budget. 60 The NPC, being a government
owned and controlled corporation had to be shed off its tax exemption
status privileges under P.D. No. 1177. It was, however, allowed to ask for a
subsidy from the General Fund in the exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free
importation privileges. It allowed, however, NPC to appeal said repeal with
the Office of the President and to avail of tax-free importation privileges
under its Section 1, subject to the prior approval of an Inter-Agency
Committed created by virtue of said P.D. No. 882. It is presumed that the
NPC, being the special creation of the State, was allowed to continue its
tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the
matter of the abolition of NPC's tax exemption privileges by P.D. No.
1177 61 only in his Common Reply/Comment to private Respondents'
"Opposition" and "Comment" to Motion for Reconsideration, four (4)
months AFTER the motion for Reconsideration had been filed. During oral
arguments heard on July 9, 1992, he proceeded to discuss this tax
exemption withdrawal as explained by then Secretary of Justice Vicente
Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's
senate Blue Ribbon Committee Report No. 474, the basis of the petition at
bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax
exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court
declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption
privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177
on the NPC tax exemption privileges as this statute has been reiterated
twice in P.D. No. 1931. The express repeal of tax privileges of any
government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The
subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with
Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives
Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the
subsidy contemplated in Section 23, P.D. No. 1177. Considering, however,
that under Section 16 of P.D. No. 1177, NPC had to submit to the Office of
the President its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its unpaid
subscription to the NPC authorized capital stock and that under Section 22,
of the same P.D. No. NPC had to likewise submit to the Office of the
President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of
the domestic and foreign indebtedness of the NPC, it is clear that NPC was
covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt
GOCC's that suddenly found themselves having to pay taxes. It will be
noted that Section 23, P.D. No. 1177, mandated that the Secretary of
Finance and the Commissioner of the Budget had to establish the
necessary procedure to accomplish the tax payment/tax subsidy scheme of
the Government. In effect, NPC, did not put any cash to pay any tax as it
got from the General Fund the amounts necessary to pay different revenue
collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977,
the NPC lost all its duty and tax exemptions, whether direct or
indirect. And so there was nothing to be withdrawn or to be
restored under P.D. No. 1931, issued on June 11, 1984. This is
 evident from sections 1 and 2 of said P.D. No. 1931, which
reads:
"Section 1. The provisions of special or general law
to the contrary notwithstanding, all exemptions from
the payment of duties, taxes, fees, imports and
other charges heretofore granted in favor of
government-owned or controlled corporations
including their subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the
Minister of Finance, upon the recommendation of
the Fiscal Incentives Review Board created under
P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by
section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change
NPC's status. Since it had already lost all its tax exemptions
privilege with the issuance of P.D. No. 1177 seven (7) years
earlier or on July 30, 1977, there were no tax exemptions to be
withdrawn by section 1 which could later be restored by the
Minister of Finance upon the recommendation of the FIRB
under Section 2 of P.D. No. 1931. Consequently, FIRB
resolutions No. 10-85, and 1-86, were all illegally and validly
issued since FIRB acted beyond their statutory authority by
creating and not merely restoring the tax exempt status of NPC.
The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise
abolished all duties and tax exemptions but allowed the
President upon recommendation of the FIRB to restore those
abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so
revised and consolidated, the revision and consolidation shall
be taken to be a continuation of the former act or acts, although
the former act or acts may be expressly repealed by the revised
and consolidated act; and all rights
 and liabilities under the former act or acts are preserved and
may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1
the first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption
privileges of all GOCC's said Section 1, P.D. No. 1931 was deemed to be a
continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former
tax exempt GOCCs had been expressly repealed by Section 2 with its
institution of the FIRB recommendation of partial/total restoration of tax
exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were,
therefore, the same NPC tax exemption privileges withdrawn by Section
23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it
had to pay. It could, however, under P.D. No. 1931, ask for a total
restoration of its tax exemption privileges, which, it did, and the same were
granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by
the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos.
10-85 and 1-86 were both legally and validly issued by the FIRB pursuant
to P.D. No. 1931. FIRB did not created NPC's tax exemption status but
merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally
issued under the now rather infamous Amendment No. 6 70 as there was no
showing that President Marcos' encroachment on legislative prerogatives
was justified under the then prevailing condition that he could legislate
"only if the Batasang Pambansa 'failed or was unable to act inadequately
on any matter that in his judgment required immediate action' to meet the
'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue
decrees not only when the Interim Batasang Pambansa failed or was
unable to act adequately on any matter for any reason that in his (Marcos')
judgment required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said
Presidential Decree was issued only around nine (9) months after the
Philippines unilaterally declared a moratorium on its foreign debt
payments 72 as a result of the economic crisis triggered by loss of
confidence in the government brought about by the Aquino assassination.
The Philippines was then trying to reschedule its debt payments. 73 One of
the big borrowers was the NPC 74 which had a US$ 2.1 billion white
elephant of a Bataan Nuclear Power Plant on its back. 75 From all
indications, it must have been this grave emergency of a debt rescheduling
which compelled Marcos to issue P.D. No. 1931, under his Amendment 6
power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax
exemption shall be passed without the concurrence of a majority of all the
members of the Batasang Pambansa" 77 does not apply as said P.D. No.
1931 was not passed by the Interim Batasang Pambansa but by then
President Marcos under His Amendment No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos
under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again
clipped by, this time, President Aquino. Its section 2 allowed the NPC to
apply for the restoration of its tax exemption privileges. The same was
granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which
restored NPC's tax exemption privileges effective, starting March 10, 1987,
the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5,
1987. 79 There is no indication, however, from the records of the case
whether or not similar approvals were given by then President Marcos for
FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to
believe that a "travesty of justice" might have occurred when the Minister of
Finance approved his own recommendation as Chairman of the Fiscal
Incentives Review Board as what happened in Zambales Chromate vs.
Court of Appeals 80 when the Secretary of Agriculture and Natural
Resources approved a decision earlier rendered by him when he was the
Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential
Executive Assistant Clave affirmed, on appeal to Malacaang, his own
decision as Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about
"due process" being violated when FIRB Resolutions Nos. 10-85 and 1-86
were approved by the Minister of Finance when the same were
recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved:
mining groups and scientist-doctors, respectively. Thus, there was a need
for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other
comparable entity not even a single public or private corporation
whose rights would be violated if NPC's tax exemption privileges were to
be restored. While there might have been a MERALCO before Martial Law,
it is of public knowledge that the MERALCO generating plants were sold to
the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides,
MERALCO was limited to Manila and its environs. And as of 1984, there
was no more MERALCO as a producer of electricity which could have
objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption
privileges for the first time. It was just asking that its tax exemption
privileges be restored. It is for these reasons that, at least in NPC's case,
the recommendation and approval of NPC's tax exemption privileges under
FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in
his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by
President Aquino on October 5, 1987, the view has been expressed that
President Aquino, at least with regard to E.O. 93 (S'86), had no authority to
sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both
Executive and Legislative powers. Thus, there was no power delegated to
her, rather it was she who was delegating her power. She delegated it to
the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the
legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set
forth the policy to be carried out 85 and it fixed the standard to which the
delegate had to conform in the performance of his functions, 86 both
qualities having been enunciated by this Court in Pelaez vs. Auditor
General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption
privileges restored from June 11, 1984 up to the present.
VII
The next question that projects itself is who pays the tax?
The answer to the question could be gleamed from the manner by which
the Commissaries of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the
Philippines, and their defendants but groceries and other goods free of all
taxes and duties if bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable
specific, ad valorem and other taxes on the goods earmarked for AFP
Commissaries as an added cost of operation and distribute it over the total
units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other
taxes which theses suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil
companies have to absorb the taxes they add to the bunker fuel oil they sell
to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the
Secretary of Justice renders an opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation
from "all taxes, duties, fees, imposts, charges, and restrictions
of the Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all
taxes, whether direct or indirect, which the National Power
Corporation may be required to pay, such as the specific tax on
petroleum products. That it is indirect or is of no amount [should
be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the
tax is first paid by the seller disregards realities and gives more
importance to form than to substance. Equity and law always
exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not
so grudgingly as knowledge that many impositions taxpayers
have to pay are in the nature of indirect taxes. To limit the
exemption granted the National Power Corporation to direct
taxes notwithstanding the general and broad language of the
statue will be to thwrat the legislative intention in giving
exemption from all forms of taxes and impositions without
 distinguishing between those that are direct and those that are
not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil
companies which supply bunker fuel oil to NPC have to pay the taxes
imposed upon said bunker fuel oil sold to NPC. By the very nature of
indirect taxation, the economic burden of such taxation is expected to be
passed on through the channels of commerce to the user or consumer of
the goods sold. Because, however, the NPC has been exempted from both
direct and indirect taxation, the NPC must beheld exempted from absorbing
the economic burden of indirect taxation. This means, on the one hand,
that the oil companies which wish to sell to NPC absorb all or part of the
economic burden of the taxes previously paid to BIR, which could they shift
to NPC if NPC did not enjoy exemption from indirect taxes. This means
also, on the other hand, that the NPC may refuse to pay the part of the
"normal" purchase price of bunker fuel oil which represents all or part of the
taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies because to do so may be
more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas NPC is entitled
to be reimbursed by the BIR for that part of the buying price of NPC which
verifiably represents the tax already paid by the oil company-vendor to the
BIR.
It should be noted at this point in time that the whole issue of who WILL pay
these indirect taxes HAS BEEN RENDERED moot and academic by E.O.
No. 195 issued on June 16, 1987 by virtue of which the ad valorem tax rate
on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said E.O.
no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY
REVISING THE EXCISE TAX RATES OF CERTAIN
PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal
Revenue Code, as amended, is hereby amended to read as
follows:
Par. (b) For products subject to ad valorem tax only:
 PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel
oils having more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of
Our Lord, nineteen hundred and eighty-seven. (Emphasis
supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to
worry about who is going to bear the economic burden of the ad
valorem taxes. What this Court will now dispose of are petitioner's
complaints that some indirect tax money has been illegally refunded by the
Bureau of Internal Revenue to the NPC and that more claims for refunds by
the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal
Revenue in favor of the NPC last July 7, 1986 for P58.020.110.79 which
were for "erroneously paid specific and ad valorem taxes during the period
from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare
this Tax Credit Memo illegal as the PNC did not have indirect tax
exemptions with the enactment of P.D. No. 938. As We have already ruled
otherwise, the only questions left are whether NPC Is entitled to a tax
refund for the tax component of the price of the bunker fuel oil purchased
from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue
properly refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985
when the BIR issues its letter authority to the NPC authorizing it to
withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB
Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive
to June 11, 1984 there was a need. therefore, to recover said amount as
Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad
valorem taxes on the bunker oil it sold NPC during the period above
indicated and had billed NPC correspondingly. 93 It should be noted that the
NPC, in its letter-claim dated September 11, 1985 to the Commissioner of
the Bureau of Internal Revenue DID NOT CATEGORICALLY AND
UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of
the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is
section 230 of the National Internal Revenue Code of 1977, as amended
which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority,
or of any sum alleged to have been excessive or in any Manner
wrongfully collected. until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise
after payment; Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any
tax, where on the face of the return upon which payment was
made, such payment appears clearly, to have been erroneously
paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11,
1985, 95 the Commissioner correctly issued the Tax Credit Memo in view of
NPC's indirect tax exemption.
Petitioner, however, asks Us to restrain the Commissioner from acting
favorably on NPC's claim for P410.580,000.00 which represents specific
and ad valorem taxes paid by the oil companies to the BIR from June 11,
1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached
thereto does not reveal when the alleged claim for a P410,580,000.00 tax
refund was filed. It is only stated In paragraph No. 2 of the Deed of
Assignment 97executed by and between NPC and Caltex (Phils.) Inc., as
follows:
 That the ASSIGNOR(NPC) has a pending tax credit claim with
the Bureau of Internal Revenue amounting to P442,887,716.16.
P58.020,110.79 of which is due to Assignor's oil purchases
from the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff."
We cannot restrain the BIR from refunding said amount because of Our
ruling that NPC has both direct and indirect tax exemption privileges.
Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us.
At any rate, at this point in time, NPC can no longer file any suit to collect
said amount EVEN IF lt has previously filed a claim with the BIR because it
is time-barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty REGARDLESS of any supervening cause that may
arise after payment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to
assume that payment by NPC for the amount of P410,580,000.00 had
been made on said date. it is clear that more than two (2) years had
already elapsed from said date. At the same time, We should note that
there is no legal obstacle to the BIR granting, even without a suit by NPC,
the tax credit or refund claimed by NPC, assuming that NPC's claim had
been made seasonably, and assuming the amounts covered had actually
been paid previously by the oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration
of petitioner is hereby DENIED for lack of merit and the decision of this
Court promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.

[G.R. No. 117982. February 6, 1997]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
APPEALS, COURT OF APPEALS and ALHAMBRA INDUSTRIES,
INC., respondents.

DECISION
BELLOSILLO, J.:

ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in the

manufacture and sale of cigar and cigarette products. On 7 May 1991 private
respondent received a letter dated 26 April 1991 from the Commissioner of
Internal Revenue assessing it deficiency Ad Valorem Tax (AVT) in the total
amount of Four Hundred Eighty-Eight Thousand Three Hundred Ninety-Six
Pesos and Sixty-Two Centavos (P 488,396.62), inclusive of
increments, on the removals of cigarette products from their place of production
during the period 2 November 1990 to 22 January 1991. Petitioner computes
[1]

the deficiency thus -

Total AVT due per manufacturers declaration P4,279,042.33
Less: AVT paid under BIR Ruling No. 473-88 3,905,348.85
Deficiency AVT 373,693.48
Add: Penalties:
25% Surcharge (Sec. 248[c][3] NIRC) 93,423.37
20% Interest (P 467,116.85 x 82/360 days) 21,279.77
Total Amount Due P 488,396.62
In a letter dated 22 May 1991 received by petitioner on even date, private
respondent thru counsel filed a protest against the proposed assessment with
a request that the same be withdrawn and cancelled. On 31 May 1991 private
respondent received petitioner's reply dated 27 May 1991 denying its protest
and request for cancellation stating that the decision was final, and at the same
time requesting payment of the revised amount of Five Hundred Twenty
Thousand Eight Hundred Thirty-Five Pesos and Twenty-Nine Centavos
(P 520,835.29), with interest updated, within ten (10) days from receipt
thereof. In a letter dated 10 June 1991 which petitioner received on the same
day, private respondent requested for the reconsideration of petitioner's denial
of its protest. Without waiting for petitioner's reply to its request
for reconsideration, private respondent filed on 19 June 1991 a petition for
review with the Court of Tax Appeals. On 25 June 1991 private respondent
received from petitioner a letter dated 21 June 1991 denying its request for
reconsideration declaring again that its decision was final. On 8 July 1991
private respondent paid under protest the disputed ad valorem tax in the sum
of P 520,835.29. [2]
 In its Decision of 1 December 1993 the Court of Tax Appeals ordered
[3]

petitioner to refund to private respondent the amount of Five Hundred Twenty

Thousand Eight Hundred Thirty-Five Pesos and Twenty-
Nine Centavos (P 520,835.29) representing erroneously paid ad valorem tax
for the period 2 November 1990 to 22 January 1991.
The Court of Tax Appeals explained that the subject deficiency excise tax
assessment resulted from private respondents use of the computation
mandated by BIR Ruling 473-88 dated 4 October 1988 as basis for computing
the fifteen percent (15%) ad valorem tax due on its removals of cigarettes from
2 November 1990 to 22 January 1991. BIR Circular 473-88 was issued by
Deputy Commissioner Eufracio D. Santos to Insular-Yebana Tobacco
Corporation allowing the latter to exclude the value-added tax (VAT) in the
determination of the gross selling price for purposes of computing the ad
valorem tax of its cigar and cigarette products in accordance with Sec. 127 of
the Tax Code as amended by Executive Order No. 273 which provides as
follows:
Sec. 127. Payment of excise taxes on domestic products. - x x x x (b) Determination of
gross selling price of goods subject to ad valorem tax. - Unless otherwise provided,
the price, excluding the value-added tax, at which the goods are sold at wholesale in
the place of production or through their sales agents to the public shall constitute the
gross selling price.
The computation, pursuant to the ruling, is illustrated by way of example
thus -
P44.00 x 1/11 = P 4.00 VAT
P44.00 - P 4.00 = P40.00 price without VAT
P40.00 x 15% = P 6.00 Ad Valorem Tax
For the period 2 November 1990 to 22 January 1991 private respondent
paid P3,905,348.85 ad valorem tax, applying Sec. 127 (b) of the NIRC as
interpreted by BIR Ruling 473-88 by excluding the VAT in the determination of
the gross selling price.
Thereafter, on 11 February 1991, petitioner issued BIR Ruling 017-91 to
Insular-Yebana Tobacco Corporation revoking BIR Ruling 473-88 for being
violative of Sec. 142 of the Tax Code. It included back the VAT to the gross
selling price in determining the tax base for computing the ad valorem tax on
cigarettes. Cited as basis by petitioner is Sec. 142 of the Tax Code, as
amended by E.O. No. 273 -
Sec. 142. Cigar and cigarettes - x x x x For purposes of this section, manufacturer's or
importer's registered wholesale price shall include the ad valorem tax imposed in
paragraphs (a), (b), (c) or (d) hereof and the amount intended to cover the value added
tax imposed under Title IV of this Code.
Petitioner sought to apply the revocation retroactively to
private respondent's removals of cigarettes for the period starting 2 November 1990 to 22
January 1991 on the ground that private respondent allegedly acted in bad faith which is an
exception to the rule on non-retroactivity of BIR Rulings.[4]
On appeal, the Court of Appeals affirmed the Court of Tax Appeals holding that the
retroactive application of BIR Ruling 017-91 cannot be allowed since private
respondent did not act in bad faith; private respondents computation under BIR Ruling
473-88 was not shown to be motivated by ill will or dishonesty partaking the nature of
fraud; hence, this petition.
Petitioner imputes error to the Court of Appeals: (1) in failing to consider that private
respondents reliance on BIR Ruling 473-88 being contrary to Sec. 142 of the Tax
Code does not confer vested rights to private respondent in the computation of its ad
valorem tax; (2) in failing to consider that good faith and prejudice to the taxpayer in
cases of reliance on a void BIR Ruling is immaterial and irrelevant and does not place
the government in estoppel in collecting taxes legally due; (3) in holding that private
respondent acted in good faith in applying BIR Ruling 473-88; and, (4) in failing to
consider that the assessment of petitioner is presumed to be regular and the claim for
tax refund must be strictly construed against private respondent for being in
derogation of sovereign authority.
Petitioner claims that the main issue before us is whether private respondent's reliance on a void
BIR ruling conferred upon the latter a vested right to apply the same in the computation of its ad
valorem taxand claim for tax refund. Sec. 142 (d) of the Tax Code, which provides for the
inclusion of the VAT in the tax base for purposes of computing the 15% ad valorem tax, is the
applicable law in the instant case as it specifically applies to the manufacturer's wholesale price
of cigar and cigarette products and not Sec. 127 (b) of the Tax Code which applies in general to
the wholesale of goods or domestic products.Sec. 142 being a specific provision applicable to
cigar and cigarettes must perforce prevail over Sec. 127 (b), a general provision of law insofar as
the imposition of the ad valorem tax on cigar and cigarettesis concerned.[5] Consequently, the
application of Sec. 127 (b) to the wholesale price of cigar and cigarette products for purposes of
computing the ad valorem tax is patently erroneous. Accordingly, BIR Ruling 473-88 is void ab
initio as it contravenes the express provisions of Sec. 142 (d) of the Tax Code.[6]
Petitioner contends that BIR Ruling 473-88 being an erroneous interpretation of Sec. 142 (b) of
the Tax Code does not confer any vested right to private respondent as to exempt it from the
retroactive application of BIR Ruling 017-91. Thus Art. 2254 of the New Civil Code is explicit
that "(n)o vested or acquired right can arise from acts or omissions which are against the law x x
x x "[7] It is argued that the Court of Appeals erred in ruling that retroactive application cannot be
made since private respondent acted in good faith. The following circumstances would show that
private respondents reliance on BIR Ruling 473-88 was induced by ill will: first, private
respondent despite knowledge that Sec. 142 of the Tax Code was the specific provision
applicable still shifted its accounting method pursuant to Sec. 127 (b) of the Tax Code;
and, second, the shift in accounting method was made without any prior consultation with the
BIR.[8]
It is further contended by petitioner that claims for tax refund must be construed against private
respondent. A tax refund being in the nature of a tax exemption is regarded as in derogation of
the sovereign authority and is strictly construed against private respondent as the same partakes
the nature of a tax exemption. Tax exemptions cannot merely be implied but must
be categorically and unmistakably expressed.[9]
We cannot sustain petitioner. The deficiency tax assessment issued by petitioner
against private respondent is without legal basis because of the prohibition against the
retroactive application of the revocation of BIR rulings in the absence of bad faith on
the part of private respondent.
The present dispute arose from the discrepancy in the taxable base on which the
excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling
473-88 dated 4 October 1988 whichexcluded the VAT from the tax base in computing
the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11
February 1991 which included back the VAT in computing the tax base for purposes
of the fifteen percent (15%) ad valorem tax.
The question as to the correct computation of the excise tax on cigarettes in the case at
bar has been sufficiently addressed by BIR Ruling 017-91 dated 11 February 1991
which revoked BIR Ruling 473-88 dated 4 October 1988 -
It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to
domestic products and excludes the value-added tax in the determination of the gross
selling price, which is the tax base for purposes of the imposition of ad valorem
tax. On the other hand, the last paragraph of Section 142 of the same Code which
includes the value-added tax in the computation of the ad valorem tax, refers
specifically to cigar and cigarettes only. It does not include/apply to
any other articles or goods subject to the ad valorem tax. Accordingly,
Section 142 must perforce prevail over Section 127 (b) which is a general provision of
law insofar as the imposition of the ad valorem tax on cigar and cigarettes is
concerned.
Moreover, the phrase unless otherwise provided in Section 127 (b) purports of
exceptions to the general rule contained therein, such as that of Section 142, last
paragraph thereof which explicitly provides that in the case of cigarettes, the tax base
for purposes of the ad valorem tax shall include, among others, the value-added tax.
Private respondent did not question the correctness of the above BIR ruling. In fact,
upon knowledge of the effectivity of BIR Ruling No. 017-91, private respondent
immediately implemented the method of computation mandated therein by restoring
the VAT in computing the tax base for purposes of the 15% ad valorem tax.
However, well-entrenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive
application if to so apply them would be prejudicial to the taxpayers. [10]

The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of
any rules and regulations promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall
not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayers except in the following cases: a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive application
of the revocation as it would be assessed deficiency excise tax.
What is left to be resolved is petitioners claim that private respondent falls under the
third exception in Sec. 246, i.e., that the taxpayer has acted in bad faith.
Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It
partakes of the nature of fraud; a breach of a known duty through some motive
of interest or ill will.[11] We find no convincing evidence that private respondents implementation
of the computation mandated by BIR Ruling 473-88 was ill-motivated or attended with a
dishonest purpose. To the contrary, as a sign of good faith, private respondent immediately
reverted to the computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on
11 February 1991.
As regards petitioner's argument that private respondent should have made
consultations with it before private respondent used the computation mandated by
BIR Ruling 473-88, suffice it to state that the aforesaid BIR Ruling was clear and
categorical thus leaving no room for interpretation. The failure of private respondent
to consult petitioner does not imply bad faith on the part of the former.
Admittedly the government is not estopped from collecting taxes legally due because of mistakes
or errors of its agents. But like other principles of law, this admits of exceptions in the interest of
justice and fair play, as where injustice will result to the taxpayer.[12]
WHEREFORE, there being no reversible error committed by respondent
Court of Appeals, the petition is DENIED and petitioner COMMISSIONER OF
INTERNAL REVENUE is ordered to refund private respondent ALHAMBRA
INDUSTRIES, INC., the amount of P520,835.29 upon finality of this Decision.
SO ORDERED.
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE
U. ONG, as COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO
A. CARAG, MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and
BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF
FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF
INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R.
109446.

VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in
G.R. No. 109289, the constitutionality of Republic Act No. 7496, also
commonly known as the Simplified Net Income Taxation Scheme ("SNIT"),
amending certain provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93,
promulgated by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act
No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) Every bill passed by the Congress
shall embrace only one subject which shall be expressed in the
title thereof.
 Article VI, Section 28(1) The rule of taxation shall be uniform
and equitable. The Congress shall evolve a progressive system
of taxation.
Article III, Section 1 No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue
Regulations No. 2-93, argue that public respondents have exceeded their
rule-making authority in applying SNIT to general professional partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in
compliance with the Court's directive, have filed their respective
memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of
Republic Act No. 7496, is a misnomer or, at least, deficient for being merely
entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in
G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme
For The Self-Employed and Professionals Engaged In The
Practice of Their Profession, Amending Sections 21 and 29 of
the National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the
National Internal Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents.
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or
Professionals Engaged in the Practice of Profession. A tax is
hereby imposed upon the taxable net income as determined in
Section 27 received during each taxable year from all sources,
other than income covered by paragraphs (b), (c), (d) and (e) of
this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines
who is self-employed or practices his profession herein,
determined in accordance with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. In computing
taxable income subject to tax under Sections 21(a), 24(a), (b)
and (c); and 25 (a)(1), there shall be allowed as deductions the
items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income
subject to tax under Section 21 (f) in the case of individuals
engaged in business or practice of profession, only the
following direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the
course of or pursuant to the business or practice of their
profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief
organizations for the rehabilitation of calamity stricken areas
declared by the President; and
(g) Interest paid or accrued within a taxable year on loans
contracted from accredited financial institutions which must be
proven to have been incurred in connection with the conduct of
a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are
difficult to determine, a maximum of forty per cent (40%) of their
 gross receipts shall be allowed as deductions to answer for
business or professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept
petitioner's view that the amendatory law should be considered as having
now adopted a gross income, instead of as having still retained
the net income, taxation scheme. The allowance for deductible items, it is
true, may have significantly been reduced by the questioned law in
comparison with that which has prevailed prior to the amendment; limiting,
however, allowable deductions from gross income is neither discordant
with, nor opposed to, the net income tax concept. The fact of the matter is
still that various deductions, which are by no means inconsequential,
continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a)
to prevent log-rolling legislation intended to unite the members of the
legislature who favor any one of unrelated subjects in support of the whole
act, (b) to avoid surprises or even fraud upon the legislature, and (c) to
fairly apprise the people, through such publications of its proceedings as
are usually made, of the subjects of legislation.1 The above objectives of
the fundamental law appear to us to have been sufficiently met. Anything
else would be to require a virtual compendium of the law which could not
have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the
constitutional requirement that taxation "shall be uniform and equitable" in
that the law would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the tax on corporations
and partnerships. The contention clearly forgets, however, that such a
system of income taxation has long been the prevailing rule even prior to
Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely
requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long
as: (1) the standards that are used therefor are substantial and not
arbitrary, (2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both present and
future conditions, and (4) the classification applies equally well to all those
belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA
3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is
the legislative intent to increasingly shift the income tax system towards the
schedular approach2 in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment3 on taxable
corporations. We certainly do not view this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law,
illustrating, in the process, what he believes to be an imbalance between
the tax liabilities of those covered by the amendatory law and those who
are not. With the legislature primarily lies the discretion to determine the
nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. This court cannot freely delve into those
matters which, by constitutional fiat, rightly rest on legislative judgment. Of
course, where a tax measure becomes so unconscionable and unjust as to
amount to confiscation of property, courts will not hesitate to strike it down,
for, despite all its plenitude, the power to tax cannot override constitutional
proscriptions. This stage, however, has not been demonstrated to have
been reached within any appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law
declared unconstitutional for being violative of due process must perforce
fail. The due process clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional limitations in the exercise of
the tax power. No such transgression is so evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the
question of whether or not public respondents have exceeded their
authority in promulgating Section 6, Revenue Regulations No. 2-93, to
carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership The general
professional partnership (GPP) and the partners comprising the
GPP are covered by R. A. No. 7496. Thus, in determining the
net profit of the partnership, only the direct costs mentioned in
said law are to be deducted from partnership income. Also, the
expenses paid or incurred by partners in their individual
capacities in the practice of their profession which are not
reimbursed or paid by the partnership but are not considered as
direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the administrative
interpretation of public respondents that would apply SNIT to partners in
general professional partnerships. Petitioners cite the pertinent
deliberations in Congress during its enactment of Republic Act No. 7496,
also quoted by the Honorable Hernando B. Perez, minority floor leader of
the House of Representatives, in the latter's privilege speech by way of
commenting on the questioned implementing regulation of public
respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get
the correct impression of this bill. Do we speak here
of individuals who are earning, I mean, who earn
through business enterprises and therefore, should
file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This
does not apply to corporations. It applies only to
individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15
P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the
Gentleman from Batangas say that this bill is
intended to increase collections as far as individuals
are concerned and to make collection of taxes
equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano
on the Senate version of the SNITS, it is categorically stated,
thus:
This bill, Mr. President, is not applicable to business
corporations or to partnerships; it is only with
respect to individuals and professionals. (Emphasis
ours)
The Court, first of all, should like to correct the apparent misconception that
general professional partnerships are subject to the payment of income tax
or that there is a difference in the tax treatment between individuals
engaged in business or in the practice of their respective professions and
partners in general professional partnerships. The fact of the matter is that
a general professional partnership, unlike an ordinary business partnership
(which is treated as a corporation for income tax purposes and so subject
to the corporate income tax), is not itself an income taxpayer. The income
tax is imposed not on the professional partnership, which is tax exempt, but
on the partners themselves in their individual capacity computed on their
distributive shares of partnership profits. Section 23 of the Tax Code, which
has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional
partnerships. (a) Persons exercising a common profession in
general partnership shall be liable for income tax only in their
individual capacity, and the share in the net profits of the
general professional partnership to which any taxable partner
would be entitled whether distributed or otherwise, shall be
returned for taxation and the tax paid in accordance with the
provisions of this Title.
(b) In determining his distributive share in the net income of the
partnership, each partner
(1) Shall take into account separately his distributive
share of the partnership's income, gain, loss,
deduction, or credit to the extent provided by the
pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized
deductions, unless he declares his distributive share
of the gross income undiminished by his share of
the deductions.
There is, then and now, no distinction in income tax liability between a
person who practices his profession alone or individually and one who does
it through partnership (whether registered or not) with others in the exercise
of a common profession. Indeed, outside of the gross compensation
income tax and the final tax on passive investment income, under the
present income tax system all individuals deriving income from any source
whatsoever are treated in almost invariably the same manner and under a
common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we
were to consider Republic Act No. 7496 as an entirely independent, not
merely as an amendatory, piece of legislation. The view can easily become
myopic, however, when the law is understood, as it should be, as only
forming part of, and subject to, the whole income tax concept and precepts
long obtaining under the National Internal Revenue Code. To elaborate a
little, the phrase "income taxpayers" is an all embracing term used in the
Tax Code, and it practically covers all persons who derive taxable income.
The law, in levying the tax, adopts the most comprehensive tax situs of
nationality and residence of the taxpayer (that renders citizens, regardless
of residence, and resident aliens subject to income tax liability on their
income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and
foreign corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into four main
groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial
Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as
to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no matter how created or organized,
are subject to income tax (and thus alluded to as "taxable partnerships")
which, for purposes of the above categorization, are by law assimilated to
be within the context of, and so legally contemplated as, corporations.
Except for few variances, such as in the application of the "constructive
receipt rule" in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so
correctly pointed out in the discussions in Congress during its deliberations
on Republic Act 7496, aforequoted, to cover corporations and partnerships
which are independently subject to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as
corporations nor even considered as independent taxable entities for
income tax purposes. A general professional partnership is such an
example.4 Here, the partners themselves, not the partnership (although it is
still obligated to file an income tax return [mainly for administration and
data]), are liable for the payment of income tax in their individual capacity
computed on their respective and distributive shares of profits. In the
determination of the tax liability, a partner does so as an individual, and
there is no choice on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed to be no more
than a mere mechanism or a flow-through entity in the generation of
income by, and the ultimate distribution of such income to, respectively,
each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely
confirmed, the above standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation income.
There is no evident intention of the law, either before or after the
amendatory legislation, to place in an unequal footing or in significant
variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general
professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement
on costs.
SO ORDERED.

G.R. No. 108358 January 20, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE HON. COURT OF APPEALS, R.O.H. AUTO PRODUCTS
PHILIPPINES, INC. and THE HON. COURT OF TAX
APPEALS, respondents.

VITUG, J.:
On 22 August 1986, during the period when the President of the Republic
still wielded legislative powers, Executive Order No. 41 was promulgated
declaring a one-time tax amnesty on unpaid income taxes, later amended
to include estate and donor's taxes and taxes on business, for the taxable
years 1981 to 1985.
Availing itself of the amnesty, respondent R.O.H. Auto Products
Philippines, Inc., filed, in October 1986 and November 1986, its Tax
Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty
Return No. 34-F-00146-64-B, respectively, and paid the corresponding
amnesty taxes due.
Prior to this availment, petitioner Commissioner of Internal Revenue, in a
communication received by private respondent on 13 August 1986,
assessed the latter deficiency income and business taxes for its fiscal
years ended 30 September 1981 and 30 September 1982 in an aggregate
amount of P1,410,157.71. The taxpayer wrote back to state that since it
had been able to avail itself of the tax amnesty, the deficiency tax notice
should forthwith be cancelled and withdrawn. The request was denied by
the Commissioner, in his letter of 22 November 1988, on the ground that
Revenue Memorandum Order No. 4-87, dated 09 February 1987,
implementing Executive Order No. 41, had construed the amnesty
coverage to include only assessments issued by the Bureau of Internal
Revenue after the promulgation of the executive order on 22 August 1986
and not to assessments theretofore made. The invoked provisions of the
memorandum order read:
TO: All Internal Revenue Officers and Others Concerned:
1.0. To give effect and substance to the immunity provisions of
the tax amnesty under Executive Order No. 41, as expanded by
Executive Order No. 64, the following instructions are hereby
issued:
xxx xxx xxx
1.02. A certification by the Tax Amnesty Implementation Officer
of the fact of availment of the said tax amnesty shall be a
sufficient basis for:
xxx xxx xxx
1.02.3. In appropriate cases, the cancellation/withdrawal
of assessment notices and letters of demand issued after
August 21, 1986 for the collection of income, business, estate
or donor's taxes due during the same taxable years.1 (Emphasis
supplied)
Private respondent appealed the Commissioner's denial to the Court of Tax
Appeals. Ruling for the taxpayer, the tax court said:
Respondent (herein petitioner Commissioner) failed to present
any case or law which proves that an assessment can
withstand or negate the force and effects of a tax amnesty. This
burden of proof on the petitioner (herein respondent taxpayer)
was created by the clear and express terms of the executive
order's intention qualified availers of the amnesty may pay
an amnesty tax in lieu of said unpaid taxes which are forgiven
(Section 2, Section 5, Executive Order No. 41, as amended).
More specifically, the plain provisions in the statute granting tax
 amnesty for unpaid taxes for the period January 1, 1981 to
December 31, 1985 shifted the burden of proof on respondent
to show how the issuance of an assessment before the date of
the promulgation of the executive order could have a
reasonable relation with the objective periods of the amnesty,
so as to make petitioner still answerable for a tax liability which,
through the statute, should have been erased with the proper
availment of the amnesty.
Additionally, the exceptions enumerated in Section 4 of
Executive Order No. 41, as amended, do not indicate any
reference to an assessment or pending investigation aside from
one arising from information furnished by an informer. . . . Thus,
we deem that the rule in Revenue Memorandum Order No. 4-
87 promulgating that only assessments issued after August 21,
1986 shall be abated by the amnesty is beyond the
contemplation of Executive Order No. 41, as amended.2
On appeal by the Commissioner to the Court of Appeals, the decision of
the tax court was affirmed. The appellate court further observed:
In the instant case, examining carefully the words used in
Executive Order No. 41, as amended, we find nothing which
justifies petitioner Commissioner's ground for denying
respondent taxpayer's claim to the benefits of the amnesty law.
Section 4 of the subject law enumerates, in no uncertain terms,
taxpayers who may not avail of the amnesty granted,. . . .
Admittedly, respondent taxpayer does not fall under any of the .
. . exceptions. The added exception urged by petitioner
Commissioner based on Revenue Memorandum Order No. 4-
87, further restricting the scope of the amnesty clearly amounts
to an act of administrative legislation quite contrary to the
mandate of the law which the regulation ought to implement.
xxx xxx xxx
Lastly, by its very nature, a tax amnesty, being a general
pardon or intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the Government of its right to collect
what otherwise would be due it, and in this sense, prejudicial
thereto, particularly to give tax evaders, who wish to relent and
 are willing to reform a chance to do so and thereby become a
part of the new society with a clean slate. (Republic vs.
Intermediate Appellate Court. 196 SCRA 335, 340 [1991] citing
Commissioner of Internal Revenue vs. Botelho Shipping Corp.,
20 SCRA 487) To follow [the restrictive application of Revenue
Memorandum Order No. 4-87 pressed by petitioner
Commissioner would be to work against the raison d'etre of
E.O. 41, as amended, i.e., to raise government revenues by
encouraging taxpayers to declare their untaxed income and pay
the tax due thereon. (E.O. 41, first paragraph)]3
In this petition for review, the Commissioner raises these related issues:
1. WHETHER OR NOT REVENUE MEMORANDUM ORDER NO. 4-
87, PROMULGATED TO IMPLEMENT E.O. NO. 41, IS VALID;
2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENTS IN
QUESTION WERE EXTINGUISHED BY REASON OR PRIVATE
RESPONDENT'S AVAILMENT OF EXECUTIVE ORDER NO. 41 AS
AMENDED BY EXECUTIVE ORDER NO. 64;
3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME
THE PRESUMPTION OF VALIDITY OF ASSESSMENTS.4
The authority of the Minister of Finance (now the Secretary of Finance), in
conjunction with the Commissioner of Internal Revenue, to promulgate all
needful rules and regulations for the effective enforcement of internal
revenue laws cannot be controverted. Neither can it be disputed that such
rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. Much more
fundamental than either of the above, however, is that all such issuances
must not override, but must remain consistent and in harmony with, the law
they seek to apply and implement. Administrative rules and regulations are
intended to carry out, neither to supplant nor to modify, the law.
The real and only issue is whether or not the position taken by the
Commissioner coincides with the meaning and intent of executive Order
No. 41.
We agree with both the court of Appeals and court of Tax Appeals that
Executive Order No. 41 is quite explicit and requires hardly anything
beyond a simple application of its provisions. It reads:
Sec. 1. Scope of Amnesty. A one-time tax amnesty covering
unpaid income taxes for the years 1981 to 1985 is hereby
declared.
Sec. 2. Conditions of the Amnesty. A taxpayer who wishes to
avail himself of the tax amnesty shall, on or before October 31,
1986;
a) file a sworn statement declaring his net worth as
of December 31, 1985;
b) file a certified true copy of his statement declaring
his net worth as of December 31, 1980 on record
with the Bureau of Internal Revenue, or if no such
record exists, file a statement of said net worth
therewith, subject to verification by the Bureau of
Internal Revenue;
c) file a return and pay a tax equivalent to ten per
cent (10%) of the increase in net worth from
December 31, 1980 to December 31,
1985: Provided, That in no case shall the tax be
less than P5,000.00 for individuals and P10,000.00
for judicial persons.
Sec. 3. Computation of Net Worth. In computing the net
worths referred to in Section 2 hereof, the following rules shall
govern:
a) Non-cash assets shall be valued at acquisition
cost.
b) Foreign currencies shall be valued at the rates of
exchange prevailing as of the date of the net worth
statement.
Sec. 4. Exceptions. The following taxpayers may not avail
themselves of the amnesty herein granted:
a) Those falling under the provisions of Executive
Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in
Court as of the effectivity hereof;
 c) Those with criminal cases involving violations of
the income tax already filed in court as of the
effectivity filed in court as of the effectivity hereof;
d) Those that have withholding tax liabilities under
the National Internal Revenue Code, as amended,
insofar as the said liabilities are concerned;
e) Those with tax cases pending investigation by
the Bureau of Internal Revenue as of the effectivity
hereof as a result of information furnished under
Section 316 of the National Internal Revenue Code,
as amended;
f) Those with pending cases involving unexplained
or unlawfully acquired wealth before the
Sandiganbayan;
g) Those liable under Title Seven, Chapter Three
(Frauds, Illegal Exactions and Transactions) and
Chapter Four (Malversation of Public Funds and
Property) of the Revised Penal Code, as amended.
xxx xxx xxx
Sec. 9. The Minister of finance, upon the recommendation of
the Commissioner of Internal Revenue, shall promulgate the
necessary rules and regulations to implement this Executive
Order.
xxx xxx xxx
Sec. 11. This Executive Order shall take effect immediately.
DONE in the City of Manila, this 22nd day of August in the year
of Our Lord, nineteen hundred and eighty-six.
The period of the amnesty was later extended to 05 December 1986 from
31 October 1986 by Executive Order No. 54, dated 04 November 1986,
and, its coverage expanded, under Executive Order No. 64, dated 17
November 1986, to include estate and honors taxes and taxes on business.
If, as the Commissioner argues, Executive Order No. 41 had not been
intended to include 1981-1985 tax liabilities already assessed
(administratively) prior to 22 August 1986, the law could have simply so
provided in its exclusionary clauses. It did not. The conclusion is
unavoidable, and it is that the executive order has been designed to be in
the nature of a general grant of tax amnesty subject only to the
cases specifically excepted by it.
It might not be amiss to recall that the taxable periods covered by the
amnesty include the years immediately preceding the 1986 revolution
during which time there had been persistent calls, all too vivid to be easily
forgotten, for civil disobedience, most particularly in the payment of taxes,
to the martial law regime. It should be understandable then that those who
ultimately took over the reigns of government following the successful
revolution would promptly provide for abroad, and not a confined, tax
amnesty.
Relative to the two other issued raised by the Commissioner, we need only
quote from Executive Order No. 41 itself; thus:
Sec. 6. Immunities and Privileges. Upon full compliance with
the conditions of the tax amnesty and the rules and regulations
issued pursuant to this Executive order, the taxpayer shall
enjoy the following immunities and privileges:
a) The taxpayer shall be relieved of any income tax
liability on any untaxed income from January 1,
1981 to December 31, 1985, including increments
thereto and penalties on account of the non-
payment of the said tax. Civil, criminal or
administrative liability arising from the non-payment
of the said tax, which are actionable under the
National Internal Revenue Code, as amended, are
likewise deemed extinguished.
b) The taxpayer's tax amnesty declaration shall not
be admissible in evidence in all proceedings before
judicial, quasi-judicial or administrative bodies, in
which he is a defendant or respondent, and the
same shall not be examined, inquired or looked into
by any person, government official, bureau or office.
c) The books of account and other records of the
taxpayer for the period from January 1, 1981 to
December 31, 1985 shall not be examined for
income tax purposes: Provided, That the
Commissioner of Internal Revenue may authorize in
writing the examination of the said books of
accounts and other records to verify the validity or
 correctness of a claim for grant of any tax refund,
tax credit (other than refund on credit of withheld
taxes on wages), tax incentives, and/or exemptions
under existing laws.
There is no pretension that the tax amnesty returns and due payments
made by the taxpayer did not conform with the conditions expressed in the
amnesty order.
WHEREFORE, the decision of the court of Appeals, sustaining that of the
court of Tax Appeals, is hereby AFFIRMED in toto. No costs.
SO ORDERED.

[G.R. No. 90107. August 21, 1992.]

DOMINGO A. TUZON and LOPE C. MAPAGU, Petitioners, v. HONORABLE

COURT OF APPEALS and SATURNINO T. JURADO, Respondents.

Alfredo J . Donato and Orlando B. Consigna, for Petitioners.

Hermenegildo G. Rapanan for Private Respondent.

SYLLABUS

1. CIVIL LAW; DONATION; ACT OF LIBERALITY AND NEVER OBLIGATORY; CASE AT

BAR. While it would appear from the wording of the resolution that the municipal
government merely intends to "solicit" the 1% contribution from the threshers, the
implementing agreement seems to make the donation obligatory and a condition
precedent to the issuance of the mayors permit. This goes against the nature of a
donation, which is an act of liberality and is never obligatory.

2. ID.; HUMAN RELATIONS; ARTICLE 27 OF THE NEW CIVIL CODE; PURPOSE;

CASE AT BAR. The private respondent anchors his claim for damages on Article
27 of the New Civil Code, which reads: Art. 27. Any person suffering material or
moral loss because a public servant or employee refuses or neglects, without just
cause, to perform his official duty may file an action for damages and other relief
against the latter, without prejudice to any disciplinary administrative action that
may be taken. It has been remarked that one purpose of this article is to end the
"bribery system, where the public official, for some flimsy excuse, delays or refuses
the performance of his duty until he gets some kind of pabagsak." Official inaction
may also be due to plain indolence or a cynical indifference to the responsibilities of
public service. According to Phil. Match Co. Ltd. v. City of Cebu, (81 SCRA 99) the
provision presupposes that the refusal or omission of a public official to perform his
official duty is attributable to malice or inexcusable negligence. In any event, the
erring public functionary is justly punishable under this article for whatever loss or
damage the complainant has sustained. In the present case, it has not even been
alleged that the Mayor Tuzons refusal to act on the private respondents application
was an attempt to compel him to resort to bribery to obtain approval of his
application. It cannot be said either that the mayor and the municipal treasurer
were motivated by personal spite or were grossly negligent in refusing to issue the
permit and license to Jurado. It is no less significant that no evidence has been
offered to show that the petitioners singled out the private respondent for
persecution. Neither does it appear that the petitioners stood to gain personally
from refusing to issue to Jurado the mayors permit and license he needed. The
petitioners were not Jurados business competitors nor has it been established that
they intended to favor his competitors. On the contrary, the record discloses that
the resolution was uniformly applied to all the threshers in the municipality without
discrimination or preference.

3. TAXATION; ENACTMENT OF TAX ORDINANCE WHERE TAX BASE OR SUBJECT

NOT SIMILAR OR COMPARABLE TO ANY OF THOSE ENUMERATED IN LOCAL TAX
CODE; REQUIREMENTS. If, on the other hand, it is to be considered a tax
ordinance, then it must be shown in view of the challenge raised by the private
respondents to have been enacted in accordance with the requirements of the Local
Tax Code. These would include the holding of a public hearing on the measure and
its subsequent approval by the Secretary of Finance, in addition to the usual
requisites for publication of ordinances in general.

4. ADMINISTRATIVE LAW; PUBLIC OFFICERS; NOT PERSONALLY LIABLE FOR

INJURIES OCCASIONED BY PERFORMANCE OF OFFICIAL DUTY WITHIN SCOPE OF
OFFICIAL AUTHORITY; ERRONEOUS INTERPRETATION OF ORDINANCE DOES NOT
CONSTITUTE BAD FAITH; CASE AT BAR. The Court is convinced that the
petitioners acted within the scope of their authority and in consonance with their
honest interpretation of the resolution in question. We agree that it was not for
them to rule on its validity. In the absence of a judicial decision declaring it invalid,
its legality would have to be presumed (in fact, both the trial court and the
appellate court said there was nothing wrong with it). As executive officials of the
municipality, they had the duty to enforce it as long as it had not been repealed by
the Sangguniang Bayan or annulled by the courts. . . . As a rule, a public officer,
whether judicial, quasi-judicial or executive, is not personally liable to one injured
in consequence of an act performed within the scope of his official authority, and in
line of his official duty. . . . It has been held that an erroneous interpretation of an
ordinance does not constitute nor does it amount to bad faith that would entitle an
aggrieved party to an award for damages. (Philippine Match Co. Ltd. v. City of
Cebu, 81 SCRA 99).

DECISION
 CRUZ, J.:

The petitioners are questioning the decision of the respondent court holding them
liable in damages to the private respondent for refusing to issue to him a mayors
permit and license to operate his palay-threshing business.

The case goes back to March 14, 1977, when the Sangguniang Bayan of
Camalaniugan, Cagayan, unanimously adopted Resolution No. 9, reading
pertinently as follows:
jgc:chanro bles.c om.ph

"WHEREAS, the municipality of Camalaniugan, Cagayan has embarked in the

construction of Sports and Nutrition Center, to provide the proper center wherein
the government program of Nutrition and physical development of the people,
especially the youth could be well administered: jgc:chanroble s.com.p h

"WHEREAS, the available funds for the construction of the said project is far (sic)
being adequate to finance its completion;

"WHEREAS, the Sangguniang Bayan have (sic) thought of fund-raising scheme, to

help finance the construction of the project, by soliciting 1% donation from the
thresher operators who will apply for a permit to thresh within the jurisdiction of
this municipality, of all the palay threshed by them to help finance the continuation
of the construction of the Sports and Nutrition Center Building. chan rob les law li bra ry : red

RESOLVED, therefore, as it is hereby resolved, that the municipal treasurer is

hereby authorized to enter into an agreement to all thresher operators, that will
come to apply for a permit to thresh palay within the jurisdiction of this municipality
to donate 1% of all the palay threshed by them. chan robles v irt ual lawl ibra ry

To implement the above resolution, petitioner Lope C. Mapagu, then incumbent

municipal treasurer, prepared the following document for signature of all
thresher/owner/operators applying for a mayors permit: chan rob 1es vi rtual 1aw lib rary

AGREEMENT

That I, _____________ thresher-owner-operator hereby voluntarily agree to

donate to the municipality of Camalaniugan, Cagayan, one percent (1%) of all
palay threshed by me within the jurisdiction of Camalaniugan, Cagayan, to help
finance the completion of the construction of the sports and nutrition center
building of Camalaniugan per Resolution No. 9 dated March 14, 1977 of the
Sanggunian Bayan;

That I also agree to report weekly the total number of palay threshed by me to the
municipal treasurer and turn over the corresponding 1% share of the municipality
for the said project mentioned above.
Signed this day of __________, 1977.

____________________

Thresher/Owner/Operator

Soon thereafter, private respondent Saturnino T. Jurado sent his agent to the
municipal treasurers office to pay the license fee of P285.00 for thresher operators.
Mapagu refused to accept the payment and required him to first secure a mayors
permit. For his part, Mayor Domingo Tuzon, the herein other petitioner, said that
Jurado should first comply with Resolution No. 9 and sign the agreement before the
permit could be issued. Jurado ignored the requirement. Instead, he sent the
P285.00 license fee by postal money order to the office of the municipal treasurer
who, however, returned the said amount. The reason given was the failure of the
respondent to comply with Resolution No. 9.

On April 4, 1977, Jurado filed with the Court of First Instance of Cagayan a special
civil action for mandamus with actual and moral damages to compel the issuance of
the mayors permit and license. On May 31, 1977, he filed another petition with the
same court. this time for declaratory judgment against the said resolution (and the
implementing agreement) for being illegal either as a donation or as a tax measure.
Named defendants were the same respondents and all the members of the
Sangguniang Bayan of Camalaniugan.

In a joint decision dated March 31, 1982, the trial court 1 upheld the challenged
measure. However, it dismissed the claims for damages of both parties for lack of
evidence.chan roble svi rtual lawlib rary

Jurado appealed to the Court of Appeals, which in it decision dated August 31,
1989, 2 affirmed the validity of Resolution No. 9 and the implementing agreement.
Nevertheless, it found Tuzon and Mapagu to have acted maliciously and in bad faith
when they denied Jurados application for the mayors permit and license.
Consequently, they were held liable thus: cha nrob 1es vi rtua l 1aw libra ry

WHEREFORE, in view of all the foregoing, the decision appealed from is hereby
MODIFIED in that appellees Mayor and Municipal Treasurer are hereby ordered to
pay jointly and severally the appellant the following amounts: P20,000.00 as actual
damages; P5,000.00 as moral damages; and P3,000.00 as attorneys fees.

The petitioners now seek relief from this Court on the grounds that: chanro b1es vi rtua l 1aw lib ra ry

1. Respondent Court gravely abused its discretion when it concluded that the
refusal on the part of the petitioners to issue a Mayors permit and license to
operate a thresher to the private respondent is "unjustified and constitutes bad
faith" on their part. cha nrob les law l ibra ry : red

2. Respondent Court gravely abused its discretion when it concluded that

compliance with Resolution No. 9 and its implementing agreement is not mandatory
despite its own ruling and finding that Resolution No. 9 is valid because the same
was passed in accordance with the provisions of the 1973 Constitution and the
Local Tax Code.

3. Respondent court likewise gravely abused its discretion when it awarded

damages to the private respondent, contrary to the findings of facts of the trial
court to the effect that petitioners were not guilty of bad faith and malice and
because from the records, there is no proof or evidence to support such award.

The petitioners stress that they were acting in their official capacity when they
enforced the resolution, which was duly adopted by the Sangguniang Bayan and
later declared to be valid by both the trial and the appellate courts. For so acting,
they cannot be held personally liable in damages, more so because their act was
not tainted with bad faith or malice. This was the factual finding of the trial court
and the respondent court was not justified in reversing it.

Commenting on the petition, the private respondent avers that the signing of the
implementing agreement was not a condition sine qua non to the issuance of a
permit and license. Hence the petitioners unwarranted refusal to issue the permit
and license despite his offer to pay the required fee constituted bad faith on their
part.

Jurado further assails Resolution No. 9 and the implementing agreement for
compelling the thresher to donate something which he does not yet own. He also
claims that the measure contravenes the limitations on the taxing powers of local
government units under Section 5, of the Local Tax Code.

His conclusion is that he is entitled to actual and moral damages from the
petitioners under Article 27 of the Civil Code, and to the payment of attorneys fees
as well, for their refusal or neglect, without just cause, to perform their official
duties.

We need not concern ourselves at this time with the validity of Resolution No. 9 and
the implementing agreement because the issue has not been raised in this petition
as an assigned error of the respondent court. The measures have been sustained in
the challenged decision, from which the respondent has not appealed. The decision
is final and binding as to him. It is true that he did question the measures in his
Comment, but only half-heartedly and obliquely, to support his claim for damages.
We may therefore defer examination of these measures to a more appropriate case,
where it may be discussed more fully by the proper parties. c han roblesv irt ual|awlib ra ry

We may merely observe at this time that in sustaining Resolution No. 9, the
respondent court said no more than that: chan rob1e s virtual 1aw l i brary

It was passed by the Sangguniang Bayan of Camalaniugan in the lawful exercise of

its legislative powers in pursuance to Article XI, Section 5 of the 1973 Constitution
which provided that: "Each local government unit shall have the power to create
(sic) its own source of revenue and to levy taxes, subject to such limitation as may
be provided by law." And under Article 4, Section 29 of Presidential Decree No. 231
(Enacting a Local Tax Code for Provinces, Cities, Municipalities and Barrios), it is
provided that: jgc:chan roble s.com. ph

"Section 29. Contributions. In addition to the above specified taxing and other
revenue-raising powers, the barrio council may solicit monies, materials, and other
contributions from the following sources: chanrob1e s vi rtual 1aw libra ry

x x x

"(c) Monies from private agencies and individuals." c ralaw vi rtua 1aw lib rary

That is an over simplification. The respondent court has not offered any explanation
for its conclusion that the challenged measures are valid nor does it discuss its own
concept of the nature of the resolution. c ralawnad

While it would appear from the wording of the resolution that the municipal
government merely intends to "solicit" the 1% contribution from the threshers, the
implementing agreement seems to make the donation obligatory and a condition
precedent to the issuance of the mayors permit. This goes against the nature of a
donation, which is an act of liberality and is never obligatory. 3

If, on the other hand, it is to be considered a tax ordinance, then it must be shown
in view of the challenge raised by the private respondents to have been enacted in
accordance with the requirements of the Local Tax Code. These would include the
holding of a public hearing on the measure 4 and its subsequent approval by the
Secretary of Finance, 5 in addition to the usual requisites for publication of
ordinances in general. 6

The only issue that has to be resolved in this case is whether or not the petitioners
are liable in damages to the private respondent for having withheld from him the
mayors permit and license because of his refusal to comply with Resolution No. 9. c ralawnad

The private respondent anchors his claim for damages on Article 27 of the New Civil
Code, which reads: chan rob1e s virtual 1aw lib rary

Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may
file an action for damages and other relief against the latter, without prejudice to
any disciplinary administrative action that may be taken.

It has been remarked that one purpose of this article is to end the "bribery system,
where the public official, for some flimsy excuse, delays or refuses the performance
of his duty until he gets some kind of pabagsak." 7 Official inaction may also be due
to plain indolence or a cynical indifference to the responsibilities of public service.
According to Phil. Match Co. Ltd. v. City of Cebu, 8 the provision presupposes that
the refusal or omission of a public official to perform his official duty is attributable
to malice or inexcusable negligence. In any event, the erring public functionary is
justly punishable under this article for whatever loss or damage the complainant
has sustained.

In the present case, it has not even been alleged that the Mayor Tuzons refusal to
act on the private respondents application was an attempt to compel him to resort
to bribery to obtain approval of his application. It cannot be said either that the
mayor and the municipal treasurer were motivated by personal spite or were
grossly negligent in refusing to issue the permit and license to Jurado.

It is no less significant that no evidence has been offered to show that the
petitioners singled out the private respondent for persecution. Neither does it
appear that the petitioners stood to gain personally from refusing to issue to Jurado
the mayors permit and license he needed. The petitioners were not Jurados
business competitors nor has it been established that they intended to favor his
competitors. On the contrary, the record discloses that the resolution was uniformly
applied to all the threshers in the municipality without discrimination or
preference. chanrobles. com:c ralaw:red

The Court is convinced that the petitioners acted within the scope of their authority
and in consonance with their honest interpretation of the resolution in question. We
agree that it was not for them to rule on its validity. In the absence of a judicial
decision declaring it invalid, its legality would have to be presumed (in fact, both
the trial court and the appellate court said there was nothing wrong with it). As
executive officials of the municipality, they had the duty to enforce it as long as it
had not been repealed by the Sangguniang Bayan or annulled by the courts. 9

. . . As a rule, a public officer, whether judicial, quasi-judicial or executive, is not

personally liable to one injured in consequence of an act performed within the
scope of his official authority, and in line of his official duty.
cha nrob les vi rtual lawlib rary

. . . It has been held that an erroneous interpretation of an ordinance does not

constitute nor does it amount to bad faith that would entitle an aggrieved party to
an award for damages. (Philippine Match Co. Ltd. v. City of Cebu, 81 SCRA 99).

The private respondent complains that as a result of the petitioners acts, he was
prevented from operating his business all this time and earning substantial profit
therefrom, as he had in previous years. But as the petitioners correctly observed,
he could have taken the prudent course of signing the agreement under protest and
later challenging it in court to relieve him of the obligation to "donate." Pendente
lite, he could have continued to operate his threshing business and thus avoided
the lucro cesante that he now says was the consequence of the petitioners
wrongful act. He could have opted for the less obstinate but still dissentient action,
without loss of face, or principle, or profit.

In view of the foregoing, We find that the petitioners, having acted in good faith in
the discharge of their official functions, should be absolved from liability.

ACCORDINGLY, the appealed decision is reversed insofar as it holds the petitioners

liable in damages and attorneys fees to the private Respondent. No costs.
SO ORDERED.

[G.R. No. 137621. February 6, 2002]

HAGONOY MARKET VENDOR ASSOCIATION,
petitioner, vs. MUNICIPALITY OF HAGONOY,
BULACAN, respondent.
DECISION
PUNO, J.:
Laws are of two (2) kinds: substantive and procedural.
Substantive laws, insofar as their provisions are unambiguous,
are rigorously applied to resolve legal issues on the merits. In
contrast, courts generally frown upon an uncompromising
application of procedural laws so as not to subvert substantial
justice. Nonetheless, it is not totally uncommon for courts to
decide cases based on a rigid application of the so-called
technical rules of procedure as these rules exist for the orderly
administration of justice. Interestingly, the case at bar singularly
illustrates both instances, i.e., when procedural rules are
unbendingly applied and when their rigid application may be
relaxed.
This is a petition for review of the Resolution[if !supportFootnotes][1][endif] of the
Court of Appeals, dated February 15, 1999, dismissing the appeal
of petitioner Hagonoy Market Vendor Association from the
Resolutions of the Secretary of Justice for being formally
deficient.
The facts: On October 1, 1996, the Sangguniang Bayan of
Hagonoy, Bulacan, enacted an ordinance, Kautusan Blg. 28,
which increased the stall rentals of the market vendors in
Hagonoy. Article 3 provided that it shall take effect upon approval.
The subject ordinance was posted from November 4-25, 1996.
In the last week of November, 1997, the petitioners members
were personally given copies of the approved Ordinance and
were informed that it shall be enforced in January, 1998. On
December 8, 1997, the petitioners President filed an appeal with
the Secretary of Justice assailing the constitutionality of the tax
ordinance. Petitioner claimed it was unaware of the posting of the
ordinance.
Respondent opposed the appeal. It contended that the ordinance
took effect on October 6, 1996 and that the ordinance, as
approved, was posted as required by law. Hence, it was pointed
out that petitioners appeal, made over a year later, was already
time-barred.
The Secretary of Justice dismissed the appeal on the ground that
it was filed out of time, i.e., beyond thirty (30) days from the
effectivity of the Ordinance on October 1, 1996, as prescribed
under Section 187 of the 1991 Local Government Code. Citing
the case of Taada vs. Tuvera, the Secretary of Justice held that
the date of effectivity of the subject ordinance retroacted to the
date of its approval in October 1996, after the required publication
or posting has been complied with, pursuant to Section 3 of said
ordinance.
After its motion for reconsideration was denied, petitioner
appealed to the Court of Appeals. Petitioner did not assail the
finding of the Secretary of Justice that their appeal was filed
beyond the reglementary period. Instead, it urged that the
Secretary of Justice should have overlooked this mere technicality
and ruled on its petition on the merits. Unfortunately, its petition
for review was dismissed by the Court of Appeals for being
formally deficient as it was not accompanied by certified true
copies of the assailed Resolutions of the Secretary of Justice.
Undaunted, the petitioner moved for reconsideration but it was
denied.
Hence, this appeal, where petitioner contends that:
I
THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT,
ERRED IN ITS STRICT, RIGID AND TECHNICAL ADHERENCE
TO SECTION 6, RULE 43 OF THE 1997 RULES OF COURT AND
THIS, IN EFFECT, FRUSTRATED THE VALID LEGAL ISSUES
RAISED BY THE PETITIONER THAT ORDINANCE (KAUTUSAN)
NO. 28 WAS NOT VALIDLY ENACTED, IS CONTRARY TO LAW
AND IS UNCONSTITUTIONAL, TANTAMOUNT TO AN ILLEGAL
EXACTION IF ENFORCED RETROACTIVELY FROM THE DATE
OF ITS APPROVAL ON OCTOBER 1, 1996.
II
THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT,
ERRED IN DENYING THE MOTION FOR RECONSIDERATION
NOTWITHSTANDING PETITIONERS EXPLANATION THAT ITS
FAILURE TO SECURE THE CERTIFIED TRUE COPIES OF THE
RESOLUTIONS OF THE DEPARTMENT OF JUSTICE WAS DUE
TO THE INTERVENTION OF AN ACT OF GOD TYPHOON
LOLENG, AND THAT THE ACTUAL COPIES RECEIVED BY THE
PETITIONER MAY BE CONSIDERED AS SUBSTANTIAL
COMPLIANCE WITH THE RULES.
III
PETITIONER WILL SUFFER IRREPARABLE DAMAGE IF
ORDINANCE/KAUTUSAN NO. 28 BE NOT DECLARED NULL
AND VOID AND IS ALLOWED TO BE ENFORCED
RETROACTIVELY FROM OCTOBER 1, 1996, CONTRARY TO
THE GENERAL RULE, ARTICLE 4 OF THE CIVIL CODE, THAT
NO LAW SHALL HAVE RETROACTIVE EFFECT.
The first and second assigned errors impugn the dismissal by the
Court of Appeals of its petition for review for petitioners failure to
attach certified true copies of the assailed Resolutions of the
Secretary of Justice. The petitioner insists that it had good
reasons for its failure to comply with the rule and the Court of
Appeals erred in refusing to accept its explanation.
We agree.
In its Motion for Reconsideration before the Court of Appeals, the
petitioner satisfactorily explained the circumstances relative to its
failure to attach to its appeal certified true copies of the assailed
Resolutions of the Secretary of Justice, thus:
x x x (D)uring the preparation of the petition on October 21, 1998, it was
raining very hard due to (t)yphoon Loleng. When the petition was
completed, copy was served on the Department of Justice at about (sic)
past 4:00 p.m. of October 21, 1998, with (the) instruction to have the
Resolutions of the Department of Justice be stamped as certified true
copies. However, due to bad weather, the person in charge (at the
Department of Justice) was no longer available to certify to (sic) the
Resolutions.
The following day, October 22, 1998, was declared a non-working
holiday because of (t)yphoon Loleng. Thus, petitioner was again
unable to have the Resolutions of the Department of Justice stamped
certified true copies. In the morning of October 23, 1998, due to time
constraint(s), herein counsel served a copy by personal service on
(r)espondents lawyer at (sic) Malolos, Bulacan, despite the flooded roads
and heavy rains. However, as the herein counsel went back to Manila,
(official business in) government offices were suspended in the
afternoon and the personnel of the Department of Justice tasked with
issuing or stamping certified true copies of their Resolutions were no
longer available.
To avoid being time-barred in the filing of the (p)etition, the same was
filed with the Court of Appeals as is.
We find that the Court of Appeals erred in dismissing
petitioners appeal on the ground that it was formally deficient.
It is clear from the records that the petitioner exerted due diligence
to get the copies of its appealed Resolutions certified by the
Department of Justice, but failed to do so on account of typhoon
Loleng. Under the circumstances, respondent appellate court
should have tempered its strict application of procedural rules in
view of the fortuitous event considering that litigation is not a game
of technicalities.
 Nonetheless, we hold that the petition should be dismissed as
the appeal of the petitioner with the Secretary of Justice is
already time-barred. The applicable law is Section 187 of the
1991 Local Government Code which provides:
SEC. 187. Procedure for Approval and Effectivity of Tax
Ordinances and Revenue Measures; Mandatory Public Hearings. -
The procedure for the approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code:
Provided, That public hearings shall be conducted for the purpose prior
to the enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within thirty (30) days from the effectivity
thereof to the Secretary of Justice who shall render a decision within
sixty (60) days from the receipt of the appeal: Provided, however, That
such appeal shall not have the effect of suspending the effectivity of
the ordinance and accrual and payment of the tax, fee or charge
levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without
the Secretary of Justice acting upon the appeal, the aggrieved party
may file appropriate proceedings.
The aforecited law requires that an appeal of a tax ordinance or
revenue measure should be made to the Secretary of Justice
within thirty (30) days from effectivity of the ordinance and
even during its pendency, the effectivity of the assailed
ordinance shall not be suspended. In the case at bar, Municipal
Ordinance No. 28 took effect in October 1996. Petitioner filed its
appeal only in December 1997, more than a year after the
effectivity of the ordinance in 1996. Clearly, the Secretary of
Justice correctly dismissed it for being time-barred. At this
point, it is apropos to state that the timeframe fixed by law for
parties to avail of their legal remedies before competent courts is
not a mere technicality that can be easily brushed aside. The
periods stated in Section 187 of the Local Government Code
are mandatory. Ordinance No. 28 is a revenue measure adopted
by the municipality of Hagonoy to fix and collect public market
stall rentals. Being its lifeblood, collection of revenues by the
government is of paramount importance. The funds for the
operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and collections.
Thus, it is essential that the validity of revenue measures is not
left uncertain for a considerable length of time.Hence, the law
provided a time limit for an aggrieved party to assail the legality of
revenue measures and tax ordinances.
In a last ditch effort to justify its failure to file a timely appeal with
the Secretary of Justice, the petitioner contends that its period to
appeal should be counted not from the time the ordinance took
effect in 1996 but from the time its members were personally
given copies of the approved ordinance in November 1997. It
insists that it was unaware of the approval and effectivity of the
subject ordinance in 1996 on two (2) grounds: first, no public
hearing was conducted prior to the passage of the ordinance and,
second, the approved ordinance was not posted.
We do not agree.
Petitioners bold assertion that there was no public hearing
conducted prior to the passage of Kautusan Blg. 28 is belied by
its own evidence. In petitioners two (2) communications with the
Secretary of Justice, it enumerated the various objections raised
by its members before the passage of the ordinance in several
meetings called by the Sanggunian for the purpose. These show
beyond doubt that petitioner was aware of the proposed increase
and in fact participated in the public hearings therefor. The
respondent municipality likewise submitted the Minutes and Report
of the public hearings conducted by the Sangguniang Bayans
Committee on Appropriations and Market on February 6, July 15
and August 19, all in 1996, for the proposed increase in the stall
rentals.
Petitioner cannot gripe that there was practically no public
hearing conducted as its objections to the proposed measure were
not considered by the Sangguniang Bayan. To be sure, public
hearings are conducted by legislative bodies to allow interested
parties to ventilate their views on a proposed law or ordinance.
These views, however, are not binding on the legislative body and
it is not compelled by law to adopt the same. Sanggunian members
are elected by the people to make laws that will promote the
general interest of their constituents. They are mandated to use
their discretion and best judgment in serving the people. Parties
who participate in public hearings to give their opinions on a
proposed ordinance should not expect that their views would be
patronized by their lawmakers.
On the issue of publication or posting, Section 188 of the
Local Government Code provides:
Section 188. Publication of Tax Ordinance and Revenue Measures.
Within ten (10) days after their approval, certified true copies of all
provincial, city, and municipal tax ordinances or revenue measures shall
be published in full for three (3) consecutive days in a newspaper of
local circulation; Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local circulation, the
same may be posted in at least two (2) conspicuous and publicly
accessible places. (emphasis supplied)
The records is bereft of any evidence to prove petitioners
negative allegation that the subject ordinance was not posted as
required by law. In contrast, the respondent Sangguniang
Bayan of the Municipality of Hagonoy, Bulacan, presented
evidence which clearly shows that the procedure for the
enactment of the assailed ordinance was complied with.
Municipal Ordinance No. 28 was enacted by the Sangguniang
Bayan of Hagonoy on October 1, 1996. Then Acting Municipal
Mayor Maria Garcia Santos approved the Ordinance on October
7, 1996. After its approval, copies of the Ordinance were given to
the Municipal Treasurer on the same day. On November 9, 1996,
the Ordinance was approved by the Sangguniang
Panlalawigan. The Ordinance was posted during the period
from November 4 - 25, 1996 in three (3) public places, viz: in
front of the municipal building, at the bulletin board of the Sta. Ana
Parish Church and on the front door of the Office of the Market
Master in the public market. Posting was validly made in lieu of
publication as there was no newspaper of local circulation in
the municipality of Hagonoy. This fact was known to and
admitted by petitioner. Thus, petitioners ambiguous and
unsupported claim that it was only sometime in November 1997
that the Provincial Board approved Municipal Ordinance No. 28
and so the posting could not have been made in November 1996
was sufficiently disproved by the positive evidence of respondent
municipality. Given the foregoing circumstances, petitioner cannot
validly claim lack of knowledge of the approved ordinance. The
filing of its appeal a year after the effectivity of the subject
ordinance is fatal to its cause.
Finally, even on the substantive points raised, the petition must
fail. Section 6c.04 of the 1993 Municipal Revenue Code and
Section 191 of the Local Government Code limiting the
percentage of increase that can be imposed apply to tax rates,
not rentals. Neither can it be said that the rates were not uniformly
imposed or that the public markets included in the Ordinance
were unreasonably determined or classified. To be sure, the
Ordinance covered the three (3) concrete public markets: the two-
storey Bagong Palengke, the burnt but reconstructed Lumang
Palengke and the more recent Lumang Palengke with wet market.
However, the Palengkeng Bagong Munisipyo or Gabaldon was
excluded from the increase in rentals as it is only a makeshift,
dilapidated place, with no doors or protection for security,
intended for transient peddlers who used to sell their goods along
the sidewalk.[if !supportFootnotes][16][endif]
IN VIEW WHEREOF, the petition is DISMISSED for lack of
merit. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 118900. February 27, 2003]

JARDINE DAVIES INSURANCE BROKERS, INC.,
petitioner, vs. HON. ERNA ALIPOSA, in her
capacity as Presiding Judge of Branch 150 of the
Makati Regional Trial Court, CITY (previously
Municipality) OF MAKATI and ROLANDO M.
CARLOS, in his capacity as Acting Treasurer of
Makati, respondents.
DECISION
CALLEJO, SR., J.:
Pursuant to Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, the then Sangguniang Bayan of
Makati enacted Municipal Ordinance No. 92-072, otherwise
known as the Makati Revenue Code, which provides, inter alia,
for the schedule of real estate, business and franchise taxes in
the Municipality of Makati at rates higher than those in the Metro
Manila Revenue Code.
On May 10, 1993, the Philippine Racing Club, Inc. (PRCI for
brevity), a taxpayer of Makati, appealed to the Department of
Justice (DOJ for brevity) for the nullification of said ordinance,
alleging that it was approved without previous public hearings, in
violation of the Local Government Code and Article 276 of its
Implementing Rules, and that some of the ordinances provisions
were unconstitutional:
(2) The in-lieu-of-all-taxes clause of the franchise of the Philippine
Racing Club, Inc. exempts it from payment of the real property tax,
annual business tax and other new taxes imposed by the ordinance here
in question. To withdraw the exemption would impair the obligation of
contract in violation of its constitutional right as franchise holder.
(3) The imposition of the franchise tax is not within the scope of the
taxing powers of the Municipality of Makati (Sections 134, 137 and 142
of Republic Act No. 7160 and Articles 223, 226 and 231 of Rule XXX
of the Implementing Rules and Regulations of the Local Government
Code of 1991). and
(4) The Municipality of Makati already shares 5 of the 25% franchise
tax provided for in Section 8 of the franchise of the Philippine Racing
Club, Inc. To allow the said municipality to impose another franchise tax
and to base the tax on the gross annual receipts, as it does in the
ordinance, would certainly be unjust, excessive, oppressive or
confiscatory (Section 130 of Republic Act No. 7160 and Article 219 of
Rule XXX of the Implementing Rules and Regulations).
Although required by the DOJ to comment on the appeal,
respondent Makati failed to do so.
On July 5, 1993, the DOJ came out with a resolution declaring null
and void and without legal effect the said ordinance for having
been enacted in contravention of Section 187 of the Local
Government Code of 1991 and its implementing rules and
regulations.
On August 19, 1993, respondent Makati sought a reconsideration
of the ruling of the DOJ. Pending resolution of its motion, said
respondent filed a petition ad cautelam with the Regional Trial
Court (RTC) of Makati, entitled Hon. Jejomar C. Binay and the
Municipality of Makati, Petitioners, v. Hon. Franklin M. Drilon,
Department of Justice and Philippine Racing Club, Inc.,
Respondents, and docketed as Case No. 93-2844. The case was
raffled to Branch 148 of the Makati RTC. Respondent Makati
alleged, inter alia, that public hearings were conducted before the
approval of the ordinance and hence the ordinance was valid. It
prayed that after due proceedings judgment be rendered in its
favor, thus:
WHEREFORE, petitioners respectfully pray that this Honorable Court
promulgate judgment:
(a) declaring null and void the DOJ Decision dated July 5, 1993; and
(b) allowing the full implementation of Makati Municipal Ordinance No.
92-072.
Petitioners pray for such further or other reliefs as this Honorable Court
may deem just and equitable.[if !supportFootnotes][5][endif]
In the meantime, respondent Makati continued to implement the
ordinance. Petitioner Jardine Davies Insurance Brokers, Inc., a
duly-organized corporation with principal place of business at No.
222 Sen. Gil J. Puyat Avenue, Makati, Metro Manila, was
assessed and billed by Makati the amount of P63,822.47 for
taxes, fees and charges under the ordinance for the second
quarter of 1993. It was again billed by respondent Makati the
same amount for the third quarter of 1993 and the same amount
for the fourth quarter of 1993. Petitioner did not protest the
assessment for its quarterly business taxes for the second, third
and fourth quarters of 1993 based on said ordinance effective
April 1, 1993. Petitioner, in fact, paid the said amounts on April
26, 1993 (for the second quarter), July 12, 1993 (for the third
quarter) and October 19, 1993 (for the fourth quarter),
respectively, without any protest. Respondent Makati issued the
corresponding receipts in favor of petitioner.[if !supportFootnotes][6][endif]
On January 30, 1994, petitioner wrote the municipal treasurer of
Makati requesting that respondent Makati compute its business
tax liabilities in accordance with the Metro Manila Revenue Code
and not under the ordinance considering that said ordinance was
already declared by the DOJ null and void. Petitioner likewise
requested that respondent Makati credit the overpayment in the
total amount of P27,854.91 for the second to fourth quarters of
1993 against its 1994 liabilities for 1994, or in the alternative, for
Makati to refund the said amount to petitioner.
In a Letter[if !supportFootnotes][7][endif] dated February 4, 1994, respondent
Makati, through Maximo L. Paulino Jr., Acting Chief of its
Municipal License Division, denied the request of petitioner for tax
credit/refund. Respondent Makati insisted that the questioned
ordinance code was valid and enforceable pending the final
outcome of its petition ad cautelam with the Regional Trial Court
of Makati.
In the meantime, on October 26, 1993, the RTC rendered
judgment in Case No. 93-2844 granting the petition of Makati and
declaring the ordinance valid. On November 9, 1993, the DOJ
issued a memorandum to the Chief State Counsel directing the
latter to refrain from accepting any appeal or to act on pending
appeals on the validity/constitutionality of the ordinance until the
same shall have been finally resolved by courts of competent
jurisdiction.
When informed of the denial by respondent Makati of its letter-
request, petitioner filed a complaint on March 7, 1994 with the
RTC of Makati against respondents Makati and its Acting
Municipal Treasurer. The case was raffled to Branch 150 of said
court. Petitioner alleged in its complaint that in view of the
resolution of the DOJ declaring the Makati Revenue Code null
and void and without legal effect, the provisions of the Metro
Manila Revenue Code continued to remain in full force and effect;
however, petitioner was assessed and billed by respondent
Makati for taxes, fees and charges for second, third and fourth
quarters for 1993 beginning on April 4, 1993 up to October 14,
1994 at rates fixed in the ordinance despite the nullity thereof.
Petitioner prayed that after due proceedings judgment be
rendered as follows:
1. Declaring as NULL AND VOID Municipal Ordinance No. 92-072,
(Makati Revenue Code) of the Municipality of Makati and ordering
Defendants to refund or issue as tax credit in favor of Plaintiff the sum
of P27,854.91 plus interest.
2. Assuming without admitting that the Municipal Ordinance No. 92-
072 (Makati Revenue Code) is valid, declaring that the rates imposed
by said ordinance accrue only on July 1, 1993 and ordering
Defendants to refund or issue as tax credit in favor of Plaintiff the sum
of P9,284.97.[if !supportFootnotes][8][endif]
On May 18, 1994, respondents Makati and its Acting Municipal
Treasurer filed a motion to dismiss[if !supportFootnotes][9][endif] the complaint on
the ground of prematurity. They argued that petitioners cause of
action was predicated on the appealed resolution of the DOJ, and
unless and until nullified by final judgment of a competent court,
the ordinance remained in full force and effect.
On May 26, 1994, petitioner opposed the motion to dismiss of
respondents, contending that its complaint was not predicated
solely on the invalidity and unconstitutionality of the ordinance but
also on its claim that the ordinance took effect only in July 1, 1993
but Makati applied the ordinance effective April 1, 1993. Petitioner
further averred that under Section 166 of the Local Government
Code, new taxes, fees or charges or charges provided for in the
ordinance shall accrue on the first day of the quarter following the
effectivity of the new ordinance. Hence, assuming that the tax
ordinance was valid, the same should have been enforced only
from the first (1st) day of the quarter following next the effectivity
of the ordinance imposing such new levies or rates as provided
for in Section 166 of the Local Government Code.
On August 29, 1994, the RTC issued an order granting the motion
to dismiss of respondent and ordering the dismissal of the
complaint. The trial court ruled that plaintiffs cause of action, if
any, had prescribed. Citing Sections 187 and 195 of the Local
Government Code of 1991, the trial court ratiocinated that
petitioner failed to file an opposition or protest to the written notice
of assessment of Makati for taxes, fees and charges at rates
provided for in the ordinance within 60 days from the notice of
said assessment as required by Section 195 of the Local
Government Code. Hence, petitioner was barred from demanding
a refund of its payment or that it be credited for said amounts.
Petitioner received a copy of said order on October 7, 1994. On
October 13, 1994, petitioner filed with the trial court a motion for
reconsideration[if !supportFootnotes][10][endif] of the order of dismissal, arguing
that the trial court erred in applying Section 195 of the Local
Government Code of 1991 as its complaint did not involve an
assessment for deficiency taxes but one for refund/tax credit.
Petitioner further claimed that it was never served with any notice
of assessment from respondents and hence there was no need
for petitioner to protest. Petitioner argued that what was
applicable was Section 196 of the Local Government Code in
conjunction with Article 286 of its Implementing Rules and
Regulations, both of which simply require the filing of a written
claim for refund or tax credit within two years from the date of
payment.
On December 28, 1994, the trial court issued an order[if
!supportFootnotes][11][endif]
denying the motion for reconsideration of petitioner,
a copy of which was served on petitioner on February 13, 1995.
The trial court declared that Section 195 of the Local Government
Code covers all kinds of assessments and not merely deficiency
assessments for taxes, fees or charges. The trial court further
ruled that the issue of the validity and constitutionality of the
ordinance was still pending resolution by Branch 148 of the RTC
in Civil Case No. 93-2844 and until declared null and void,
otherwise by final judgment, the ordinance remained valid.
Petitioner filed on February 20, 1995 a petition for review on
certiorari under Rule 45 of the Rules of Court, contending that:
RESPONDENT JUDGE ERRED IN HOLDING THAT THE INSTANT
CASE IS NOT A CLAIM FOR REFUND UNDER SECTION 196 OF
THE LGC IN RELATION TO ARTICLE 286 OF ITS
IMPLEMENTING RULES, BUT A DEFICIENCY ASSESSMENT
THAT HAS TO BE PROTESTED UNDER SECTION 195 OF THE
SAME CODE.
RESPONDENT JUDGE ERRED IN DISMISSING THE CASE ON
THE GROUND OF PENDENCY OF ANOTHER ACTION
CONTESTING THE LEGALITY OR CONSTITUTIONALITY OF
THE MAKATI REVENUE CODE IS STILL BEING DETERMINED
IN BRANCH 148 OF THE REGIONAL TRIAL COURT OF
MAKATI.[if !supportFootnotes][12][endif]
Anent the first assignment of errors, petitioner avers that its action
in the RTC was one for a refund of its overpayments governed by
Article 196 of the Local Government Code implemented by Article
286 of the Implementing Rules and Regulations of the Code and
not one involving an assessment for deficiency taxes governed by
Section 195 of the said Code. Petitioner contends that it was not
mandated to first file a protest with respondents before instituting
its action for a refund of its overpayments or for it to be credited
for said overpayments. For its part, respondent Makati avers that
petitioner was proscribed from filing its complaint with the RTC
and for a refund of its alleged overpayment, petitioner having paid
without any protest the taxes due to respondent Makati under the
ordinance. It is further asserted by respondent Makati that until
declared null and void by a competent court, the ordinance was
valid and should be enforced.
The petition has no merit.
The Court agrees with petitioner that as a general precept, a
taxpayer may file a complaint assailing the validity of the
ordinance and praying for a refund of its perceived overpayments
without first filing a protest to the payment of taxes due under the
ordinance. This was our ruling in Ty v. Judge Trampe:[if
!supportFootnotes][13][endif]

. . . Hence, if a taxpayer disputes the reasonableness of an increase in a

real estate tax assessment, he is required to first pay the tax under
protest. Otherwise, the city or municipal treasurer will not act on his
protest. In the case at bench, however, the petitioners are questioning the
very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect
the tax. These are not questions merely of amounts of the increase in the
tax but attacks on the very validity of any increase.
In this case, petitioner, relying on the resolution of the Secretary
of Justice in The Philippine Racing Club, Inc. v. Municipality of
Makati case, posited in its complaint that the ordinance which was
the basis of respondent Makati for the collection of taxes from
petitioner was null and void. However, the Court agrees with the
contention of respondents that petitioner was proscribed from
filing its complaint with the RTC of Makati for the reason that
petitioner failed to appeal to the Secretary of Justice within 30
days from the effectivity date of the ordinance as mandated by
Section 187 of the Local Government Code which reads:
Sec. 187-Procedure for Approval and Effectivity of Tax Ordinances and
Revenue Measures; Mandatory Public Hearings.- The procedure for
approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment
thereof: Provided further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal
within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date
of receipt of the appeal: Provided, however, That such appeal shall not
have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided,
finally, That within thirty (30) days after receipt of the decision or the
lapse of the sixty-day period without the Secretary of Justice acting upon
the appeal, the aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.
In Reyes v. Court of Appeals,[if !supportFootnotes][14][endif] we ruled that failure of
a taxpayer to interpose the requisite appeal to the Secretary of
Justice is fatal to its complaint for a refund:
Clearly, the law requires that the dissatisfied taxpayer who questions the
validity or legality of a tax ordinance must file his appeal to the
Secretary of Justice, within 30 days from effectivity thereof. In case the
Secretary decides the appeal, a period also of 30 days is allowed for an
aggrieved party to go to court. But if the Secretary does not act thereon,
after the lapse of 60 days, a party could already proceed to seek relief in
court. These three separate periods are clearly given for compliance as a
prerequisite before seeking redress in a competent court. Such statutory
periods are set to prevent delays as well as enhance the orderly and
speedy discharge of judicial functions. For this reason the courts
construe these provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose
taxes. The power to tax is the most effective instrument to raise needed
revenues to finance and support the myriad activities of local
government units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of peace, progress,
and prosperity of the people. Consequently, any delay in implementing
tax measures would be to the detriment of the public. It is for this reason
that protests over tax ordinances are required to be done within certain
time frames. In the instant case, it is our view that the failure of
petitioners to appeal to the Secretary of Justice within 30 days as
required by Sec. 187 of R.A. 7160 is fatal to their cause.
Moreover, petitioner even paid without any protest the amounts of
taxes assessed by respondents Makati and Acting Treasurer as
provided for in the ordinance. Evidently, the complaint of
petitioner with the Regional Trial Court was merely an
afterthought.
In view of our foregoing disquisitions, the Court no longer deems
it necessary to resolve other issues posed by petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The order of the Regional Trial Court dismissing the complaint of
petitioner is AFFIRMED.
SO ORDERED.

[ G.R. No. L-9408, October 31, 1956 ]

EMILIO Y. HILADO, PETITIONER, VS. THE
COLLECTOR OF INTERNAL REVENUE AND THE
COURT OF TAX APPEALS, RESPONDENTS.

DECISION
BAUTISTA ANGELO, J.:
On March 31, 1952, petitioner filed his income tax
return for 1951 with the treasurer of Bacolod City
wherein he claimed, among other things, the amount of
P12,837.65 as a deductible item from his gross income
pursuant to General Circular No. V-123 issued by the
Collector of Internal Revenue. This circular was issued
pursuant to certain rules laid down by the Secretary of
Finance On the basis of said return, an assessment
notice demanding the payment of P9,419 was sent to
petitioner, who paid the tax in monthly installments,
the last payment having been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of
Finance, through the Collector of Internal Revenue,
issued General Circular No. V-139 which not only
revoked and declared void his general Circular No. V-
123 but laid down the rule that losses of property which
occurred during the period of World War II from fires,
storms, shipwreck or other casualty, or from robbery,
theft, or embezzlement are deductible in the year of
actual loss or destruction of said property. As a
consequence, the amount of P12,837.65 was disallowed
as a deduction from the gross income of petitioner for
1951 and the Collector of Internal Revenue demanded
from him the payment of the sum of P3,546 as
deficiency income tax for said year. When the petition
for reconsideration filed by petitioner was denied, he
filed a petition for review with the Court of Tax
Appeals. In due time, this court rendered decision
affirming the assessment made by respondent Collector
of Internal Revenue. This is an appeal from said
decision.
It appears that petitioner claimed in his 1951 income
tax return the deduction of the sum of P12,837.65 as a
loss consisting in a portion of his war damage claim
which had been duly approved by the Philippine War
Damage Commission under the Philippine
Rehabilitation Act of 1946 but which was not paid and
never has been paid pursuant to a notice served upon
him by said Commission that said part of his claim will
not be paid until the United States Congress should
make further appropriation. He claims that said
amount of P12,837.65 represents a ''business asset"
within the meaning of said Act which he is entitled to
deduct as a loss in his return for 1951. This claim is
untenable.
To begin with, assuming that said amount represents a
portion of the 75% of his war damage claim which was
not paid, the sa,me would not be deductible as a loss in
1951 because, according to petitioner, the last
installment he received from the War Damage
Commission, together with the notice that no further
payment would be made on his claim, was in 1950. In
the circumstance, said amount would at most be a
proper deduction from his 1950 gross income. In the
second place, said amount cannot be considered as a
"business asset" which can be deducted as a loss in
contemplation of law because its collection is not
enforceable as a matter of right, but is dependent
merely upon the generosity and magnanimity of the U.
S. government. Note that, as of the end of 1945, there
was absolutely no law under which petitioner could
claim compensation for the destruction of his
properties during the battle for the liberation of the
Philippines. And under the Philippine Rehabilitation
Act of 1946, the payments of claims by the War Damage
Commission merely depended upon its discretion to be
exercised in the manner it may see lit, but the non-
payment of which cannot give rise to any enforceable
right, for, under said Act, "All findings, of the
Commission concerning the amount of loss or damage
sustained, the cause of such loss or damage, the
persons to whom compensation pursuant to this title is
payable, and the value of the property lost or damaged,
shall be conclusive and shall not be reviewable by any
court", (section 113).
It is true that under the authority of section 338 of the
National Internal Revenue Code the Secretary of
Finance, in the exercise of his administrative powers,
caused the issuance of General Circular No. V-123 as an
implementation or interpretative regulation of section
30 of the same Code, under which the amount of
P12,837.65 was allowed to be deducted "in the year the
last installment was received with notice that no further
payment would be made until the United States
Congress makes further appropriation therefor", but
such circular was found later to be wrong and was
revoked. Thus, when doubts arose as to the soundness
or validity of such circular, the Secretary of Finance
sought the advice of the Secretary of Justice who,
accordingly, gave his opinion the pertinent portion oi
which reads as follows:
"Yet it might be argued that war losses were not
included as deductions for the year when they were
sustained because the taxpayers had prospects that
losses would be compensated for by the United States
Government; that since only uncompensated losses are
deductible, they had to wait until after the
determination by the Philippine War Damage
Commission as to the compensability in part or in
whole of their war losses so that they could exclude
from the deductions those compensated for by the said
Commission; and that, of necessity, such determination
could be complete only much later than in the year
'when the loss was sustained. This contention falls to
the ground when it is considered that the Philippine
Rehabilitation Act which authorized the payment by the
United States Government of war losses suffered by
property owners in the Philippines was passed only on
August 30, 1946, long after the losses were sustained. It
cannot be said therefore, that the property owners had
any. conclusive assurance during the years said losses
were sustained, that the compensation was to be paid
therefor. Whatever assurance they could have had,4
could have been based only on some information less
reliable and less conclusive than the passage of the Act
itself. Hence, as diligent property owners, they should
adopt the safest alternative by considering such losses
deductible during the year when they were sustained."
In line with this opinion, the Secretary of Finance,
through the Collector of Internal Revenue, issued
General Circular No. V-I39 which not only revoked and
declared void his previous Circular No. V 123 but laid
down the rule that losses; of property which occurred
during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible for income tax purposes
in the year of actual destruction of said property. We
can hardly argue against this opinion. Since we have
already stated that the amount claimed does not
represent a "business asset" that may be deducted as a
loss in 1951, it is clear that the loss of the corresponding
asset or property could only be deducted in the year it
was actually sustained. This is in line with section 30
(d) of the National Internal Revenue Code which
prescribes that losses sustained are allowable as
deduction only within the corresponding taxable year.
Petitioner's contention that during the last war and as a
consequence of enemy occupation in the Philippines
"there was no taxable year" within the meaning of our
internal revenue laws because during that period they
were unenforceable, is without merit. It is well known
that our internal revenue laws are not political in
nature and as such were continued in force during the
period of enemy occupation and in effect were actually
enforced by the occupation government. As a matter of
fact, income tax returns were filed during that period
and income tax payment were effected and considered
valid and legal. Such tax laws are deemed to be the laws
of the occupied territory and not of the occupying
enemy.
"Furthermore, it is a legal maxim, that excepting that of
a political nature, 'Law once established continues until
changed by some competent legislative power. It is not
changed merely by change of sovereignty.' (Joseph H.
Beale, Cases on Conflict of Laws, III, Summary section
9, citing Commonwealth vs. Chapman, 13 Met., 68.) As
the same author says, in his Treatise on the Conflict of
Laws (Cambridge, 1916, section 131): 'There can be no
break or interregnun in law. From the time the law
comes into existence with the first-felt corporateness of
a primitive people it must last until the final
disappearance of human society. Once created, it
persists until a change takes place, and when changed it
continues in such changed condition until the next
change and so forever. Conquest or colonization is
impotent to bring law to an end; inspite of change of
constitution, the law continues unchanged until the
new sovereign by legislative act creates a change.'" (Co
Kim Chan vs. Valdez Tan Keh and Dizon, 75 Phil., 113,
142-143.)
It is likewise contended that the power to pass upon the
validity of General Circular No. V-123 is vested
exclusively in our courts in view of the principle of
separation of powers and, therefore, the Secretary of
Finance acted without valid authority in revoking it and
approving in lieu thereof General Circular No. V-139. It
cannot be denied, however, that; the Secretary of
Finance is vested with authority to revoke, repeal or
abrogate the acts or previous rulings of his predecessor
in office because the construction of a statute by those
administering it is not binding on their successors if
thereafter the latter become satisfied that a different
construction should be given. [Association of Clerical
Employees vs. Brotherhood of Railways & Steamship
Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]
"When the Commissioner determined in 1937 that the
petitioner was not exempt and never had been, it was
his duty to determine, assess and collect the tax due for
all years not barred by the statutes of limitation. The
conclusion reached and announced by his predecessor
in 1924 was not binding upon him. It did not exempt
the petitioner from tax, This same point was decided in
this way in Stanford University Bookstore, 29 B. T. A.,
1280; affd., 83 Fed. (2d) 710." (Southern Maryland
Agricultural Fair Association vs. Commissioner of
Internal Revenue, 40 B. T. A., 549, 554),
With regard to the contention that General Circular No.
V-139 cannot be given retroactive effect because that
would affect and obliterate the vested right acquired by
petitioner under the previous circular, suffice it to say
that General Circular No. V-123, having been, issued on
a wrong construction of the law, cannot give rise to a
vested right that can be invoked by a taxpayer. The
reason, is obvious: a vested right cannot spring from a
wrong interpretation. This is too clear to require
elaboration.
"It seems too clear for serious argument that an
administrative officer can not change a law enacted by
Congress. A regulation that is merely an interpretation
of the statute when once determined to have been
erroneous becomes nullity. An erroneous construction
of the law by the Treasury Department or the collector
of internal revenue does not preclude or estop the
government from collecting a tax which is legally
due." (Ben Stocker, et al., 12 B. T. A., 1351.)
"Art. 2254. No vested or acquired right can arise from
acts or omissions which are against the law or which
infringe upon the rights of others." (Article 2254, New
Civil Code.)
Wherefore, the decision appealed from is affirmed
Without pronouncement as to costs.

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee
of the estate of Thomas Hanley, deceased, brought this action in the Court
of First Instance of Zamboanga against the defendant, Juan Posadas, Jr.,
then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the
deceased, and for the collection of interst thereon at the rate of 6 per cent
per annum, computed from September 15, 1932, the date when the
aforesaid tax was [paid under protest. The defendant set up a counterclaim
for P1,191.27 alleged to be interest due on the tax in question and which
was not included in the original assessment. From the decision of the Court
of First Instance of Zamboanga dismissing both the plaintiff's complaint and
the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and
personal properties. On june 14, 1922, proceedings for the probate of his
will and the settlement and distribution of his estate were begun in the
Court of First Instance of Zamboanga. The will was admitted to probate.
Said will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew
Hanley.
5. I direct that all real estate owned by me at the time of my death be not
sold or otherwise disposed of for a period of ten (10) years after my death,
and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's
children and their descendants.
6. I direct that ten (10) years after my death my property be given to the
above mentioned Matthew Hanley to be disposed of in the way he thinks
most advantageous.
xxx xxx xxx
8. I state at this time I have one brother living, named Malachi Hanley, and
that my nephew, Matthew Hanley, is a son of my said brother, Malachi
Hanley.
The Court of First Instance of Zamboanga considered it proper for the best
interests of ther estate to appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew Hanley ten years after the
two executors named in the will, was, on March 8, 1924, appointed trustee.
Moore took his oath of office and gave bond on March 10, 1924. He acted
as trustee until February 29, 1932, when he resigned and the plaintiff
herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time
of his death consisted of realty valued at P27,920 and personalty valued at
P1,465, and allowing a deduction of P480.81, assessed against the estate
an inheritance tax in the amount of P1,434.24 which, together with the
penalties for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge of 25 per
cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant
filed a motion in the testamentary proceedings pending before the Court of
First Instance of Zamboanga (Special proceedings No. 302) praying that
the trustee, plaintiff herein, be ordered to pay to the Government the said
sum of P2,052.74. The motion was granted. On September 15, 1932, the
plaintiff paid said amount under protest, notifying the defendant at the same
time that unless the amount was promptly refunded suit would be brought
for its recovery. The defendant overruled the plaintiff's protest and refused
to refund the said amount hausted, plaintiff went to court with the result
herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to
his instituted heir, Matthew Hanley, from the moment of the death of the
former, and that from the time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of
inheritance tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value
of the estate upon the death of the testator, and not, as it should have been
held, upon the value thereof at the expiration of the period of ten years after
which, according to the testator's will, the property could be and was to be
delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net
amount of the estate subject to said tax, the amounts allowed by the court
as compensation to the "trustees" and paid to them from the decedent's
estate.
V. In not rendering judgment in favor of the plaintiff and in denying his
motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns
the following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant
the sum of P1,191.27, representing part of the interest at the rate of 1 per
cent per month from April 10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax assessed by the defendant against
the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this
appeal: (a) When does the inheritance tax accrue and when must it be
satisfied? (b) Should the inheritance tax be computed on the basis of the
value of the estate at the time of the testator's death, or on its value ten
years later? (c) In determining the net value of the estate subject to tax, is it
proper to deduct the compensation due to trustees? (d) What law governs
the case at bar? Should the provisions of Act No. 3606 favorable to the tax-
payer be given retroactive effect? (e) Has there been deliquency in the
payment of the inheritance tax? If so, should the additional interest claimed
by the defendant in his appeal be paid by the estate? Other points of
incidental importance, raised by the parties in their briefs, will be touched
upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay
the same. Section 1536 as amended, of the Administrative Code, imposes
the tax upon "every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death. (61 C. J.,
p. 1592.) It is in reality an excise or privilege tax imposed on the right to
succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to
article 657 of the Civil Code, "the rights to the succession of a person are
transmitted from the moment of his death." "In other words", said Arellano,
C. J., ". . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the
death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs.
Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong &
Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391;
Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil.,
489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19
Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of
First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil.,
654.) Plaintiff, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so
far as forced heirs are concerned. But the language of article 657 of the
Civil Code is broad and makes no distinction between different classes of
heirs. That article does not speak of forced heirs; it does not even use the
word "heir". It speaks of the rights of succession and the transmission
thereof from the moment of death. The provision of section 625 of the Code
of Civil Procedure regarding the authentication and probate of a will as a
necessary condition to effect transmission of property does not affect the
general rule laid down in article 657 of the Civil Code. The authentication of
a will implies its due execution but once probated and allowed the
transmission is effective as of the death of the testator in accordance with
article 657 of the Civil Code. Whatever may be the time when actual
transmission of the inheritance takes place, succession takes place in any
event at the moment of the decedent's death. The time when the heirs
legally succeed to the inheritance may differ from the time when the heirs
actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del
causante, hasta que el heredero o legatario entre en posesion de los
bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues
la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena
el articulo 989, que debe considerarse como complemento del presente."
(5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley
having died on May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does
not follow that the obligation to pay the tax arose as of the date. The time
for the payment on inheritance tax is clearly fixed by section 1544 of the
Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The
following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary
heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay the
difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be
paid:
(a) In the second and third cases of the next preceding section, before
entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be made
by the executor or administrator before delivering to each beneficiary his
share.
If the tax is not paid within the time hereinbefore prescribed, interest at the
rate of twelve per centum per annum shall be added as part of the tax; and
to the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the collector, there shall be further added a
surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be furnished
the Collector of Internal Revenue by the Clerk of Court within thirty days
after their issuance.
It should be observed in passing that the word "trustee", appearing in
subsection (b) of section 1543, should read "fideicommissary" or "cestui
que trust". There was an obvious mistake in translation from the Spanish to
the English version.
The instant case does fall under subsection (a), but under subsection (b),
of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs,
legatee or donee. Under the subsection, the tax should have been paid
before the delivery of the properties in question to P. J. M. Moore as trustee
on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the
real properties are concerned, did not and could not legally pass to the
instituted heir, Matthew Hanley, until after the expiration of ten years from
the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the
testator's death. The plaintiff introduced evidence tending to show that in
1932 the real properties in question had a reasonable value of only P5,787.
This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an
inheritance tax which, excluding deductions, interest and surcharge, would
amount only to about P169.52.
If death is the generating source from which the power of the estate to
impose inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the vlaue of the estate as it stood
at the time of the decedent's death, regardless of any subsequent
contingency value of any subsequent increase or decrease in value. (61 C.
J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft,
Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20
Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an
inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property
as passes to him. Subsequent appreciation or depriciation is immaterial."
(Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of
and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent
remainders, taxation is postponed until the estate vests in possession or
the contingency is settled. This rule was formerly followed in New York and
has been adopted in Illinois, Minnesota, Massachusetts, Ohio,
Pennsylvania and Wisconsin. This rule, horever, is by no means entirely
satisfactory either to the estate or to those interested in the property (26 R.
C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we
find upon examination of cases and authorities that New York has varied
and now requires the immediate appraisal of the postponed estate at its
clear market value and the payment forthwith of the tax on its out of the
corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E.,
782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of
Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N.
E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also,
Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23
Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec.
5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a
transmission by inheritance is taxable at the time of the predecessor's
death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary, and the tax measured by the
value of the property transmitted at that time regardless of its appreciation
or depreciation.
(c) Certain items are required by law to be deducted from the appraised
gross in arriving at the net value of the estate on which the inheritance tax
is to be computed (sec. 1539, Revised Administrative Code). In the case at
bar, the defendant and the trial court allowed a deduction of only P480.81.
This sum represents the expenses and disbursements of the executors
until March 10, 1924, among which were their fees and the proven debts of
the deceased. The plaintiff contends that the compensation and fees of the
trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL,
NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to
determine the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the judicial
expenses of the testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his
services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from
this it does not follow that the compensation due him may lawfully be
deducted in arriving at the net value of the estate subject to tax. There is no
statute in the Philippines which requires trustees' commissions to be
deducted in determining the net value of the estate subject to inheritance
tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his
executors and trustees should be separated. (Ibid.; In re Vanneck's Estate,
161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y.
Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his
executors until the expiration of the period of ten years therein provided.
Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn.,
485), it was said: ". . . The compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit
of the legatees or devises, does not come properly within the class or
reason for exempting administration expenses. . . . Service rendered in that
behalf have no reference to closing the estate for the purpose of a
distribution thereof to those entitled to it, and are not required or essential
to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the
character of that here before the court, are created for the the benefit of
those to whom the property ultimately passes, are of voluntary creation,
and intended for the preservation of the estate. No sound reason is given to
support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the
estate of Thomas Hanley under the provisions of section 1544 of the
Revised Administrative Code, as amended by section 3 of Act No. 3606.
But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not
the law in force when the testator died on May 27, 1922. The law at the
time was section 1544 above-mentioned, as amended by Act No. 3031,
which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force
at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on
Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to
be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents of social life." (Seattle
vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But
legislative intent that a tax statute should operate retroactively should be
perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs.
First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co.,
20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be
considered as prospective in its operation, whether it enacts, amends, or
repeals an inheritance tax, unless the language of the statute clearly
demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J.,
P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of
the Department of Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code, applicable to all estates
the inheritance taxes due from which have not been paid, Act No. 3606
itself contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that
certain provisions of Act No. 3606 are more favorable to the taxpayer than
those of Act No. 3031, that said provisions are penal in nature and,
therefore, should operate retroactively in conformity with the provisions of
article 22 of the Revised Penal Code. This is the reason why he applied Act
No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the
surcharge of 25 per cent is based on the tax only, instead of on both the tax
and the interest, as provided for in Act No. 3031, and (2) the taxpayer is
allowed twenty days from notice and demand by rthe Collector of Internal
Revenue within which to pay the tax, instead of ten days only as required
by the old law.
Properly speaking, a statute is penal when it imposes punishment for an
offense committed against the state which, under the Constitution, the
Executive has the power to pardon. In common use, however, this sense
has been enlarged to include within the term "penal statutes" all status
which command or prohibit certain acts, and establish penalties for their
violation, and even those which, without expressly prohibiting certain acts,
impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are
authorities to the contrary. (See Sutherland, Statutory Construction, 361;
Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S.,
4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised
Penal Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a
certain time and the tax may be paid within another given time. As stated
by this court, "the mere failure to pay one's tax does not render one
delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being
subjected to the payment of penalties for fasilure to pay his taxes within the
prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent's property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well taken and is
sustained. The appointment of P. J. M. Moore as trustee was made by the
trial court in conformity with the wishes of the testator as expressed in his
will. It is true that the word "trust" is not mentioned or used in the will but
the intention to create one is clear. No particular or technical words are
required to create a testamentary trust (69 C. J., p. 711). The words "trust"
and "trustee", though apt for the purpose, are not necessary. In fact, the
use of these two words is not conclusive on the question that a trust is
created (69 C. J., p. 714). "To create a trust by will the testator must
indicate in the will his intention so to do by using language sufficient to
separate the legal from the equitable estate, and with sufficient certainty
designate the beneficiaries, their interest in the ttrust, the purpose or object
of the trust, and the property or subject matter thereof. Stated otherwise, to
constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions expressly or
in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the
testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound judgment in
appointment a trustee to carry into effect the provisions of the will (see sec.
582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust
estate vested in him (sec. 582 in relation to sec. 590, Code of Civil
Procedure). The mere fact that the estate of the deceased was placed in
trust did not remove it from the operation of our inheritance tax laws or
exempt it from the payment of the inheritance tax. The corresponding
inheritance tax should have been paid on or before March 10, 1924, to
escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the
same estate to the cestui que trust, the beneficiary in this case. A trustee is
but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U.
S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted
the trust and took possesson of the trust estate he thereby admitted that
the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any
beneficial interest in the estate. He took such legal estate only as the
proper execution of the trust required (65 C. J., p. 528) and, his estate
ceased upon the fulfillment of the testator's wishes. The estate then vested
absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we
have reached. Were we to hold that the payment of the tax could be
postponed or delayed by the creation of a trust of the type at hand, the
result would be plainly disastrous. Testators may provide, as Thomas
Hanley has provided, that their estates be not delivered to their
beneficiaries until after the lapse of a certain period of time. In the case at
bar, the period is ten years. In other cases, the trust may last for fifty years,
or for a longer period which does not offend the rule against petuities. The
collection of the tax would then be left to the will of a private individual. The
mere suggestion of this result is a sufficient warning against the
accpetance of the essential to the very exeistence of government. (Dobbins
vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss,
100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19
Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194;
26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not
upon the privileges enjoyed by, or the protection afforded to, a citizen by
the government but upon the necessity of money for the support of the
state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed
to object to or resist the payment of taxes solely because no personal
benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18
Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by
construction, the government's power of taxation (Bromley vs. McCaughn,
280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not
place upon tax laws so loose a construction as to permit evasions on
merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580;
Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil.,
461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co.
vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs.
Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.)
When proper, a tax statute should be construed to avoid the possibilities of
tax evasion. Construed this way, the statute, without resulting in injustice to
the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our
tax system. Thus, no court is allowed to grant injunction to restrain the
collection of any internal revenue tax ( sec. 1578, Revised Administrative
Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate
trenchment adherence to this policy of the law. It held that "the fact that on
account of riots directed against the Chinese on October 18, 19, and 20,
1924, they were prevented from praying their internal revenue taxes on
time and by mutual agreement closed their homes and stores and
remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them
without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United
States, ". . . that the modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the proceedings of the
officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious
detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65,
66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in
the payment of inheritance tax and, therefore, liable for the payment of
interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when
Moore became trustee. The interest due should be computed from that
date and it is error on the part of the defendant to compute it one month
later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this
court may remit or decrease such interest, no matter how heavily it may
burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the Collector of Internal Revenue, a
surcharge of twenty-five per centum should be added (sec. 1544, subsec.
(b), par. 2, Revised Administrative Code). Demand was made by the
Deputy Collector of Internal Revenue upon Moore in a communiction dated
October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax
and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due
were not paid on that date, the estate became liable for the payment of the
surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth
error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge
due from the estate of Thomas Hanley inaccordance with the conclusions
we have reached.
At the time of his death, the deceased left real properties valued at P27,920
and personal properties worth P1,465, or a total of P29,385. Deducting
from this amount the sum of P480.81, representing allowable deductions
under secftion 1539 of the Revised Administrative Code, we have
P28,904.19 as the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum
upon the first ten thousand pesos and two per centum upon the amount by
which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two
per centum of P18,904.19 is P378.08. Adding to these two sums an
additional two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible
under section 1544 of the Revised Administrative Code. First should be
added P1,465.31 which stands for interest at the rate of twelve per centum
per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6
months and 5 days. To the tax and interest thus computed should be
added the sum of P724.88, representing a surhcarge of 25 per cent on both
the tax and interest, and also P10, the compromise sum fixed by the
defendant (Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more
than the amount demanded by the defendant in his counterclaim. But, as
we cannot give the defendant more than what he claims, we must hold that
the plaintiff is liable only in the sum of P1,191.27 the amount stated in the
counterclaim.
The judgment of the lower court is accordingly modified, with costs against
the plaintiff in both instances. So ordered.

G.R. No. 104037 May 29, 1992

REYNALDO V. UMALI, petitioner,
vs.
HON. JESUS P. ESTANISLAO, Secretary of Finance, and HON. JOSE U. ONG, Commissioner of
Internal Revenue, respondents.
G.R. No. 104069 May 29, 1992
RENE B. GOROSPE, LEIGHTON R. SIAZON, MANUEL M. SUNGA, PAUL D. UNGOS, BIENVENIDO
T. JAMORALIN, JR., JOSE D. FLORES, JR., EVELYN G. VILLEGAS, DOMINGO T. LIGOT, HENRY E.
LARON, PASTOR M. DALMACION, JR., and, JULIUS NORMAN C. CERRADA, petitioners,
vs
COMMISSIONER OF INTERNAL REVENUE, respondent.
Rene B. Gorospe, Leighton R. Siazon, Manuel M. Sunga, Bienvinido T. Jamoralin, Jr and Paul D. Ungos
for petitioners.

PADILLA, J.:
These consolidated cases are petitions for mandamus and prohibition, premised upon the following
undisputed facts:
Congress enacted Rep. Act 7167, entitled "AN ACT ADJUSTING THE BASIC PERSONAL AND
ADDITIONAL EXEMPTIONS ALLOWABLE TO INDIVIDUALS FOR INCOME TAX PURPOSES TO THE
POVERTY THRESHOLD LEVEL, AMENDING FOR THE PURPOSE SECTION 29, PARAGRAPH (L),
ITEMS (1) AND (2) (A) OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES." It provides as follows:
Sec. (1). The first paragraph of item (1), paragraph (1) of Section 29 of the National Internal Revenue
Code, as amended, is hereby further amended to read as follows:
(1) Personal Exemptions allowable to individuals (1) Basic personal exemption as follows:
 For single individual or married individual judicially decreed as legally separated with no qualified
dependents P9,000
For head of a family P12,000
For married individual P18,000
Provided, That husband and wife electing to compute their income tax separately shall be entitled to a
personal exemption of P9,000 each.
Sec. 2. The first paragraph of item (2) (A), paragraph (1) of Section 29 of the same Code, as amended, is
hereby further amended to read as follows:
(2) Additional exemption.
(a) Taxpayers with dependents. A married individual or a head of family shall be allowed an additional
exemption of Five Thousand Pesos (P5,000) for each dependent: Provided, That the total number of
dependents for which additional exemptions may be claimed shall not exceed four dependents: Provided,
further, That an additional exemption of One Thousand Pesos (1,000) shall be allowed for each child who
otherwise qualified as dependent prior to January 1, 1980: Provided, finally, That the additional exemption
for dependents shall be claimed by only one of the spouses in case of married individuals electing to
compute their income tax liabilities separately.
Sec. 3. This act shall take effect upon its approval.
Approved. 1
The said act was signed and approved by the President on 19 December 1991 and published on 14
January 1992 in "Malaya" a newspaper of general circulation.
On 26 December 1991, respondents promulgated Revenue Regulations No. 1-92, the pertinent portions
of which read as follows:
Sec. 1. SCOPE Pursuant to Sections 245 and 72 of the National Internal Revenue Code in relation to
Republic Act No. 7167, these Regulations are hereby promulgated prescribing the collection at source of
income tax on compensation income paid on or after January 1, 1992 under the Revised Withholding Tax
Tables (ANNEX "A") which take into account the increase of personal and additional exemptions.
xxx xxx xxx
Sec. 3. Section 8 of Revenue Regulations No. 6-82 is amended by Revenue Regulations No. 1-86 is
hereby further amended to read as follows:
Section 8. Right to claim the following exemptions. . . .
Each employee shall be allowed to claim the following amount of exemption with respect to compensation
paid on or after January 1, 1992.
xxx xxx xxx
Sec. 5. EFFECTIVITY. These regulations shall take effect on compensation income from January 1,
1992.
On 27 February 1992, the petitioner in G.R. No. 104037, a taxpayer and a resident of Gitnang Bayan
Bongabong, Oriental Mindoro, filed a petition for mandamus for himself and in behalf all individual Filipino
taxpayers, to COMPEL the respondents to implement Rep. Act 7167 with respect to taxable income of
individual taxpayers earned or received on or after 1 January 1991 or as of taxable year ending 31
December 1991.
On 28 February 1992, the petitioners in G.R. No. 104069 likewise filed a petition for mandamus and
prohibition on their behalf as well as for those other individual taxpayers who might be similarly situated,
to compel the Commissioner of Internal Revenue to implement the mandate of Rep. Act 7167 adjusting
the personal and additional exemptions allowable to individuals for income tax purposes in regard to
income earned or received in 1991, and to enjoin the respondents from implementing Revenue
Regulations No. 1-92.
In the Court's resolution of 10 March 1992, these two (2) cases were consolidated. Respondents were
required to comment on the petitions, which they did within the prescribed period.
The principal issues to be resolved in these cases are: (1) whether or not Rep. Act 7167 took effect upon
its approval by the President on 19 December 1991, or on 30 January 1992, i.e., after fifteen (15) days
following its publication on 14 January 1992 in the "Malaya" a newspaper of general circulation; and (2)
assuming that Rep. Act 7167 took effect on 30 January 1992, whether or not the said law nonetheless
covers or applies to compensation income earned or received during calendar year 1991.
In resolving the first issue, it will be recalled that the Court in its resolution in Caltex (Phils.), Inc. vs. The
Commissioner of Internal Revenue, G.R. No. 97282, 26 June 1991 which is on all fours with this case
as to the first issue held:
 The central issue presented in the instant petition is the effectivity of R.A. 6965 entitled "An Act Revising
The Form of Taxation on Petroleum Products from Ad Valorem to Specific, Amending For the Purpose
Section 145 of the National Internal Revenue Code, As amended by Republic Act Numbered Sixty Seven
Hundred Sixty Seven."
Sec. 3 of R.A. 6965 contains the effectivity clause which provides. "This Act shall take effect upon its
approval"
R.A. 6965 was approved on September 19, 1990. It was published in the Philippine Journal, a newspaper
of general circulation in the Philippines, on September 20, 1990. Pursuant to the Act, an implementing
regulation was issued by the Commissioner of Internal Revenue, Revenue Memorandum Circular 85-90,
stating that R.A. 6965 took effect on October 5, 1990. Petitioner took exception thereof and argued that
the law took effect on September 20, 1990 instead.
Pertinent is Article 2 of the Civil Code (as amended by Executive Order No. 200) which provides:
Art. 2. 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 otherwise provided.
...
In the case of Tanada vs. Tuvera (L-63915, December 29, 1986, 146 SCRA 446, 452) we construed
Article 2 of the Civil Code and laid down the rule:
. . .: the) clause "unless it is otherwise provided" refers to the date of effectivity and not to the requirement
of publication itself, which cannot in any event be omitted. This clause does not mean that the legislator
may make the law effective immediately upon approval, or on any other date without its previous
publication.
Publication is indispensable in every case, but the legislature may in its discretion provide that the usual
fifteen-day period shall be shortened or extended. . . .
Inasmuch as R.A. 6965 has no specific date for its effectivity and neither can it become effective upon its
approval notwithstanding its express statement, following Article 2 of the Civil Code and the doctrine
enunciated in Tanada, supra, R.A. 6965 took effect fifteen days after September 20, 1990, or specifically,
on October 5, 1990.
Accordingly, the Court rules that Rep. Act 7167 took effect on 30 January 1992, which is after fifteen (15)
days following its publication on 14 January 1992 in the "Malaya."
Coming now to the second issue, the Court is of the considered view that Rep. Act 7167 should cover or
extend to compensation income earned or received during calendar year 1991.
Sec. 29, par. (L), Item No. 4 of the National Internal Revenue Code, as amended, provides:
Upon the recommendation of the Secretary of Finance, the President shall automatically adjust not more
often than once every three years, the personal and additional exemptions taking into account, among
others, the movement in consumer price indices, levels of minimum wages, and bare subsistence levels.
As the personal and additional exemptions of individual taxpayers were last adjusted in 1986, the
President, upon the recommendation of the Secretary of Finance, could have adjusted the personal and
additional exemptions in 1989 by increasing the same even without any legislation providing for such
adjustment. But the President did not.
However, House Bill 28970, which was subsequently enacted by Congress as Rep. Act 7167, was
introduced in the House of Representatives in 1989 although its passage was delayed and it did not
become effective law until 30 January 1992. A perusal, however, of the sponsorship remarks of
Congressman Hernando B. Perez, Chairman of the House Committee on Ways and Means, on House
Bill 28970, provides an indication of the intent of Congress in enacting Rep. Act 7167. The pertinent
legislative journal contains the following:
At the outset, Mr. Perez explained that the Bill Provides for increased personal additional exemptions to
individuals in view of the higher standard of living.
The Bill, he stated, limits the amount of income of individuals subject to income tax to enable them to
spend for basic necessities and have more disposable income.
xxx xxx xxx
Mr. Perez added that inflation has raised the basic necessities and that it had been three years since the
last exemption adjustment in 1986.
xxx xxx xxx
Subsequently, Mr. Perez stressed the necessity of passing the measure to mitigate the effects of the
current inflation and of the implementation of the salary standardization law. Stating that it is imperative
 for the government to take measures to ease the burden of the individual income tax filers, Mr. Perez
then cited specific examples of how the measure can help assuage the burden to the taxpayers.
He then reiterated that the increase in the prices of commodities has eroded the purchasing power of the
peso despite the recent salary increases and emphasized that the Bill will serve to compensate the
adverse effects of inflation on the taxpayers. . . . (Journal of the House of Representatives, May 23, 1990,
pp. 32-33).
It will also be observed that Rep. Act 7167 speaks of the adjustments that it provides for, as adjustments
"to the poverty threshold level." Certainly, "the poverty threshold level" is the poverty threshold level at the
time Rep. Act 7167 was enacted by Congress, not poverty threshold levels in futuro, at which time there
may be need of further adjustments in personal exemptions. Moreover, the Court can not lose sight of the
fact that these personal and additional exemptions are fixed amounts to which an individual taxpayer is
entitled, as a means to cushion the devastating effects of high prices and a depreciated purchasing power
of the currency. In the end, it is the lower-income and the middle-income groups of taxpayers (not the
high-income taxpayers) who stand to benefit most from the increase of personal and additional
exemptions provided for by Rep. Act 7167. To that extent, the act is a social legislation intended to
alleviate in part the present economic plight of the lower income taxpayers. It is intended to remedy the
inadequacy of the heretofore existing personal and additional exemptions for individual taxpayers.
And then, Rep. Act 7167 says that the increased personal exemptions that it provides for shall be
available thenceforth, that is, after Rep. Act 7167 shall have become effective. In other words, these
exemptions are available upon the filing of personal income tax returns which is, under the National
Internal Revenue Code, done not later than the 15th day of April after the end of a calendar year. Thus,
under Rep. Act 7167, which became effective, as aforestated, on 30 January 1992, the increased
exemptions are literally available on or before 15 April 1992 (though not before 30 January 1992). But
these increased exemptions can be available on 15 April 1992 only in respect of compensation income
earned or received during the calendar year 1991.
The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available in respect of
compensation income received during the 1990 calendar year; the tax due in respect of said income had
already accrued, and been presumably paid, by 15 April 1991 and by 15 July 1991, at which time Rep.
Act 7167 had not been enacted. To make Rep. Act 7167 refer back to income received during 1990
would require language explicitly retroactive in purport and effect, language that would have to authorize
the payment of refunds of taxes paid on 15 April 1991 and 15 July 1991: such language is simply not
found in Rep. Act 7167.
The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available only in respect
of compensation income received during 1992, as the implementing Revenue Regulations No. 1-92
purport to provide. Revenue Regulations No. 1-92 would in effect postpone the availability of the
increased exemptions to 1 January-15 April 1993, and thus literally defer the effectivity of Rep. Act 7167
to 1 January 1993. Thus, the implementing regulations collide frontally with Section 3 of Rep. Act 7167
which states that the statute "shall take effect upon its approval." The objective of the Secretary of
Finance and the Commissioner of Internal Revenue in postponing through Revenue Regulations No. 1-92
the legal effectivity of Rep. Act 7167 is, of course, entirely understandable to defer to 1993 the
reduction of governmental tax revenues which irresistibly follows from the application of Rep. Act 7167.
But the law-making authority has spoken and the Court can not refuse to apply the law-maker's words.
Whether or not the government can afford the drop in tax revenues resulting from such increased
exemptions was for Congress (not this Court) to decide.
WHEREFORE, Sections 1, 3 and 5 of Revenue Regulations No. 1-92 which provide that the regulations
shall take effect on compensation income earned or received from 1 January 1992 are hereby SET
ASIDE. They should take effect on compensation income earned or received from 1 January 1991.
Since this decision is promulgated after 15 April 1992, the individual taxpayers entitled to the increased
exemptions on compensation income earned during calendar year 1991 who may have filed their income
tax returns on or before 15 April 1992 (later extended to 24 April 1992) without the benefit of such
increased exemptions, are entitled to the corresponding tax refunds and/or credits, and respondents are
ordered to effect such refunds and/or credits. No costs.
SO ORDERED.