Secretary of finance vs lazatin EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is

implemented. EPEC insists that RR 2-2012's mechanism of requiring even locators to

pay the tax first and to subsequently claim a credit or to refund the taxes paid
effectively removes the locators' tax-exempt status.

This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 58,
The RTC initially issued a temporary restraining order to stay the implementation of RR
Angeles City, through a petition for review on certiorari1 under Rule 45 of the Rules of
2-2012. It eventually issued a writ of preliminary injunction in its order dated April 4,
Court on a pure question of law. The petition seeks the reversal of the November 8,
2012.
2013 decision2 of the RTC in SCA Case No. 12-410. In the assailed decision, the RTC
declared Revenue Regulation (RR) No. 2-2012 unconstitutional and without force and
effect. The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a
petition for certiorari9before the Court of Appeals (CA) assailing the RTC's order. The
CA granted the petition10 and denied the respondents' subsequent motion for
The Facts
reconsideration.11

In response to reports of smuggling of petroleum and petroleum products and to ensure

The respondents stood their ground by filing a petition for review on certiorari before
the correct taxes are paid and collected, petitioner Secretary of Finance Cesar V.
this Court (G.R. No. 208387) to reinstate the RTC's injunction against the
Purisima - pursuant to his authority to interpret tax laws3 and upon the
implementation of RR 2-2012, and by moving for the issuance of a temporary
recommendation of petitioner Commissioner of Internal Revenue (CIR) Kim S. Jacinto-
restraining order and/or writ of preliminary injunction. We denied the motion but
Henares signed RR 2-2012 on February 17, 2012.
nevertheless required the petitioners to comment on the petition.

The RR requires the payment of value-added tax (VAT) and excise tax on the
The proceedings before the RTC in the meanwhile continued. On April 18, 2012,
importation of all petroleum and petroleum products coming directly from abroad and
petitioner Lazatin amended his original petition, converting it to a petition for
brought into the Philippines, including Freeport and economic zones (FEZs).4 It then
declaratory relief.12 The RTC admitted the amended petition and allowed EPEC to
allows the credit or refund of any VAT or excise tax paid if the taxpayer proves that the
intervene.
petroleum previously brought in has been sold to a duly registered FEZ locator and
used pursuant to the registered activity of such locator.5
In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC.
In other words, an FEZ locator must first pay the required taxes upon entry into the
FEZ of a petroleum product, and must thereafter prove the use of the petroleum First, on the procedural aspect, the RTC held that the original petition's amendment is
product for the locator's registered activity in order to secure a credit for the taxes allowed by the rules and that amendments are largely preferred; it allowed the
paid. amendment in the exercise of its sound judicial discretion to avoid multiplicity of suits
and to give the parties an opportunity to thresh out the issues and finally reach a
conclusion.13
On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District
Representative, filed a petition for prohibition and injunction6 against the petitioners to
annul and set aside RR 2-2012. Second, the RTC held that Lazatin and EPEC had legal standing to question the validity
of RR 2-2012. Lazatin's allegation that RR 2-2012 effectively amends and modifies RA
9400 gave him standing as a legislator: the amendment of a tax law is a power that
Lazatin posits that Republic Act No. (RA) 94007 treats the Clark Special Economic Zone
belongs exclusively to Congress. Lazatin's allegation, according to the RTC, sufficiently
and Clark Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate
shows how his rights, privileges, and prerogatives as a member of Congress were
customs territory and allows tax and duty-free importations of raw materials, capital
impaired by the issuance of RR 2-2012.
and equipment into the zone. Thus, the imposition of VAT and excise tax, even on the
importation of petroleum products into FEZs (like Clark FEZ), directly contravenes the
law. The RTC also ruled that the case warrants a relaxation on the rules on legal standing
because the issues touched upon are of transcendental importance. The trial court
considered the encompassing effect that RR 2-2012 may have in the numerous freeport
The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in
and economic zones in the Philippines, as well as its potential impact on hundreds of
the proceedings as a co-petitioner and accordingly entered its appearance and moved
investors operating within the zones.
for leave of court to file its petition-in-intervention.8
The RTC then held that even if Lazatin does not have legal standing, EPEC's intervention
cured this defect: EPEC, as a locator within the Clark FEZ, would be adversely affected
by the implementation of RR 2-2012.
Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400
because it imposes taxes that, by law, are not due in the first place.14 Since RA 9400
clearly grants tax and duty-free incentives to Clark FEZ locators, a revocation of these
incentives by an RR directly contravenes the express intent of the Legislature.15 In
effect, the petitioners encroached upon the prerogative to enact, amend, or repeal
laws, which the Constitution exclusively granted to Congress.
The Petition
The petitioners anchor their present petition on two arguments: 1) respondents
have no legal standing, and 2) RR 2-2012 is valid and constitutional.
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail
the validity of RR 2-2012.
First, the petitioners claim that Lazatin does not have the requisite legal standing as
he failed to exactly show how the implementation of RR 2- 2012 would impair the
exercise his official functions. Respondent Lazatin merely generally alleged that his
constitutional prerogatives to pass or amend laws were gravely impaired or were about
to be impaired by the issuance of RR 2-2012. He did not specify the power that he, as
a legislator, would be encroached upon.
While the Clark FEZ is within the district that respondent Lazatin represents, the
petitioners emphasize that Lazatin failed to show that he is authorized to file a case on
behalf of the locators in the FEZ, the local government unit, or his constituents in
general.16 To the petitioners, if RR 2- 2012 ever caused injury to the locators or to any
of Lazatin's constituents, only these injured parties possess the personality to question
the petitioners' actions; respondent Lazatin cannot claim this right on their behalf.17
The petitioners claim, too, that the RTC should not have brushed aside the rules on
standing on account of transcendental importance. To them, this case does not involve
public funds, only a speculative loss of profits upon the implementation of RR 2-2012;
nor is Lazatin a party with more direct and specific interest to raise the issues in his
petition.18 Citing Senate v. Ermita,19 the petitioners argue that the rules on standing
cannot be relaxed.
Second, petitioners also argue that EPEC does not have legal standing to intervene.
That EPEC will ultimately bear the VAT and excise tax as an end-user, is
misguided.20 The burden of payment of VAT and excise tax may be shifted to the
buyer21 and this burden, from the point of view of the transferee is no longer a tax but
merely a component of the cost of goods purchased. The statutory liability for the tax
remains with the seller. Thus, EPEC cannot say that when the burden is passed on to
it, RR 2-2012 effectively imposes tax on it as a Clark FEZ locator.
The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers
of petroleum products. If EPEC is indeed a locator, then it enjoys tax and duty
exemptions granted by RA 9400 so long as it does not bring the petroleum or petroleum
products to the Philippine customs territory.22
The petitioners legally argue that RR 2-2012 is valid and constitutional.
First, petitioner submit that RR 2-2012's issuance and implementation are within their
powers to undertake.23 RR 2-2012 is an administrative issuance that enjoys the
presumption of validity in the manner that statutes enjoy this presumption; thus, it
cannot be nullified without clear and convincing evidence to the contrary.24
Second, petitioners contend that while RA 9400 does grant tax and customs duty
incentives to Clark FEZ locators, there are conditions before these benefits may be
availed of. The locators cannot invoke outright exemption from VAT and excise tax on
its importations without first satisfying the conditions set by RA 9400, that is, the
importation must not be removed from the FEZ and introduced into the Philippine
customs territory.25
These locators enjoy what petitioners call a qualified tax exemption. They must first
pay the corresponding taxes on its imported petroleum. Then, they must submit the
documents required under RR 2-2012. If they have sufficiently shown that the imported
products have not been removed from the FEZ, their earlier payment shall be subject
to a refund.
The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax
exemption privilege. The regulation simply requires proof that a locator has complied
with the conditions for tax exemption. If the locator cannot show that the goods were
retained and/or consumed within the FEZ, such failure creates the presumption that
the goods have been introduced into the customs territory without the appropriate
permits.26 On the other hand, if they have duly proven the disposition of the goods
within the FEZ, their "advance payment" is subject to a refund. Thus, to the petitioners,
to the extent that a refund is allowable, there is in reality a tax exemption.27
Counter-arguments
Respondents Lazatin and EPEC, maintaining that they have standing to question its
validity, insist that RR 2-2012 is unconstitutional.
Respondents have standing as
lawmaker and FEZ locator.
The respondents argue that a member of Congress has standing to protect the
prerogatives, powers, and privileges vested by the Constitution in his office.28 As a
member of Congress, his standing to question executive issuances that infringe on the
right of Congress to enact, amend, or repeal laws has already been recognized.29 He
suffers substantial injury whenever the executive oversteps and intrudes into his power
as a lawmaker.30
On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs.
Thus, being a Clark FEZ locator, EPEC is among the many businesses that would have
been directly affected by its implementation.31
RR 2-2012 illegally imposes taxes
on Clark FEZs.
The respondents underscore that RA 9400 provides FEZ locators certain incentives,
such as tax- and duty-free importations of raw materials and capital equipment. These
provisions of the law must be interpreted in a way that will give full effect to law's
policy and objective, which is to maximize the benefits derived from the FEZs in
promoting economic and social development.32
They admit that the law subjects to taxes and duties the goods that were brought into
the FEZ and subsequently introduced to the Philippine customs territory. However,
contrary to petitioners' position that locators' tax and duty exemptions are qualified,
their incentives apply automatically.
According to the respondents, petitioners' interpretation of the law contravenes the
policy laid down by RA 9400, because it makes the incentives subject to a suspensive
condition. They claim that the condition — the removal of the goods from the FEZ and
their subsequent introduction to the customs territory — is resolutory; locators enjoy
the granted incentives upon bringing the goods into the FEZ. It is only when the goods
are shown to have been brought into the customs territory will the proper taxes and
duties have to be paid.33 RR 2-2012 reverses this process by requiring the locators to
pay "advance" taxes and duties first and to subsequently prove that they are entitled
to a refund, thereafter.34 RR 2-2012 indeed allows a refund, but a refund of taxes that
were not due in the first place.35
The respondents add that even the refund mechanism under RR 2-2012 is problematic.
They claim that RR 2-2012 only allows a refund when the petroleum products brought
into the FEZ are subsequently soldto FEZ locators or to entities that similarly enjoy
exemption from direct and indirect taxes. The issuance does not envision a situation
where the petroleum products are directly brought into the FEZ and are consumed by
the same entity/locator.36 Further, the refund process takes a considerable length of
time to secure, thus requiring cash outlay on the part of locators;37 even when the
claim for refund is granted, the refund will not be in cash, but in the form of a Tax
Credit Certificate (TCC).38
As the challenged regulation directly contravenes incentives legitimately granted by a
legislative act, the respondents argue that in issuing RR 2-2012, the petitioners not
only encroached upon congressional prerogatives and arrogated powers unto
themselves; they also effectively violated, brushed aside, and rendered nugatory the
rigorous process required in enacting or amending laws.39
Issues
We shall decide the following issues:
I. Whether respondents Lazatin and EPEC have legal standing to bring the action
of declaratory relief; and
II. Whether RR 2-2012 is valid and constitutional.
The Court's Ruling
We do not find the petition meritorious.
I. Respondents have
legal standing to
file petition for
declaratory relief.
The party seeking declaratory relief must have a legal interest in the controversy for
the action to prosper.40 This interest must be material not merely incidental. It must
be an interest that which will be affected by the challenged decree, law or regulation.
It must be a present substantial interest, as opposed to a mere expectancy or a future,
contingent, subordinate, or consequential interest.41
Moreover, in case the petition for declaratory relief specifically involves a question of
constitutionality, the courts will not assume jurisdiction over the case unless the person
challenging the validity of the act possesses the requisite legal standing to pose the
challenge.42
Locus standi is a personal and substantial interest in a case such that the party has
sustained or will sustain direct injury as a result of the challenged governmental act.
The question is whether the challenging party alleges such personal stake in the
outcome of the controversy so as to assure the existence of concrete adverseness that
would sharpen the presentation of issues and illuminate the court in ruling on the
constitutional question posed.43
We rule that the respondents satisfy these standards.
Lazatin has legal standing as
a legislator.
Lazatin filed the petition for declaratory relief before the RTC in his capacity as a
member of Congress.44He alleged that RR 2-2012 was issued directly contravening RA
9400, a legislative enactment. Thus, the regulation encroached upon the Congress'
exclusive power to enact, amend, or repeal laws.45 According to Lazatin, a member of
Congress has standing to challenge the validity of an executive issuance if it tends to
impair his prerogatives as a legislator.46
We agree with Lazatin.
In Biraogo v. The Philippine Truth Commission,47 we ruled that legislators have the
legal standing to ensure that the prerogatives, powers, and privileges vested by the
Constitution in their office remain inviolate. To this end, members of Congress are
allowed to question the validity of any official action that infringes on their prerogatives
as legislators.48
Thus, members of Congress possess the legal standing to question acts that amount
to a usurpation of the legislative power of Congress.49 Legislative power is exclusively
vested in the Legislature. When the implementing rules and regulations issued by the
Executive contradict or add to what Congress has provided by legislation, the issuance
of these rules amounts to an undue exercise of legislative power and an encroachment
of Congress' prerogatives.
To the same extent that the Legislature cannot surrender or abdicate its legislative
power without violating the Constitution,50 so also is a constitutional violation
committed when rules and regulations implementing legislative enactments are
contrary to existing statutes. No law can be amended by a mere administrative rule
issued for its implementation; administrative or executive acts are invalid if they
contravene the laws or to the Constitution.51
Thus, the allegation that RR. 2-2012 — an executive issuance purporting to implement
the provisions of the Tax Code — directly contravenes RA 9400 clothes a member of
Congress with legal standing to question the issuance to prevent undue encroachment
of legislative power by the executive.
EPEC has legal standing as
Clark FEZ locator.
EPEC intervened in the proceedings before the RTC based on the allegation that, as a
Clark FEZ locator, it will be directly affected by the implementation of RR 2-2012.52
We agree with EPEC.
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and
applies to all petroleum and petroleum products that are imported directly from abroad
to the Philippines, including FEZs.53
As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum
products will be directly affected by RR 2-2012. Thus, its interest in the subject matter
— a personal and substantial one — gives it legal standing to question the issuance's
validity.
In sum, the respondents' respective interests in this case are sufficiently substantial to
be directly affected by the implementation of RR 2-2012. The RTC therefore did not err
when it gave due course to Lazatin's petition for declaratory relief as well as PEC's
petition-in-intervention.
In light of this ruling, we see no need to rule on the claimed transcendental importance
of the issues raised.
II. RR 2-2012 is
invalid and
unconstitutional.
On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional
because: a) it illegally imposes taxes upon FEZ enterprises, which, by law, enjoy tax-
exempt status, and b) it effectively amends the law (i.e., RA 7227, as amended by RA
9400) and thereby encroaches upon the legislative authority reserved exclusively by
the Constitution for Congress.
FEZ enterprises enjoy tax- and
duty-free incentives on its
importations.
In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and
Development Act of 1992" to enhance the benefits to be derived from the Subic and
Clark military reservations.54 RA 7227 established the Subic Special economic zone and
granted such special territory various tax and duty incentives.
To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the
legislature enacted RA 9400 to amend RA 7227.55 Subsequently, the Department of
Finance issued Department Order No. 3-200856 to implement RA 9400 (Implementing
a
Rules).
Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs
territory separate and distinct from the Philippines customs territory. Thus, as opposed
to importations into and establishments in the Philippines customs territory,57 which
are fully subject to Philippine customs and tax laws, importations into
and establishments located within the Clark FEZ (FEZ Enterprises)58 enjoy special
incentives, including tax and duty-free importation.59 More specifically, Clark FEZ
enterprises shall be entitled to the freeport status of the zone and a 5% preferential
income tax rate on its gross income, in lieu of national and local taxes.60
RA 9400 and its Implementing Rules grant the following:
First, the law provides that importations of raw materials and capital equipment into
the FEZs shall betax- and duty-free. It is the specific transaction (i.e., importation)
that is exempt from taxes and duties.
Second, the law also grants FEZ enterprises tax- and duty-free importation and a
preferential rate in the payment of income tax, in lieu of all national and local taxes.
These incentives exempt the establishmentitself from taxation.
Thus, the Legislature intended FEZs to enjoy tax incentives in general — whether with
respect to thetransactions that take place within its special jurisdiction, or
the persons/establishments within the jurisdiction. From this perspective, the tax
incentives enjoyed by FEZ enterprises must be understood to necessarily include the
tax exemption of importations of selected articles into the FEZ.
We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted
within the context and in a manner that promotes the legislative intent of RA
722761 and, by extension, RA 9400. Thus, we recognized that FEZ enterprises are
exempt from both direct and indirect internal revenue taxes.62 In particular, they are
considered VAT-exempt entities.63
In line with this comprehensive interpretation, we rule that the tax exemption enjoyed
by FEZ enterprises covers internal revenue taxes imposed on goods brought into the
FEZ, including the Clark FEZ, such as VAT and excise tax.
RR 2-2012 illegally imposes VAT and excise
tax on goods brought into the FEZs.
Section 3 of RR 2-2012 provides the following:
First, whenever petroleum and petroleum products are imported and/or brought
directly to the Philippines, the importer of these goods is required to pay the
corresponding VAT and excise tax due on the importation.
Second, the importer, as the payor of the taxes, may subsequently seek a refund of
the amount previously paid by filing a corresponding claim with the Bureau of Customs
(BOC).
Third, the claim shall only be granted upon showing that the necessary condition has
been fulfilled.
At first glance, this imposition — a mere tax administration measure according to the
petitioners — appears to be consistent with the taxation of similar imported articles
under the Tax Code, specifically under its Sections 10764 and 14865 (in relation with
Sections 12966 and 13167) .
However, RR 2-2012 explicitly covers even petroleum and petroleum products
imported and/or brought into the various FEZs in the Philippines. Hence, when an FEZ
enterprise brings petroleum and petroleum products into the FEZ, under RR 2-2012, it
shall be considered an importer liable for the taxes due on these products.
The crux of the controversy can be found in this feature of the challenged regulation.
The petitioners assert that RR 2-2012 simply implements the provisions of the Tax
Code on collection of internal revenue taxes, more specifically VAT and excise tax, on
the importation of petroleum and petroleum products. To them, FEZ enterprises enjoy
a qualified tax exemption such that they have to pay the tax due on the importation
first, and thereafter claim a refund, which shall be allowed only upon showing that the
goods were not introduced to the Philippine customs territory.
On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ
enterprises, which in the first place are not liable for taxes. They emphasize that the
tax incentives under RA 9400 apply automatically upon the importation of the goods.
The proper taxes on the importation shall only be due if the enterprises can later show
that the goods were subsequently introduced to the Philippine customs territory.
Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to
VAT and excise tax, as we discussed above, it follows and we accordingly rule that the
taxes imposed by Section 3 of RR 2-2012 directly contravene these exemptions. First,
the regulation erroneously considers petroleum and petroleum products brought into a
FEZ as taxable importations. Second, it unreasonably burdens FEZ enterprises by
making them pay the corresponding taxes — an obligation from which the law
specifically exempts them — even if there is a subsequent opportunity to refund the
payments made.
Petroleum and petroleum products brought
into the FEZ and which remain therein are
not taxable importations.
RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and
petroleum products into FEZs. Strictly speaking, however, articles brought into these
FEZs are not taxable importations under the law based on the following considerations:
First, importation refers to bringing goods from abroad into the Philippine customs
jurisdiction. It begins from the time the goods enter the Philippine jurisdiction and is
deemed terminated when the applicable taxes and duties have been paid or the
goods have left the jurisdiction of the BOC.68
Second, under the Tax Code, imported goods are subject to VAT and excise tax. These
taxes shall be paid prior to the release of the goods from customs custody.69 Also, for
VAT purposes,70 an importer refers to any person who brings goods into
Philippines.
Third, the Philippine VAT system adheres to the cross border doctrine.71 Under this
rule, no VAT shall be imposed to form part of the cost of the goods destined for
consumption outside the Philippine customs territory.72 Thus, we have already
ruled before that an FEZ enterprise cannot be directlycharged for the VAT on its sales,
nor can VAT be passed on to them indirectly as added cost to their purchases.73
the On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax
exemption privileges of FEZ enterprises. As their tax exemption is merely qualified,
they cannot invoke outright exemption. Thus, FEZ enterprises are required to pay
internal revenue taxes first on their imported petroleum under RR 2-2012. They may
then refund their previous payment upon showing that the condition under RA 9400
has been satisfied — that is, the goods have not been introduced to the Philippines
customs territory.81 To the petitioners, to the extent that a refund is allowable, there
is still in reality a tax exemption.82

We disagree with this contention.

Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special
areas as separate customs territories.74 In this regard, we have already held that such
jurisdictions, such as the Clark FEZ, are, by legal fiction, foreign territories.75 First, FEZ enterprises bringing goods into the FEZ should not be considered
as importers subject to tax in the same manner that the very act of bringing goods into
these special territories does not make themtaxable importations. We emphasize that
Fifth, the Implementing Rules provides that goods initially introduced into the FEZs
the exemption from taxes and duties under RA 9400 are granted not only
and subsequently brought out therefrom and introduced into the Philippine customs
to importations into the FEZ, but also specifically to each FEZ enterprise. As discussed,
territory shall be considered asimportations and thereby subject to the VAT.76 One such
the tax exemption enjoyed by FEZ enterprises necessarily includes the tax exemption
instance is the sale by any FEZ enterprise to a customer located in the customs
of the importations of selected articles into the FEZ.
territory, which the VAT regulations refer to as a technical importation.77

Second, the essence of a tax exemption is the immunity or freedom from a charge or
We find it clear from all these that when goods (e.g., petroleum and petroleum
burden to which others are subjected.83 It is a waiver of the government's right to
products) are brought into an FEZ, the goods remain to be in foreign territory and are
collect84 the amounts that would have been collectible under our tax laws. Thus, when
not therefore goods introduced into Philippine customs territory subject to Philippine
the law speaks of a tax exemption, it should be understood as freedom from the
customs and tax laws.78
imposition and payment of a particular tax.

Stated differently, goods brought into and traded within an FEZ are generally beyond
Based on this premise, we rule that the refund mechanism provided by RR 2-2012 does
the reach of national internal revenue taxes and customs duties enforced in the
not amount to a tax exemption. Even if the possibility of a subsequent refund exists,
Philippine customs territory. This is consistent with the incentive granted to FEZs
the fact remains that FEZ enterprises must still spend money and other resources to
exempting the importation itself from taxes and duties.
pay for something they should be immune to in the first place. This completely
contradicts the essence of their tax exemption.
Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As
long as the goods remain (e.g., sale and/or consumption of the article within the FEZ)
In the same vein, we cannot agree with the view that FEZ enterprises have the duty
in the FEZ or re-exported to another foreign jurisdiction, they shall continue to be tax-
to prove their entitlement to tax exemption first before fully enjoying the same; we
free.79 However, once the goods are introduced into the Philippine customs territory, it
find it illogical to determine whether a person is exempted from tax without first
ceases to enjoy the tax privileges accorded to FEZs. It shall then be considered as
determining if he is subject to the tax being imposed. We have reminded the tax
an importation subject to all applicable national internal revenue taxes and customs
authorities to determine first if a person is liable for a particular tax, applying the rule
duties.
of strict interpretation of tax laws, before asking him to prove his exemption
therefrom.85 Indeed, as entities exempted on taxes on importations, FEZ enterprises
The tax exemption granted to FEZ are clearly beyond the coverage of any law imposing those very charges. There is no
enterprises is an immunity from tax liability justifiable reason to require them to prove that they are exempted from it.
and from the payment of the tax.
More importantly, we have also recognized that the exemption from local and national
The respondents claim that when RR 2-2012 was issued, petroleum and petroleum taxes granted under RA 7227, as amended by RA 9400, are ipso facto accorded to
products brought into the FEZ by FEZ enterprises suddenly became subject to VAT and FEZs. In case of doubt, conflicts with respect to such tax exemption privilege shall be
excise tax, in direct contravention of RA 9400 (with respect to Clark FEZ enterprises). resolved in favor of these special territories.86
Such imposition is not authorized under any law, including the Tax Code.80
RR 2-2012 is unconstitutional.
According to the respondents, the power to enact, amend, or repeal laws belong
exclusively to Congress.87 In passing RR 2-2012, petitioners illegally amended the law
— a power solely vested on the Legislature.

We agree with the respondents.

The power of the petitioners to interpret tax laws is not absolute. The rule is that
regulations may not enlarge, alter, restrict, or otherwise go beyond the provisions of
the law they administer; administrators and implementors cannot engraft additional
requirements not contemplated by the legislature.88

It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision
it wishes to implement. While it purportedly establishes mere administration measures
for the collection of VAT and excise tax on the importation of petroleum and petroleum
products, not once did it mention the pertinent chapters of the Tax Code on VAT and
excise tax.

While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures

proposed by the issuance cannot be implemented at the expense of entities that have
been clearly granted statutory tax immunity.

Tax exemptions are granted for specific public interests that the Legislature considers
sufficient to offset the monetary loss in the grant of exemptions.89 To limit the tax-free
importation privilege of FEZ enterprises by requiring them to pay subject to a refund
clearly runs counter to the Legislature's intent to create a free port where the "free
flow of goods or capital within, into, and out of the zones" is ensured.90

Finally, the State's inherent power to tax is vested exclusively in the Legislature.91 We
have since ruled that the power to tax includes the power to grant tax
exemptions.92 Thus, the imposition of taxes, as well as the grant and withdrawal of tax
exemptions, shall only be valid pursuant to a legislative enactment.

As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly

accorded by the legislative to FEZ enterprises, the *petitioners have arrogated upon
themselves a power reserved exclusively to Congress, in violation of the doctrine of
separation of powers.

In these lights, we hereby rule and declare that RR 2-2012 is null and void.

WHEREFORE, we hereby DISMISS the petition for lack of merit, and

accordingly AFFIRM decision of the Regional Trial Court dated November 8, 2013 2001
in SCA Case No. 12-410.

SO ORDERED.

Luzon stevedoring vs CA
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA
Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of
Internal Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution
of the same court denying the motion for reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats,
imported various engine parts and other equipment for which it paid, under protest, the assessed
compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on
January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals,
docketed therein as CTA Case No. 1484, praying among others, that it be granted the refund of the
amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969
(Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said decision
reads:
WHEREFORE, finding petitioner's various claims for refund amounting to
P33,442.13 without sufficient legal justification, the said claims have to be, as
they are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but
the same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant
petition.This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p.
40). Petitioner-appellant raised three (3) assignments of error, to wit:
I unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically
The lower court erred in holding that the petitioner-appellant is engaged in
business as stevedore, the work of unloading and loading of a vessel in port,
contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-
appellant is engaged, is part and parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be
included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190
of the National Internal Revenue Code, as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And Provided further, That the tax imposed
in this section shall not apply to articles to be used by the importer himself in
the manufacture or preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof or to articles to be used by
the importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the
tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No.
3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the
former towing the latter for loading and unloading of a vessel in part, constitute a single vessel.
Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in
the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not
"Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons
or goods by themselves but are mainly employed for towing and pulling purposes. As such, it cannot
be claimed that the tugboats in question are used in carrying and transporting passengers or
cargoes as a common carrier by water, either coastwise or oceangoing and, therefore, not within
the purview of Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for
Respondents-Appellees, pp. 45).
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty,
the relinquishment is never presumed and any reduction or dimunition thereof with respect to its
mode or its rate, must be strictly construed, and the same must be coached in clear and
stated, the general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69
SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA
142 [1975]).As correctly analyzed by the Court of Tax Appeals, in order that the importations in
question may be declared exempt from the compensating tax, it is indispensable that the
requirements of the amendatory law be complied with, namely: (1) the engines and spare parts
must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said
passenger and/or cargo vessel must be used in coastwise or oceangoing navigation (Decision, CTA
Case No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176
limit tax exemption from the compensating tax to imported items to be used by the importer himself
as operator of passenger and/or cargo vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or power vessel, used for towing
and, now, also used for attendance on vessel. (Webster New International
Dictionary, 2nd Ed.)
 A tugboat is a diesel or steam power vessel designed primarily for moving large
ships to and from piers for towing barges and lighters in harbors, rivers and
canals. (Encyclopedia International Grolier, Vol. 18, p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's
Law Dictionary.) (Rollo, p. 24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where
a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense
being entertained to justify non-compliance. All that has to be done is to apply it in every case that
falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555
[1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).

And, even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will
be noted that the legislature in amending Section 190 of the Tax Code by Republic Act 3176, as
appearing in the records, intended to provide incentives and inducements to bolster the shipping
industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator
Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence
was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the
shipping industry as an independent business. On the contrary, petitioner-appellant's own evidence
supports the view that it is engaged as a stevedore, that is, the work of unloading and loading of a
vessel in port; and towing of barges containing cargoes is a part of petitioner's undertaking as a
stevedore. In fact, even its trade name is indicative that its sole and principal business is stevedoring
and lighterage, taxed under Section 191 of the National Internal Revenue Code as a contractor,
and not an entity which transports passengers or freight for hire which is taxed under Section 192
of the same Code as a common carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion reached by an agency such as
the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertise on the subject
unless there has been an abuse or improvident exercise of authority (Reyes v. Commissioner of
Internal Revenue, 24 SCRA 199 [1981]), which is not present in the instant case.

PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax
Appeals is AFFIRMED.

SO ORDERED.
Manila Electric vs Vera
Manila Electric Company, petitioner in these two cases, poses a single before Us: is Manila
Electric Company (MERALCO for short) exempt from payment of a compensating tax on
poles, wires, transformers, and insulators imported by it for use in the operation of its
electric light, heat, and power system? MERALCO answers the query in the affirmative while
the Commissioner of Internal Revenue asserts the contrary.
MERALCO is the holder of a franchise to construct, maintain, and operate an electric light,
heat, and power system in the City of Manila and its suburbs.1
In 1962, MERALCO imported and received from abroad on various dates copper wires,
transformers, and insulators for use in the operation of its business on which, the Collector of
Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating
tax amounting to a total of P62,335.00. A claim for refund of said amount was presented by
MERALCO and because no action was taken by the Commissioner of Internal Revenue on its claim,
it appealed to the Court of Tax Appeals by filing a petition for review on February 25, 1964 (CTA
Case No. 1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim,
forthwith, the case was elevated to the Court on appeal (L-29987).
Again in 1963, MERALCO imported certain quantities of copper wires, transformers and insulators
also to be used in its business and again a compensating tax of P6,587.00 on said purchases was
collected. Its claim for refund of the amount having been denied by the Commissioner of Internal
Revenue on January 23, 1964, MERALCO riled with the Court of Tax Appeals CTA Case No. 1493.
On September 23, 1964 the Court of Tax Appeals decided against petitioner, and the latter filed
with this Court the corresponding Petition for Review of said decision docketed herein as G.R. No.
L-23847.
Inasmuch as the two appeals raise the same issue, they are consolidated in this Decision.
The law under which the Commissioner of Internal Revenue, respondent in these two cases,
assessed and collected the corresponding compensating taxes in 1962 and 1963 was found in
Section 190 of the National Internal Revenue Code(Commonwealth Act No. 466, as amended) the
pertinent provision of which read at the time as follows:
Sec. 190. Compensating Tax. — All persons residing or doing business in the
Philippines, who purchase or receive from without the Philippines any
commodities, goods, wares, or merchandise, excepting those subject to
specific taxes under Title IV of this Code, shall pay on the total value thereof at
the time they are received by such persons, including freight, postage,
insurance, commission and all similar charges, a compensating tax equivalent
to the percentage taxes imposed under this Title on original transactions
effected by merchants, importers, or manufacturers, such tax to be paid before
the withdrawal or removal of said commodities, goods, wares, or merchandise
from the customhouse or the post office: ... 2
In deciding against petitioner, the Court of Tax Appeals held that following the ruling of the Supreme
Court in the case of Panay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-6753, July 30,
1955, Manila Gas Corp. vs. Collector of Internal Revenue, G.R. No. L-11784, October 24, 1958,
and Borja vs. Collector of Internal Revenue, G.R. No. L-12134, November 30,1961, MERALCO
is not exempt from paying the compensating tax provided for in Section 190 of the National Internal
Revenue Code, the purpose of which is to "place casual importers, who are not merchants on equal
putting with established merchants who pay sales tax on articles imported by them." The court
further stated that MERALCO's claim for exemption from the payment of the compensating tax is
not clear or expressed, contrary to the cardinal rule in taxation that "exemptions from taxation are
highly disfavored in law, and he who claims exemption must be able to justify his claim by the
clearest grant of organic or statute law. (pp. 10-11, L-23847, rollo)
Petitioner, on the other hand, bases its claim for exemption from the compensating tax on poles,
wires, transformers and insulators purchased by it from abroad on paragraph 9 of its franchise which
We quote from its brief:
PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its
real estate, buildings, plant (not including poles, wires, transformers, and
insulators), machinery, and personal property as other persons are or may be
hereafter by law to pay. Inconsideration of Part Two of the franchise herein
granted, to wit, the right to build and maintain in the City of Manila and its
suburbs a plant for the conveying and furnishing of electric current for light,
heat, and power, and to charge for the same, the grantee shall pay to the City
of Manila a five per centum of the gross earnings received form its business
under this franchise in the City and its suburbs: PROVIDED, That two and one-
half per centum of the gross earnings received from the business of the line to
Malabon shall be paid to the Province of Rizal. Said percentage shall be due
and payable at the times stated in paragraph nineteen of Part One hereof, and
after an audit, like that provided in paragraph twenty of Part One hereof, and
shall be in lieu of all taxes and assessments of whatsoever nature, and by
whatsoever authority upon the privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted. (Petitioner's brief, p.
4, G.R. No. L-29987; see also pp. 3-4, petitioner's brief, L-23847)
Petitioner argues that the abovequoted provision in plain and unambiguous terms makes two
references to the exemption of the articles in question from all taxes except the franchise tax. Thus,
after prescribing in the opening sentence that "the grantee shall be liable to pay the said taxes upon
its real estate buildings, plant (not including poles, wires, transformers and insulators), machinery
and personal property as other persons are or may be hereinafter required by law to pay," par. 9,
specifically provides that the percentage tax payable by petitioner as fixed therein "shall be in lieu
of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the
privileges, earnings, income, franchise, and poles, wires, transformers and insulators of the
grantee from which taxes and assessments the grantee is hereby expressly exempted." Petitioner
further states that while par. 9 does not specifically mention the compensating tax for the obvious
reason that petitioner's original franchise was an earlier enactment, the words "in lieu of all taxes
and assessments of whatsoever nature and by whatsoever authority" are broad and sweeping
enough to include the compensating tax. (p. 5, petitioner's brief, L-29987; pp, 4-5, ibid, L-23847)
Petitioner also contends that the ruling of this Court in the cases of Panay Electric Co., Manila Gas
Corporation, and Borja (supra) are not applicable to its situation.
We find no merit in petitioner's cause.
1. One who claims to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer,
they being highly disfavored and may almost be said "to be odious to the law." He who claims an
exemption must be able to print to some positive provision of law creating the right; it cannot be
allowed to exist upon a mere vague implication or inference.3The right of taxation will not beheld to
have been surrendered unless the intention to surrender is manifested by words too plain to be
mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state cannot strip
itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous language,
be deprived of this highest attribute of sovereignty (Erie Railway Co. vs. Commonwealth of
Pennsylvania, 21 Wallace 492, 499). So, when exemption is claimed, it must be shown indubitably
to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim (Farrington
vs. Tennessee & County of Shelby, 95 U.S. 679, 686).4
2. Petitioner's submission that its right to exemption is supported by the "plain and unambiguous"
term of paragraph 9 of its franchise is positively without basis.
First, the Court cannot overlook the tax court's finding that, and We quote:
At the outset it should be noted that the franchise by the Municipal Board of the
City of Manila to Mr. Charles M. Swift and later assumed and taken over by
petitioner (see Rep. Act No. 150, CTA rec. p. 84), is a municipal franchise and
not a legal franchise. While it is true that Section 1 of Act No. 484 of the
Philippine Commission of 1902 authorizes the Municipal Board of the City of
Manila to grant a franchise to the person making the most favorable bid for the
construction and maintenance of an electric street railway and the construction,
maintenance, and operation of an electric light, heat, and power system in
Manila and its suburbs, Section 2 of the same Act authorize the said Municipal
Board to make necessary amendments to be fixed by the terms of the
successful bid; otherwise, the form of the franchise to be granted shall be in
the words and figures appearing in Act No. 484 of the Philippine Commission,
which includes Par. 9. Part Two, thereof, supra.
This Court is not aware whether or not the tax exemption provisions contained
in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was
incorporated in the municipal franchise granted to Mr. Charles M. Swift by the
Municipal Board of the City of Manila and later assumed and taken over by
petitioner because no admissible copy of Ordinance No. 44 of the said Board
was ever presented in evidence by the herein petitioner. Neither is this Court
aware of any amendment to the terms of this franchise granted by the aforesaid
Municipal Board to the successful bidder in the absence of Ordinance No. 44
and the amendment thereto, if any. In the circumstances, we are at a Las to
interpret and apply the tax exemption provisions relied upon by petitioner. (pp.
11-13, rollo, L-29987)
Second, and this is the controlling reason for the denial of petitioner's claim in these cases, We do
not see in paragraph 9 of its petitioner's franchise, on the assumption that it does exist as worded,
what may be considered as "plain and unambiguous terms" declaring petitioner MERALCO exempt
from paying a compensating tax on its imports of poles, wires, transformers, and insulators. What
MERALCO really wants Us to do, but which We cannot under the principles enumerated earlier, is
to infer and imply that there is such an exemption from the following phrase: "... the grantee shall
pay to the City of Manila five per centum of the gross earnings received from its business ... and
shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority
upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of
the grantee, from which taxes and assessments the grantee is hereby expressly exempted."
Note that what the above provision exempts petitioner from, is the payment of property, tax on its
poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like the one
in question which, by mere necessity or consequence alone, fall upon property. The first sentence
of paragraph 9 of petitioner's franchise expressly states that the grantee like any other taxpayer
shall pay taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and
insulators),machinery, and personal property. These are direct taxes imposed upon the thing or
property itself. Thus, while the grantee is to pay tax on its plant, its poles, wires, transformers, and
insulators as forming part of the plant or installation(significantly the enumeration is in parenthesis
and follows the word "plant") are exempt and as such are not to be included in the assessment of
the property tax to be paid.
The ending clause of paragraph 9 providing in effect that the percentage tax imposed upon
petitioner shall be in lieu of "all taxes and assessments of what and by whatsoever authority" cannot
be said to have granted it exemption from payment of compensating tax. The phrase "all taxes and
assessments of whatsoever nature and by whatsoever authority" is not so broad and sweeping, as
petitioner would have Us think, as to include the tax in question because there is an immediately
succeeding phrase which limits the scope of exemption to taxes and assessments "upon the
privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the
grantee." The last clause of paragraph 9 merely reaffirms, with regards to poles, wires, transformers,
and insulators, what has been expressed in the that first sentence of the same paragraph
namely, exemption of petitioner from payment of property tax. It is a principle of statutory
construction that general terms may be restricted by specific words, with the result that the general
language will be limited by the specific language which indicates the statute's object and purpose.
(Statutory Construction by Crawford, 1940 ed. p. 324-325)
3. It is a well-settled rule or principle in taxation that a compensating tax is not a property tax but is
an excise tax.5Generally stated, an excise tax is one that is imposed on the performance of an act,
the engaging in an occupation, or the enjoyment of a privilege. 6 A tax upon property because of its
ownership its a direct tax, whereas one levied upon property because of its use is an excise duty.
(Manufacturer's Trust Co. vs. United States, Ct. Cl., 32 F. Supp. 289, 296) Thus, where a tax which
is not on the property as such, is upon certain kinds of property, having reference to their origin and
their intended use, that is an excise tax. (State v. Wynne, 133 S.W. 2d 951, 956,957, 133 Tex. 622)
The compensating tax being imposed upon petitioner herein, MERALCO, is an impost on its use of
imported articles and is not in the nature of a direct tax on the articles themselves, the latter tax
falling within the exemption. Thus, in International Business Machine Corp. vs. Collector of Internal
Revenue, 1956, 98 Phil. Reports 595, 593, which involved the collection of a compensating tax from
the plaintiff-petitioner on business machines imported by it, this Court stated in unequivocal terms
that "it is not the act of importation that is taxed under section 190, but the use of imported goods
not subjected to sales tax" because "the compensating tax was expressly designed as a substitute
to make up or compensate for the revenue lost to the government through the avoidance of sales
taxes by means of direct purchases abroad. ..."
It is true that upon the collection of a compensating tax on petitioner's poles, wires, transformers,
and insulators purchased from abroad, the tax falls on the goods themselves; this fact leads
petitioner to claim that what is being imposed upon it is a property tax. But petitioner loses sight of
the principle that "every excise necessarily must finally fall upon and be paid by property, and so
may be indirectly a tax upon property; but if it is really imposed upon theperformance of an act,
the enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (51
Am. Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what is being taxed here is
the use of goods purchased from out of the country, and the imposition is in the nature of an excise
tax.
4. There is no valid reason for Us not to apply to petitioner the ruling of the Court in Panay Electric
Co. and Borja, supra, for MERALCO is similarly situated.
Panay Electric Co. sought exemption from payment of a compensating tax on equipments
purchased abroad for use in its electric plant. A provision in its franchise reads:
The Court applying the ruling in Panay Electric denied the exemption with the added statement that
buildings, plants, machinery; and other personal property, except property
section. In consideration of the franchise and rights hereby granted, the grantee
shall pay into the municipal treasury of the (of each) municipality in which it is
supplying electric current to the public under this franchise, a tax equal to two
per centum of the gross earnings from electric current sold or supplied under
this franchise in said (each) municipality. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any kind, nature or
description levied, established, or collected by any authority whatsoever,
municipal, provincial or insular, now or in the future, on its poles, wires,
insulators, switches; transformers and structures, installations, conductors, and
accessories, placed in and over and under all public property, including public
streets and highways, provincial roads, bridges and public squares, and on its
franchise, rights, privileges, receipts, revenues and profits, from which taxes
the grantee is hereby expressly exempted. (113 Phil. 569-570)

Sec 8. ... Said percentage shall be due and payable quarterly and shall be lieu
Considering, therefore, the fact that section 190 of the Tax Code is a sort of an
of all taxes of any kind levied, established, or collected by any authority
equalizer, to place casual importers, who are not merchants on equal footing
whatsoever, now or in the future, on its poles, wires, insulators, switches,
with established merchants who pay sales tax on articles imported by them ...
transformers and other structures, installations, conductors, and accessories,
We may conclude that it was not the intention of the law to exempt the payment
placed in and over the public streets, avenues, roads, thoroughfares, squares,
of compensating tax on the personal properties in question. The principle and
bridges, and other places on its franchise, from which taxes the grantee is
legal philosophy underlying the imposition of compensating tax, as enunciated
hereby expressly exempted. (113 Phil. 570)
in the above case (referring to Borja), are fundamentally correct, and no
plausible reason is advanced for their non-application to the case at bar. (p.
This Court rejected the exemption sought by Panay Electric and held that the cited provision in its 572, ibid.)
franchise exempts from taxation those rights and privileges which are not enjoyed by the public in
general but only by the grantee of a franchise, but do not include the common right or privileges of
Petitioner claims that there exists a difference between paragraph 9 of its franchise and the
every citizen to make purchases anywhere; and that we must bear in mind the purpose for the
corresponding provisions of the franchise of Panay Electric and Borja in that in the latter, unlike in
imposition of compensating tax which as explained in the report of the Tax Commission is as follows:
the former, there is no statement that the grantee is exempt from "all taxes of whatsoever nature
and whatsoever authority." In addition, petitioner points out, the franchise of Panay
The purpose of this proposal is to place persons purchasing goods from Electric and Borja contains a qualifying phrase, to wit: "placed in and over the public streets,
dealers doing business in the Philippines on an equal footing, for tax purposes, avenues, roads, thoroughfares, etc."
with those who purchase goods directly from without the Philippines. Under the
present tax law, the former bear the burden of the local sales tax because it is
A comparison of the pertinent provisions mentioned by petitioner and which are quoted in the
shifted to them as part of the selling price demanded by the local merchants,
preceding pages reveals no substantial or fundamental distinction as to remove petitioner
while the latter do not. The proposed tax will do away with this inequality and
MERALCO from the ambit of the Panay Electric and Borja ruling. There may be differences in the
render justice to merchants and firms of all nationalities who are in legitimate
phraseology used, but the intent to exempt the grantee from the payment only of property tax on its
business here, paying taxes and giving employment to a large number of
poles, wires, transformers, and insulators is evidently common to the three; withal, in all the
people. (113 Phil. 571)
franchises in question there is no specific mention of exemption of the grantee from the payment of
compensating tax.
In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also claimed to be free
from paying the compensating tax imposed on the materials and equipment such as wires,
Petitioner disputes, however, the applicability of the stare decisis principle to its case claiming that
insulators, transformers, conductors, etc. imported from Japan, on the basis of Sec. 10 of Act No.
this Court should not blindly follow the doctrine of Panay Electric and Borja, and that in Philippine
3636 (Model Electric Light and Power Franchise Act) which has been incorporated by reference in
Trust Co. et al. vs. Mitchell, 59 Phil. 30, 36, the Court had occasion to state: ,the rule of stare
franchise under Act No. 3810. Section 10 provides:
decisis is entitled to respect. Stability in the law, particularly in the business field, is desirable. But
idolatrous reverence for precedent, simply as precedent, no longer rules. More important than
The grantee shall pay the same taxes as are now or may "hereafter be required anything else is that the court should be right." (pp. 18-19, petitioner's brief, L-29987)
by law from other individuals, co-partnerships, private, public or quasi-public
associations, corporations, or joint-stock companies, on his (its) real estate,
But what possible ground can there be for deviating from the decisions of this Court in these two
cases? A doctrine buttressed by the law, reason, and logic is not to be simply brushed aside to suit
the convenience of a particular party or interest or to avoid hardship to one. As We view this legal
problem, no justification can be found for giving petitioner herein preferential treatment by reading
into its franchise an exemption from a particular kind of tax which is not there. If it had been the
legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the
legislative body could have easily done so by expanding the provision of paragraph 9 and adding
to the exemption such words as "compensating tax" or "purchases from abroad for use in its
business," and the like. We cannot ignore the principle that express mention in a statute of one
exemption precludes reading others into it. (Hoard vs. Sears, Roebuck & Co., 122 Conn. 185, 193,
188 A. 269)
entrepreneur engaging in a new and necessary industry faces uncertainty and assumes a risk
bigger than one engaging in a venture already known and developed ... the law grants him tax
exemption — to lighten onerous financial burdens and reduce losses." (Marcelo Steel Corporation
vs. Collector of Internal Revenue, 109 Phil. 921, 926) This intendment of the legislature in enacting
Republic Act 901 is not the motivation behind the tax exemption clause found in petitioner
MERALCO's franchise; consequently, there can be no analogy between the two.
IN VIEW OF THE FOREGOING, We find no merit in these Petitions for Review and We hereby
AFFIRM the decision of the Court of Tax Appeals in these two cases, with costs against petitioner
in both instances.

So Ordered.
On this point, the Government correctly argues that the provision in petitioner's franchise that the
payment of the percentage tax on the gross earnings shall be "in lieu of all taxes and assessments
of whatsoever nature, and whatsoever authority" is not to be given a literal meaning as to preclude
the imposition of the compensating tax in this particular case, and cites for its authority the Opinion
of the Supreme Court of Connecticut rendered in Connecticut Light & Power Co., et al. vs. Walsh,
1948, which involved the construction of a statute imposing a sales and use tax, and which inter
alia held:

The broad statement that the tax upon the gross earning of telephone
companies shall be "in lieu of all other taxation" upon them is not necessarily
to be given a literal meaning. "In construing the act it is our duty to seek the
real intent of the legislature, even though by so doing we may limit the literal
meaning of the broad language used." Greenwich Trust Co. v. Tyson, 129
Conn. 211, 222, 27 A. 2d 166, 172. It is not reasonable to assume that the
General Assembly intended by the provisions we have quoted that the tax on
gross earnings should take the place of taxes of a kind not then anywhere
imposed and entire outside its knowledge. ... ." (57 A.R., 2d S, pp. 129, 133-
134, emphasis supplied)

In 1902 when Act 484 of the Philippine Commission was enacted, "compensating tax' was certainly
not generally known or in use, hence, to paraphrase the above-mentioned Connecticut decision,
the Court cannot assume that the Philippine Commission in providing that the gross earnings taxes
imposed on the grantee of the electric light franchise shall be in lieu of all taxes and assessments,
meant to include impositions in the nature of a compensating tax which came into use in this country
only upon the enactment of Commonwealth Act 466 in 1939.

5. One last argument of petitioner to support its cause is that just as a new and necessary industry
was held to be exempt from paying a compensating tax on its imports under the tax exemption
provision of Republic Act 901, so should MERALCO be exempt from such a tax under the general
clause in its franchise, to wit: "... in lieu of all taxes and assessments of whatsoever nature and
whatsoever authority upon poles, wires, etc."

We agree with the court below that there can be no analogy between MERALCO and what is
considered as a new and necessary industry under Republic Act 35 now superseded by Republic
Act 901.

The rationale of Republic Act 901 is "to encourage the establishment or exploitation of new and
necessary industries to promote the economic growth of the country," and because "an
PLDT VS DAVAO
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
resolution,[1] dated June 23, 2000, of the Regional Trial Court, Branch 13, Davao City, affirming the tax
assessment of petitioner and the denial of its claim for tax refund by the City Treasurer of Davao.
The facts are as follows:
On January 1999, petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a
Mayors Permit to operate its Davao Metro Exchange. Respondent City of Davao withheld action on the
application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for the
first to the fourth quarter of 1999.[2] In a letter dated May 31, 1999,[3] petitioner protested the assessment of
the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to
the third quarters of 1998. Petitioner contended that it was exempt from the payment of franchise tax based
on an opinion of the Bureau of Local Government Finance (BLGF), dated June 2, 1998, which reads as
follows:
PLDT:
Section 12 of RA 7082 provides as follows:
SEC. 12. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate,
buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and
the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . .
It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise to install, operate
and maintain a telephone system throughout the Philippine Islands was approved on August 3, 1991. Section
12 of said franchise, likewise, contains the in lieu of all taxes proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995, provides
for the equality of treatment in the telecommunications industry:
SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded immediately
and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither
apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise,
the life span of the franchise, or the type of service authorized by the franchise. (Underscoring supplied.)
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications franchise holder
becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16,
1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs
under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of RA 7925 on March 16,
1995. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts realized
from January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying the most favored
clause proviso of RA 7025 (sic).[4]
In a letter dated September 27, 1999, respondent Adelaida B. Barcelona, City Treasurer of Davao,
denied the protest and claim for tax refund of petitioner,[5] citing the legal opinion of the City Legal Officer
of Davao and Art. 10, 1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519, Series of
1992, which provides:
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax
on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the income or receipts realized within
the territorial jurisdiction of Davao City.[6]
Petitioner received respondent City Treasurers order of denial on October 1, 1999. On November 3,
1999, it filed a petition in the Regional Trial Court of Davao seeking a reversal of respondent City Treasurers
denial of petitioners protest and the refund of the franchise tax paid by it for the year 1998 in the amount
of P2,580,829.23. The petition was filed pursuant to 195 and 196 of the Local Government Code (R.A. No.
7160). No claim for refund of franchise taxes paid in 1997 was made as the same had already prescribed under
196 of the LGC, which provides that claims for the refund of taxes paid under it must be made within two (2)
years from the date of payment of such taxes.[7]
The trial court denied petitioners appeal and affirmed the City Treasurers decision. It ruled that the
LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units
to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them. The
trial court likewise denied petitioners claim for exemption under R.A. No. 7925 for the following reasons: (1)
it is clear from the wording of 193 of the Local Government Code that Congress did not intend to exempt any
franchise holder from the payment of local franchise and business taxes; (2) the opinion of the Executive
Director of the Bureau of Local Government Finance to the contrary is not binding on respondents; and (3)
petitioner failed to present any proof that Globe and Smart were enjoying local franchise and business tax
exemptions.
Hence, this petition for review based on the following grounds:
I. THE LOWER COURT ERRED IN APPLYING SECTION 137 OF THE LOCAL
GOVERNMENT CODE, WHICH ALLOWS A CITY TO IMPOSE A FRANCHISE TAX,
AND SECTION 193 THEREOF, WHICH PROVIDES FOR WITHDRAWAL OF TAX
EXEMPTION PRIVILEGES.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS
FRANCHISE, AS IMPLICITLY AMENDED AND EXPANDED BY SECTION 23 OF
REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS POLICY ACT),
TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE TELECOM, INC. AND
SMART COMMUNICATIONS, INC., WHICH WERE ENACTED SUBSEQUENT TO
THE LOCAL GOVERNMENT CODE, NO FRANCHISE AND BUSINESS TAXES
MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.
III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING OF THE
BUREAU OF LOCAL GOVERNMENT FINANCE THAT PETITIONER IS EXEMPT
FROM THE PAYMENT OF FRANCHISE AND BUSINESS TAXES, AMONG
OTHERS, IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE LOCAL
GOVERNMENT CODE.
First. The LGC, which took effect on January 1, 1992, provides:
SEC. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt,
or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the
tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided
herein.[8]
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or -controlled corporations, except local water districts, cooperatives duly registered
under R. A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code.
The trial court held that, under these provisions, all exemptions granted to all persons, whether natural
and juridical, including those which in the future might be granted, are withdrawn unless the law granting the
exemption expressly states that the exemption also applies to local taxes. We disagree. Sec. 137 does not state
that it covers future exemptions. In Philippine Airlines, Inc. v. Edu,[9] where a provision of the Tax Code
enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed by PAL, it was held that a subsequent
amendment of PALs franchise, exempting it from all other taxes except that imposed by its franchise, again
entitled PAL to exemption from the date of the enactment of such amendment. The Tax Code provision
withdrawing the tax exemption was not construed as prohibiting future grants of exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national
policy. The legal effect of the constitutional grant to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal
corporations.[10]
The question, therefore, is whether, after the withdrawal of its exemption by virtue of 137 of the LGC,
petitioner has again become entitled to exemption from local franchise tax. Petitioner answers in the
affirmative and points to 23 of R.A. No. 7925, in relation to the franchises of Globe Telecom (Globe) and
Smart Communications, Inc. (Smart), which allegedly grant the latter exemption from local franchise taxes.
To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court
in Asiatic Petroleum Co. v. Llanes,[11] in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to
the law. He who claims an exemption must be able to point to some positive provision of law creating the
right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550),
The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government;
and he who claims an exemption from the common burden must justify his claim by the clearest grant of
organic or statute law. Other utterances equally or more emphatic come readily to hand from the highest
authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney,
that the right of taxation will not be held to have been surrendered, unless the intention to surrender is
manifested by words too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206,
226), the Supreme Court of the United States said that the surrender, when claimed, must be shown by clear,
unambiguous language, which will admit of no reasonable construction consistent with the reservation of the
power. If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In
Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt,
speaking of exemptions, observed that a State cannot strip itself of the most essential power of taxation by
doubtful words. It cannot, by ambiguous language, be deprived of this highest attribute of sovereignty. In
Tennessee vs. Whitworth (117 U. S., 129, 136), it was said: In all cases of this kind the question is as to the
intent of the legislature, the presumption always being against any surrender of the taxing power. In
Farrington vs. Tennessee and County of Shelby (95 U. S., 679, 686), Mr. Justice Swayne said: . . . When
exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A
well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit
fairly of any other construction that the proposition can be supported.
The tax exemption must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. [12]
In the present case, petitioner justifies its claim of tax exemption by strained inferences. First, it cites
R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, 23 of which
reads:
SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded immediately
and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither
apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise,
the life span of the franchise, or the type of service authorized by the franchise.
Petitioner then claims that Smart and Globe enjoy exemption from the payment of the franchise tax by
virtue of their legislative franchises per opinion of the Bureau of Local Government Finance of the
Department of Finance. Finally, it argues that because Smart and Globe are exempt from the franchise tax, it
follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant
of tax exemption to Smart and Globe ipso facto extended the same exemption to it.
The acceptance of petitioners theory would result in absurd consequences. To illustrate: In its
franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross
receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts
from business transacted. Petitioners theory would require that, to level the playing field, any advantage,
favor, privilege, exemption, or immunity granted to Globe must be extended to all telecommunications
companies, including Smart. If, later, Congress again grants a franchise to another telecommunications
company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will
have to be adjusted to level the playing field so to speak. This could not have been the intent of Congress in
enacting 23 of Rep. Act 7925. Petitioners theory will leave the Government with the burden of having to keep
track of all granted telecommunications franchises, lest some companies be treated unequally. It is different
if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity
to all telecommunications entities.
The fact is that the term exemption in 23 is too general. A cardinal rule in statutory construction is that
legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a
particular provision. For, taken in the abstract, a word or phrase might easily convey a meaning which is
different from the one actually intended. A general provision may actually have a limited application if read
together with other provisions.[13] Hence, a consideration of the law itself in its entirety and the proceedings
of both Houses of Congress is in order.[14]
Art. I of Rep. Act No. 7925 contains the general provisions, stating that the Act shall be known as the
Public Telecommunications Policy Act of the Philippines, and a definition of terms.[15] Art. II provides for its
policies and objectives, which is to foster the improvement and expansion of telecommunications services in
the country through: (1) the construction of telecommunications infrastructure and interconnection facilities,
having in mind the efficient use of the radio frequency spectrum and extension of basic services to areas not
yet served; (2) fair, just, and reasonable rates and tariff charges; (3) stable, transparent, and fair administrative
processes; (4) reliance on private enterprise for direct provision of telecommunications services; (5) dispersal
of ownership of telecommunications entities in compliance with the constitutional mandate to democratize
the ownership of public utilities; (6) encouragement of the establishment of interconnection with other
countries to provide access to international communications highways and development of a competitive
export-oriented domestic telecommunications manufacturing industry; and (7) development of human
resources skills and capabilities to sustain the growth and development of telecommunications. [16]
Art. III provides for its administration. The operational and administrative functions are delegated to
the National Telecommunications Commission (NTC), while policy-making, research, and negotiations in
international telecommunications matters are left with the Department of Transportation and
Communications.[17]
Second. In the case of petitioner, the BLGF opined that 23 of R.A. No. 7925 amended the franchise of
petitioner and in effect restored its exemptions from local taxes. Petitioner contends that courts should not set
aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and
it has necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given
weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals,[26] a
highly specialized court which performs judicial functions as it was created for the review of tax cases. [27] In
contrast, the BLGF was created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment, and other related matters,
among others.[28] The question raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A.
No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are
said to possess in their respective fields.

Art. IV classifies the categories of telecommunications entities as: Local Exchange Operator, Inter-
Exchange Carrier, International Carrier, Value-Added Service Provider, Mobile Radio Services, and Radio
Paging Services.[18] Art. V provides for the use of other services and facilities, such as customer premises
equipment, which may be used within the premises of telecommunications subscribers subject only to the
requirement that it is type-approved by the NTC, and radio frequency spectrum, the assignment of which shall
be subject to periodic review.[19]
Art. VI, entitled Franchise, Rates and Revenue Determination, provides for the requirement to obtain
a franchise from Congress and a Certificate of Public Convenience and Necessity from the NTC before a
telecommunications entity can begin its operations. It also provides for the NTCs residual power to regulate
the rates or tariffs when ruinous competition results or when a monopoly or a cartel or combination in restraint
of free competition exists and the rates or tariffs are distorted or unable to function freely and the public is
adversely affected. There is also a provision relating to revenue sharing arrangements between inter-
connecting carriers.[20]
Art. VII provides for the rights of telecommunications users.[21]
Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of
its duty. It does enjoy this presumption, but this has nothing to do with the question in this case. This case
does not concern the regularity of performance of the BLGF in the exercise of its duties, but the correctness
of its interpretation of a provision of law.
In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a
blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A. No. 7925 cannot be
considered as having amended petitioners franchise so as to entitle it to exemption from the imposition of
local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount
of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a
refund of taxes paid by it for the period covering the first to the third quarter of 1998.
WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Regional
Trial Court, Branch 13, Davao City is AFFIRMED.

Art. VIII, entitled Telecommunications Development, where 23 is found, provides for public SO ORDERED.
ownership of telecommunications entities, privatization of existing facilities, and the equality of treatment
provision.[22]

Art. IX contains the Final Provisions.[23]

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications
and provide the structures to implement it to keep up with the technological advances in the industry and the
needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and
operations of all public telecommunications entities and thus promote a level playing field in the
telecommunications industry.[24] There is nothing in the language of 23 nor in the proceedings of both the
House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the
grant of tax exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.

What this Court said in Asiatic Petroleum Co. v. Llanes[25] applies mutatis mutandis to this case: When
exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A
well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit
fairly of any other construction that the proposition can be supported. In this case, the word exemption in 23
of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in
mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the
BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of
the LGC exempted them from the payment of local franchise and business taxes.
CIR vs ROBERTSON
This is a Petition for Review of the consolidated decision dated 14 December 1984 of the Court of
Tax Appeals (C.T.A.) in C.T.A. Case No. 2735, entitled "Frank Robertson vs. Coconut
commissioner of Internal Revenue," C.T.A. Case No. 2736, entitled "James W. Robertson vs.
Commissioner of Internal Revenue;" C.T.A. Case No. 2738, entitled "Robert H. Cathey vs.
Commissioner of Internal Revenue" and C.T.A. Case No. 2739, entitled "John L. Garrison vs.
Commissioner of Internal Revenue," cancelling the assessments for deficiency income tax for
taxable years 1969-1972, inclusive of interests and penalties against:
Frank Robertson (CTA Case No. 2735)-P l32,750.65
James W. Robertson (CTA Case No. 2736)-190,433.17
Robert H. Cathey (CTA Case No. 2738)-92,013.17
John L. Garrison (CTA Case No. 2739)-196,754.32
The above-entitled cases are consolidated as these involve similar or Identical fact situations on a
question involving the scope of the tax exemption provision in Article XII, Par. 2, of the RP-US
Military Bases Agreement of 1947, quoted as follows:
2. No national of the United States serving in or employed in the Philippines in
connection with the construction, maintenance, operation or defense of the
bases and residing in the Philippines by reason only of such employment, or
his spouse and minor children and dependent parents of either spouse, shall
be liable to pay income tax in the Philippines except in respect of income
derived from Philippine sources or sources other than the United States
sources.
The Court of Tax Appeals found the following undisputed antecedent facts:
Petitioner Frank Robertson (CTA Case No. 2735) is an American citizen born
in the Philippines on July 8, 1924. He resided in the Philippines until repatriated
to the United States in 1945 and took residence at Long Beach, California.
Soon after he was employed by the U.S. Federal Government with a job at the
U.S. Navy. His work brought him to the U.S. Navy's various installations
overseas with eventual assignment at the U.S. Naval Ship Repair Facility at
Subic Bay, Olongapo, Philippines, in 1962.
Like his brother Frank Robertson, petitioner James Robertson (CTA Case
No. 2736) was born in the Philippines on December 22, 1918 and had since
resided in this country until repatriated to the United States in 1945 and there,
established his domicile. He landed a job with the U.S. Navy Shipyard at Long
Beach, California as a U.S. Federal Civil Service employee. He returned to the
Philippines in 1958 with assignment at the U.S. Naval Base at Subic Bay,
Olongapo, and has since remained thru 1972.
In CTA Case No. 2738, petitioner Robert H. Cathey is a United States born
citizen who first came to the Philippines with the U.S. liberation force in 1944,
and upon discharge from the military service in 1946 turned a U.S. Navy's
civilian employee with station at Makati, Metro Manila.
Petitioner John Garrison (CTA Case No. 2739) is a Philippine born American
citizen also repatriated to the United States in 1945 establishing his domicile at
San Francisco, California. Soon after he was employed by the U.S. Federal
Government in its military installations. He returned to the Philippines in 1952
assigned at the U.S. Naval Base, Subic Bay, Philippines.
All told, the petitioners are citizens of the United States; holders of American
passports and admitted as Special Temporary Visitors under Section 9 (a) visa
of the Philippine Immigration Act of 1940, as amended; civilian employees in
the U.S. Military Base in the Philippines in connection with its construction,
maintenance, operation, and defense; and incomes are solely derived from
salaries from the U.S. government by reason of their employment in the U.S.
Bases in the Philippines." (pp. 76-78, Record)
The Court a quo after due hearing, rendered its judgment in favor of respondents cancelling and
setting aside the assessments for deficiency income taxes of respondents for the taxable years
1969-1972, inclusive of interests and penalties.
Petitioner Commissioner of Internal Revenue now comes before Us assigning one alleged error, to
wit:
The Court of Tax Appeals erred in holding that private respondents are, by
virtue of Article XII, Par 2 of the RP-US Military Bases Agreement of 1947,
exempt from Philippine income tax.
Petitioner, to support his contentions, argues that the laws granting tax exemptions must be
construed in strictissimi juris against the taxpayer, and that the burden of proof is on private
respondents, Frank Robertson, James W. Robertson, Robert J. Cathey and John L. Garrison to
establish that their residence in the country is by reason only of their employment in connection with
the construction, maintenance, operation or defense of the U.S. Bases in the Philippines as
provided for under Article XII, Par. 2 of the RP-US Military Bases Agreement of 1947 (supra).
Petitioner avers in his Brief, dated February 4, 1986, filed before this Court, that private respondents
have failed to discharge this burden, alleging, among other things, (1) that both respondents Frank
Robertson and James Robertson, who are brothers, own residential properties respectively
declared in the name of James Robertson and in the name of Frank Robertson's wife for taxation
purposes; (2) that James Robertson is now a retired Federal Civil Service employee and presently
living with his family in Olongapo City, which circumstance indicate that respondents' residence in
this country is not by reason only of his employment in the U.S. naval base; (4) that respondent
Robert H. Cathey owns the house at Quezon City where he presently resides; (5) that the stay of
respondent John Garrison who returned to the Philippines in the year 1948 is uninterrupted except
for a two-year stint in Okinawa in the years 1950 to 1952; (6) that the issuance in San Francisco,
California of a Voter's Certificate to respondent John Garrison in 1945 does not in any way indicate
that he was a U.S. resident, in the years 1969 to 1972.
The aforegoing facts were the main argument of petitioner in support of his contentions against
respondents. Such contentions do not impress Us as meritorious.
will not deem itself authorized to depart from the plain meaning of the tax
exemption provision so explicit in terms and so searching in extent. (Emphasis
supplied) This does not however foreclose the possibility of petitioners' coming
to roost in the country contingent upon the termination of their tour of duty, but
only then may the bridge be crossed for tax purposes. (pp. 82-84, Record)

The circumstances in the case of Reagan vs. Commissioner of Internal Revenue (30 SCRA 968)
The law and the facts of the case are so clear that there is no room left for Us to doubt the validity
relied upon by petitioner in support of the government's claim are different from the circumstances
of private respondents' defense. In order to avail oneself of the tax exemption under the RP-US
of the case herein and the ruling obtained in the former case cannot be invoked or applied in support
Military Bases Agreement: he must be a national of the United States employed in connection with
of petitioner's contention. A cursory reading of said case shows that William Reagan was at one
the construction, maintenance, operation or defense, of the bases, residing in the Philippines by
time a civilian employee of an American corporation providing technical assistance to the U.S. Air
reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of
Force in the Philippines. He questioned the payment of the income tax assessed on him by
PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at bar.
respondent Commissioner of Internal Revenue on an amount realized by him on a sale of his
Likewise, We find no justifiable reason to disturb the findings and rulings of the lower court in its
automobile to a member of the US Marine Corps., the transaction having taken place at the Clark
decision reading as follows:
Field Air Base in Pampanga. It was his contention that in legal contemplation the sale was made
outside Philippine territory and therefore beyond our jurisdictional power to tax. Clearly, the facts in
We find nothing in the said treaty provision that justified the lifting of the tax said case are different from those obtaining in the present suit.
exemption privilege of the petitioners (private respondents herein).
Respondent (petitioner herein) has grafted a meaning other than that conveyed
WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals is
by the plain and clear tenor of the Agreement. An examination of the words
AFFIRMED and the petition for review is hereby DISMISSED. No costs.
used and the circumstances in which they were used, shows the basic
intendment "to exempt all U.S. citizens working in the Military Bases from the
burden of paying Philippine Income Tax without distinction as to whether born SO ORDERED.
locally or born in their country of origin." Ubi lex non distinguit nec nos
distinguere debemos (one must not distinguish where the law does not
distinguish) (Emphasis supplied). Moreover, the ruling has altered a
satisfactorily settled application of the exemption clause and has fallen short of
measuring up to the familiar principle of International Law that, "The obligation
to fulfill in good faith a treaty engagement requires that the stipulations be
observed in their spirit as well as according to their letter and that what has
been promised be performed without evasion, or subterfuge, honestly and to
the best of the ability of the party which made the promise." (Kunz, The
Meaning and Range of the Norm (Pacta Sunt Servanda, 29 A.J.I.L. 180 (1945);
cited in Freidmann, Lisstzyn, Pugh, International Law (1969) 329). Somehow,
the ruling becomes an anacoluthon and a persiflage.

It bears repeating as so disclosed in the records that the petitioners together

with families upon repatriation in 1945 had since acquired domicile and
residency in the United States. And, obtained employment with the United
States Federal Service. Not until after several years of a hiatus, petitioners did
return to the Philippines not so much of honoring a pledge nor of sentimental
journey but by reason of taking up assigned duties with the United States
military bases in the Philippines where they were gainfully employed by the
U.S. Federal Government. The situation of the petitioners is of no different mold
as of the rest of the U.S. civilian employees who continued to enjoy the benefits
of tax exemption under the Agreement, Petitioners' circumstances before the
questioned ruling remained obtaining thru the taxable years 1969-1972. It
appears too much of a stretch to hold petitioners straight-jacketed to an
irreversible situs of birth constraint and by reason thereof deny altogether any
opportunity to a serendipitous enjoyment of a tax relief accorded in the
Agreement. Such a random quirk of pirouette in the tax treatment fags sharply
at odds with the shared expectations of the high contracting parties. This Court
DAVAO GULF VS CIR
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed
strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption
from the payment of a tax must be clearly stated in the language of the law; it cannot be merely
implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review under Rule 45 of
the Rules of Court, assailing the Decision[1] of Respondent Court of Appeals[2] in CA-GR SP No.
34581 dated September 26, 1994, which affirmed the June 21, 1994 Decision[3] of the Court of Tax
Appeals[4] in CTA Case No. 3574. The dispositive portion of the CTA Decision affirmed by
Respondent Court reads:
WHEREFORE, judgment is hereby rendered ordering the respondent to refund to the petitioner the
amount of P2,923.15 representing the partial refund of specific taxes paid on manufactured oils and
fuels.[5]
The Antecedent Facts
The facts are undisputed.[6] Petitioner is a licensed forest concessionaire possessing a
Timber License Agreement granted by the Ministry of Natural Resources (now Department of
Environment and Natural Resources). From July 1, 1980 to January 31, 1982 petitioner purchased,
from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels,
which it used exclusively for the exploitation and operation of its forest concession.Said oil
companies paid the specific taxes imposed, under Sections 153 and 156 [7] of the 1977 National
Internal Revenue Code (NIRC), on the sale of said products. Being included in the purchase price
of the oil products, the specific taxes paid by the oil companies were eventually passed on to the
user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent Commissioner of Internal
Revenue (CIR) a claim for refund in the amount of P120,825.11, representing 25% of the specific
taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its
operations as forest concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax
Appeals[8] and Section 5 of RA 1435 which reads:
Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and
bridge funds of the political subdivision for whose benefit the tax is collected: Provided, however,
That whenever any oils mentioned above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector
of Internal Revenue upon submission of proof of actual use of oils and under similar conditions
enumerated in subparagraphs one and two of section one hereof, amending section one hundred
forty-two of the Internal Revenue Code: Provided, further, That no new road shall be constructed
unless the routes or location thereof shall have been approved by the Commissioner of Public
Highways after a determination that such road can be made part of an integral and articulated route
in the Philippine Highway System, as required in section twenty-six of the Philippine Highway Act
of 1953.
It is an unquestioned fact that petitioner complied with the procedure for refund, including the
submission of proof of the actual use of the aforementioned oils in its forest concession as required
by the above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the
affidavits of its general manager, the president of the Philippine Wood Products Association, and
three disinterested persons, all attesting that the said manufactured diesel and fuel oils were
actually used in the exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as CTA Case
No. 3574. On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial
refund of specific taxes the latter had paid in the reduced amount of P2,923.15. The CTA ruled that
the claim on purchases of lubricating oil (from July 1, 1980 to January 19, 1981), and on
manufactured oils other than lubricating oils (from July 1, 1980 to January 4, 1981) had
prescribed. Disallowed on the ground that they were not included in the original claim filed before
the CIR were the claims for refund on purchases of manufactured oils from January 1, 1980 to June
30, 1980 and from February 1, 1982 to June 30, 1982. In regard to the other purchases, the CTA
granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not
on the higher rates actually paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates prescribed by
Sections 153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted
earlier, the Court of Appeals affirmed the CTA Decision. Hence, this petition for review.[9]
Public Respondents Ruling
In its petition before the Court of Appeals, petitioner raised the following arguments:
I. The respondent Court of Tax Appeals failed to apply the Supreme Courts Decision in Insular
Lumber Co. v. Court of Tax Appeals which granted the claim for partial refund of specific taxes paid
by the claimant, without qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed by succeeding
amendatory laws, under which the petitioner paid the specific taxes on manufactured and diesel
fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to established tenets of law
when it lent itself to interpreting Section 5 of R.A. 1435, when the construction of said law is not
necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied but rather, Sections
153 and 156 of the National Internal Revenue Code, as amended.
V. To rule that the basis for computation of the refunded taxes should be Sections 1 and 2 of R.A.
1435 rather than Section 153 and 156 of the National Internal Revenue Code is unfair, erroneous,
arbitrary, inequitable and oppressive.[10]
The Court of Appeals held that the claim for refund should indeed be computed on the basis
of the amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling, it cited our
pronouncement in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation[11] and
our subsequent Resolution dated June 15, 1992 clarifying the said Decision. Respondent Court
further ruled that the claims for refund which prescribed and those which were not filed at the
administrative level must be excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25% of the amount
of specific taxes it actually paid on various refined and manufactured mineral oils and other oil
products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939)
National Internal Revenue Code.[12]
In the main, the question before us pertains only to the computation of the tax
refund. Petitioner argues that the refund should be based on the increased rates of specific taxes
which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on
the other hand, contends that it should be based on specific taxes deemed paid under Sections 1
and 2 of RA 1435.
The Courts Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5
of RA 1435, which was enacted to provide means for increasing the Highway Special Fund.
The rationale for this grant of partial refund of specific taxes paid on purchases of
manufactured diesel and fuel oils rests on the character of the Highway Special Fund. The specific
taxes collected on gasoline and fuel accrue to the Fund, which is to be used for the construction
and maintenance of the highway system. But because the gasoline and fuel purchased by mining
and lumber concessionaires are used within their own compounds and roads, and their vehicles
seldom use the national highways, they do not directly benefit from the Fund and its use. Hence,
the tax refund gives the mining and the logging companies a measure of relief in light of their
peculiar situation.[13] When the Highway Special Fund was abolished in 1985, the reason for the
refund likewise ceased to exist.[14] Since petitioner purchased the subject manufactured diesel and
fuel oils from July 1, 1980 to January 31, 1982 and submitted the required proof that these were
actually used in operating its forest concession, it is entitled to claim the refund under Section 5 of
RA 1435.
Tax Refund Strictly Construed
Against the Grantee
Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had
actually paid for the petroleum products used in its operations. In other words, it claims a refund
based on the increased rates under Sections 153 and 156 of the NIRC.[15] Petitioner argues that the
statutory grant of the refund privilege, specifically the phrase twenty-five per centum of the specific
tax paid thereon shall be refunded by the Collector of Internal Revenue, is clear and unambiguous
enough to require construction or qualification thereof. [16] In addition, it cites our pronouncement
in Insular Lumber vs. Court of Tax Appeals:[17]
x x x Section 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only for the
purpose of prescribing the procedure for refund. This express reference cannot be expanded in
scope to include the limitation of the period of refund. If the limitation of the period of refund of
specific taxes paid on oils used in aviation and agriculture is intended to cover similar taxes paid on
oil used by miners and forest concessionaires, there would have been no need of dealing with oil
used by miners and forest concessions separately and Section 5 would very well have been
included in Section 1 of Republic Act No. 1435, notwithstanding the different rate of exemption.
Petitioner then reasons that the express mention of Section 1 of RA 1435 in Section 5 cannot
be expanded to include a limitation on the tax rates to be applied x x x [otherwise,] Section 5 should
very well have been included in Section 1 x x x.[18]
The Court is not persuaded. The relevant statutory provisions do not clearly support
petitioners claim for refund. RA 1435 provides:
SECTION 1. Section one hundred and forty-two of the National Internal Revenue Code, as
amended, is further amended to read as follows:
SEC. 142. Specific tax on manufactured oils and other fuels. -- On refined and manufactured
mineral oils and motor fuels, there shall be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight
centavos; and
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on which
has already been paid, only the alcohol content shall be subject to the tax herein prescribed. For
the purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty
degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen
hundred and fifty two, used in agriculture and aviation, fifty per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were
actually used in agriculture, or in lieu thereof
(2) Should the producer belong to any producers association or federation, duly registered with the
Securities and Exchange Commission, the affidavit of the president of the association or federation,
attesting to the fact that the oils were actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said
oils were actually used in aviation: Provided, That no such refunds shall be granted in respect to
the oils used in aviation by citizens and corporations of foreign countries which do not grant
equivalent refunds or exemptions in respect to similar oils used in aviation by citizens and
corporations of the Philippines.
SEC. 2. Section one hundred and forty-five of the National Internal Revenue Code, as amended, is
further amended to read as follows:
SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and
on all similar fuel oils, having more or less the same generating power, there shall be collected, per
metric ton, one peso.
xxxxxxxxx
Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and
bridge funds of the political subdivision for whose benefit the tax is collected: Provided, however,
That whenever any oils mentioned above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector
of Internal Revenue upon submission of proof of actual use of oils and under similar conditions
enumerated in subparagraphs one and two of section one hereof, amending section one hundred
forty-two of the Internal Revenue Code: Provided, further, That no new road shall be constructed
unless the route or location thereof shall have been approved by the Commissioner of Public
Highways after a determination that such road can be made part of an integral and articulated route
in the Philippine Highway System, as required in section twenty-six of the Philippine Highway Act
of 1953.
Subsequently, the 1977 NIRC, PD 1672 and EO 672 amended the first two provisions,
renumbering them and prescribing higher rates. Accordingly, petitioner paid specific taxes on
petroleum products purchased from July 1, 1980 to January 31, 1982 under the following statutory
provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows:
SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured
mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the
articles hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-
one centavos: Provided, That, on premium and aviation gasoline, the tax shall be one peso per liter
of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That, unless otherwise provided for by special laws, if the denatured alcohol is
mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the purposes of this subsection, the removal of
denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute
alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;
(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That, liquefied petroleum
gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As amended by Sec. 1,
P.D. No. 1672.)
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and
on all similar fuel oils, having more or less the same generating power, per liter of volume capacity,
seventeen and one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence
as such."
Then on March 21, 1981, these provisions were amended by EO 672 to read:
SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured
mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the
articles hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, one
peso and six centavos: Provided, That on premium and aviation gasoline, the tax shall be one peso
and ten centavos and one peso, respectively, per liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo; Provided, That unless otherwise provided for by special laws, if the denatured alcohol is
mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the purpose of this subsection, the removal of denatured
alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol)
shall be deemed to have been removed for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That, liquified petroleum
gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and all
similar fuel oils, having more or less the same generating power, per liter of volume capacity, twenty-
five and one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express language of a
statute;[19] on the other hand, once the tax is unquestionably imposed, [a] claim of exemption from
tax payments must be clearly shown and based on language in the law too plain to be
mistaken.[20] Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax
exemption,[21] it must be construed strictissimi juris against the grantee. Hence, petitioners claim of
refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated
in a language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no
expression of a legislative will authorizing a refund based on the higher rates claimed by
petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section
1, is insufficient to support petitioners claim. When the law itself does not explicitly provide that a
refund under RA 1435 may be based on higher rates which were nonexistent at the time of its
enactment, this Court cannot presume otherwise. A legislative lacuna cannot be filled by judicial
fiat.[22]
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of Appeals and
Atlas Consolidated Mining and Development Corporation[23] (the second Atlas case), the CIR
contended that the refund should be based on Sections 1 and 2 of RA 1435, not Sections 153 and
156 of the NIRC of 1977. In categorically ruling that Private Respondent Atlas Consolidated Mining
and Development Corporation was entitled to a refund based on Sections 1 and 2 of RA 1435, the
Court, through Mr. Justice Hilario G. Davide, Jr., reiterated our pronouncement in Commissioner of
Internal Revenue vs. Rio Tuba Nickel and Mining Corporation:
Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in the Rio Tuba case
sets forth the controlling doctrine. In that Resolution, we stated:
Since the private respondents claim for refund covers specific taxes paid from 1980 to July 1983
then we find that the private respondent is entitled to a refund. It should be made clear, however,
that Rio Tuba is not entitled to the whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based on
the rates specified by Sections 1 and 2 of R.A. No. 1435 but on the increased rates mandated under
Sections 153 and 156 of the National Internal Revenue Code of 1977. We note however, that the
latter law does not specifically provide for a refund to these mining and lumber companies of specific
taxes paid on manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held that the
authorized partial refund under Section 5 of R.A. No. 1435 partakes of the nature of a tax exemption
and therefore cannot be allowed unless granted in the most explicit and categorical language. Since
the grant of refund privileges must be strictly construed against the taxpayer, the basis for the refund
shall be the amounts deemed paid under Sections 1 and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private
respondents CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed
paid under Sections 1 and 2 of R.A. NO. 1435, without interest.[24]
We rule, therefore, that since Atlass claims for refund cover specific taxes paid before 1985, it
should be granted the refund based on the rates specified by Sections 1 and 2 of R.A. No. 1435
and not on the increased rates under Sections 153 and 156 of the Tax Code of 1977, provided the
claims are not yet barred by prescription. (Underscoring supplied.)
Insular Lumber Co. and First Atlas Case
Not Inconsistent With Rio Tuba
and Second Atlas Case
Petitioner argues that the applicable jurisprudence in this case should be Commissioner of
Internal Revenue vs. Atlas Consolidated and Mining Corp. (the first Atlas case), an unsigned
resolution, and Insular Lumber Co. vs. Court of Tax Appeals, an en banc decision.[25] Petitioner also
asks the Court to take a second look at Rio Tuba and the second Atlas case, both decided by
Divisions, in view of Insular which was decided en banc. Petitioner posits that [I]n view of the
similarity of the situation of herein petitioner with Insular Lumber Company (claimant in Insular
Lumber) and Rio Tuba Nickel Mining Corporation (claimant in Rio Tuba), a dilemma has been
created as to whether or not Insular Lumber, which has been decided by the Honorable Court en
banc, or Rio Tuba, which was decided only [by] the Third Division of the Honorable Court, should
apply.[26]
We find no conflict between these two pairs of cases. Neither Insular Lumber Co. nor the first
Atlas case ruled on the issue of whether the refund privilege under Section 5 should be computed
based on the specific tax deemed paid under Sections 1 and 2 of RA 1435, regardless of what was
actually paid under the increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products
purchased in the year 1963, when the increased rates under the NIRC of 1977 were not yet in
effect. Thus, the issue now before us did not exist at the time, since the applicable rates were still
those prescribed under Sections 1 and 2 of RA 1435.
 On the other hand, the issue raised in the first Atlas case was whether the claimant was
entitled to the refund under Section 5, notwithstanding its failure to pay any additional tax under a
municipal or city ordinance. Although Atlas purchased petroleum products in the years 1976 to 1978
when the rates had already been changed, the Court did not decide or make any pronouncement
on the issue in that case.

Clearly, it is impossible for these two decisions to clash with our pronouncement in Rio
Tuba and second Atlas case, in which we ruled that the refund granted be computed on the basis
of the amounts deemed paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for
petitioners invocation of the constitutional proscription that no doctrine or principle of law laid down
by the Court in a decision rendered en banc or in division may be modified or reversed except by
the Court sitting en banc.[27]

Finally, petitioner asserts that equity and justice demand that the computation of the tax
refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC. [28] We
disagree. According to an eminent authority on taxation, there is no tax exemption solely on the
ground of equity.[29]

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of
Appeals is AFFIRMED.

SO ORDERED.
CIR VS CA AND ATENEO
In conducting researches and studies of social organizations and cultural values thru its
Institute of Philippine Culture, is the Ateneo de Manila University performing the work of an
independent contractor and thus taxable within the purview of then Section 205 of the National
Internal Revenue Code levying a three percent contractors tax? This question is answered by the
Court in the negative as it resolves this petition assailing the Decision[1] of the Respondent Court of
Appeals[2] in CA-G.R. SP No. 31790 promulgated on April 27, 1994 affirming that of the Court of
Tax Appeals.[3]
The Antecedent Facts
The antecedents as found by the Court of Appeals are reproduced hereinbelow, the same
being largely undisputed by the parties.
Private respondent is a non-stock, non-profit educational institution with auxiliary units and
branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture
(IPC), which has no legal personality separate and distinct from that of private respondent. The
IPC is a Philippine unit engaged in social science studies of Philippine society and
culture. Occasionally, it accepts sponsorships for its research activities from international
organizations, private foundations and government agencies.
On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue
a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for
alleged deficiency contractors tax, and an assessment dated June 27, 1983 in the sum
of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31,
1978. Denying said tax liabilities, private respondent sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the validity of the assessments.
On March 17, 1988, petitioner rendered a letter-decision canceling the assessment for deficiency
income tax but modifying the assessment for deficiency contractors tax by increasing the amount
due to P193,475.55. Unsatisfied, private respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the same time, it filed in the respondent court a
petition for review of the said letter-decision of the petitioner. While the petition was pending
before the respondent court, petitioner issued a final decision dated August 3, 1988 reducing the
assessment for deficiency contractors tax from P193,475.55 to P46,516.41, exclusive of
surcharge and interest.
On July 12, 1993, the respondent court rendered the questioned decision which dispositively
reads:
WHEREFORE, in view of the foregoing, respondents decision is SET
ASIDE. The deficiency contractors tax assessment in the amount of P46,516.41
exclusive of surcharge and interest for the fiscal year ended March 31, 1978 is
hereby CANCELED. No pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this Court via the present petition for
review raising the following issues:
1)WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE
PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO
SECTION 205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3%
CONTRACTORS TAX UNDER SECTION 205 OF THE TAX
CODE.
The pertinent portions of Section 205 of the National Internal Revenue Code, as amended,
provide:
Sec. 205. Contractor, proprietors or operators of dockyards, and others. - A
contractors tax of three per centum of the gross receipts is hereby imposed on the
following:
xxxxxxxxx
(16) Business agents and other independent contractors except persons, associations and
corporations under contract for embroidery and apparel for export, as well as their agents and
contractors and except gross receipts of or from a pioneer industry registered with the Board of
Investments under Republic Act No. 5186:
xxxxxxxxx
The term independent contractors include persons (juridical or natural) not enumerated above
(but not including individuals subject to the occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless
of whether or not the performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.
xxxxxxxxx
Petitioner contends that the respondent court erred in holding that private respondent is not an
independent contractor within the purview of Section 205 of the Tax Code. To petitioner, the
term independent contractor, as defined by the Code, encompasses all kinds of services rendered
for a fee and that the only exceptions are the following:
a. Persons, association and corporations under contract for embroidery and apparel
for export and gross receipts of or from pioneer industry registered with the Board
of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code (under the
old Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by multinational
corporations, including their alien executives, and which headquarters do not earn
or derive income from the Philippines and which act as supervisory,
communication and coordinating centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region (Section 205 of the Tax Code).
Petitioner thus submits that since private respondent falls under the definition of an independent
contractor and is not among the aforementioned exceptions, private respondent is therefore
subject to the 3% contractors tax imposed under the same Code.[4]
 The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and
affirmed the assailed decision of the Court of Tax Appeals. Unfazed, petitioner now asks us to
reverse the CA through this petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the purview of independent contractor
pursuant to Section 205 of the Tax Code
2) Whether or not private respondent is subject to 3% contractors tax under Section 205
of the Tax Code.[5]
In fine, these may be reduced to a single issue: Is Ateneo de Manila University, through its
auxiliary unit or branch -- the Institute of Philippine Culture -- performing the work of an independent
contractor and, thus, subject to the three percent contractors tax levied by then Section 205 of the
National Internal Revenue Code?
The Courts Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue Code germane to the case
before us read:
SEC. 205. Contractors, proprietors or operators of dockyards, and others. -- A contractors tax
of three per centum of the gross receipts is hereby imposed on the following:
xxxxxxxxx
(16) Business agents and other independent contractors, except persons,
associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors, and except gross receipts of or from
a pioneer industry registered with the Board of Investments under the provisions
of Republic Act No. 5186;
xxxxxxxxx
The term independent contractors include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the physical or mental faculties of
such contractors or their employees.
The term independent contractor shall not include regional or area headquarters
established in the Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive income from the
Philippines and which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region.
The term gross receipts means all amounts received by the prime or principal
contractor as the total contract price, undiminished by amount paid to the
subcontractor, shall be excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de
Manila University falls within the definition of an independent contractor and is not one of those
mentioned as excepted; hence, it is properly a subject of the three percent contractors tax levied by
the foregoing provision of law.[6] Petitioner states that the term independent contractor is not
specifically defined so as to delimit the scope thereof, so much so that any person who x x x renders
physical and mental service for a fee, is now indubitably considered an independent contractor
liable to 3% contractors tax.[7] according to petitioner, Ateneo has the burden of proof to show its
exemption from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying the principles of
tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition
of taxes. It is obviously both illogical and impractical to determine who are exempted without first
determining who are covered by the aforesaid provision. The Commissioner should have
determined first if private respondent was covered by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to
prove its exemption therefrom. The Court takes this occasion to reiterate the hornbook doctrine in
the interpretation of tax laws that (a) statute will not be construed as imposing a tax unless it does
so clearly, expressly, and unambiguously. x x x (A) tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act
are not to be extended by implication.[8] Parenthetically, in answering the question of who is subject
to tax statutes, it is basic that in case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import.[9]
To fall under its coverage, Section 205 of the National Internal Revenue Code requires that
the independent contractor be engaged in the business of selling its services. Hence, to impose the
three percent contractors tax on Ateneos Institute of Philippine Culture, it should be sufficiently
proven that the private respondent is indeed selling its services for a fee in pursuit of an independent
business. And it is only after private respondent has been found clearly to be subject to the
provisions of Sec. 205 that the question of exemption therefrom would arise. Only after such
coverage is shown does the rule of construction -- that tax exemptions are to be strictly construed
against the taxpayer -- come into play, contrary to petitioners position. This is the main line of
reasoning of the Court of Tax Appeals in its decision,[10] which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Services of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that Ateneos Institute of
Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart
from and independently of the academic purposes of the university.
 Stressing that it is not the Ateneo de Manila University per se which is being taxed, Petitioner
Commissioner of Internal Revenue contends that the tax is due on its activity of conducting
researches for a fee. The tax is due on the gross receipts made in favor of IPC pursuant to the
contracts the latter entered to conduct researches for the benefit primarily of its clients. The tax is
imposed on the exercise of a taxable activity. x x x [T]he sale of services of private respondent is
made under a contract and the various contracts entered into between private respondent and its
clients are almost of the same terms, showing, among others, the compensation and terms of
payment.[11] (Underscoringsupplied.)
In theory, the Commissioner of Internal Revenue may be correct. However, the records do
not show that Ateneos IPC in fact contracted to sell its research services for a fee. Clearly then, as
found by the Court of Appeals and the Court of Tax Appeals, petitioners theory is inapplicable to
the established factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its bare contention that,
indeed, contracts for sale of services were ever entered into by the private respondent. As
appropriately pointed out by the latter:
An examination of the Commissioners Written Formal Offer of Evidence in the Court of Tax
Appeals shows that only the following documentary evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiners Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be contracts between private respondent and
third parties.[12]
Moreover, the Court of Tax Appeals accurately and correctly declared that the funds received
by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or
donations which are tax-exempt as shown by private respondents compliance with the requirement
of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to
an educational institution.[13]
Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of an independent contractor.
For one, the established facts show that IPC, as a unit of the private respondent, is not engaged
in business. Undisputedly, private respondent is mandated by law to undertake research activities
to maintain its university status. In fact, the research activities being carried out by the IPC is
focused not on business or profit but on social sciences studies of Philippine society and
culture. Since it can only finance a limited number of IPCs research projects, private respondent
occasionally accepts sponsorship for unfunded IPC research projects from international
organizations, private foundations and governmental agencies. However, such sponsorships are
subject to private respondents terms and conditions, among which are, that the research is
confined to topics consistent with the private respondents academic agenda; that no proprietary
or commercial purpose research is done; and that private respondent retains not only the absolute
right to publish but also the ownership of the results of the research conducted by the IPC. Quite
clearly, the aforementioned terms and conditions belie the allegation that private respondent is a
contractor or is engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-profit educational
corporation. The fact that it accepted sponsorship for IPCs unfunded projects is merely
incidental. For, the main function of the IPC is to undertake research projects under the academic
agenda of the private respondent. Moreover, the records do not show that in accepting
sponsorship of research work, IPC realized profits from such work. On the contrary, the evidence
shows that for about 30 years, IPC had continuously operated at a loss, which means that
sponsored funds are less than actual expenses for its research projects. That IPC has been
operating at a loss loudly bespeaks of the fact that education and not profit is the motive for
undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the sponsored research projects, the
fact still remains that there is no proof that part of such earnings or profits was ever distributed
as dividends to any stockholder, as in fact none was so distributed because they accrued to the
benefit of the private respondent which is a non-profit educational institution.[14]
Therefore, it is clear that the funds received by Ateneos Institute of Philippine Culture are not
given in the concept of a fee or price in exchange for the performance of a service or delivery of an
object. Rather, the amounts are in the nature of an endowment or donation given by IPCs
benefactors solely for the purpose of sponsoring or funding the research with no strings
attached. As found by the two courts below, such sponsorships are subject to IPCs terms and
conditions. No proprietary or commercial research is done, and IPC retains the ownership of the
results of the research, including the absolute right to publish the same. The copyrights over the
results of the research are owned by Ateneo and, consequently, no portion thereof may be
reproduced without its permission.[15] The amounts given to IPC, therefore, may not be deemed, it
bears stressing, as fees or gross receipts that can be subjected to the three percent contractors tax.
It is also well to stress that the questioned transactions of Ateneos Institute of Philippine
Culture cannot be deemed either as a contract of sale or a contract for a piece of work. By the
contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.[16] By its very nature, a contract of sale requires a transfer of ownership. Thus, Article
1458 of the Civil Code expressly makes the obligation to transfer ownership as an essential element
of the contract of sale, following modern codes, such as the German and the Swiss. Even in the
absence of this express requirement, however, most writers, including Sanchez Roman, Gayoso,
Valverde, Ruggiero, Colin and Capitant, have considered such transfer of ownership as the primary
purpose of sale. Perez and Alguer follow the same view, stating that the delivery of the thing does
not mean a mere physical transfer, but is a means of transmitting ownership. Transfer of title or an
agreement to transfer it for a price paid or promised to be paid is the essence of sale.[17] In the case
of a contract for a piece of work, the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. x x x If the contractor agrees to
produce the work from materials furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing. x x x.[18] Ineludably, whether the contract be one of
sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks
away with an object.[19] In the case at bench, it is clear from the evidence on record that there was
no sale either of objects or services because, as adverted to earlier, there was no transfer of
ownership over the research data obtained or the results of research projects undertaken by the
Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done
in pursuance of maintaining Ateneos university status and not in the course of an independent
business of selling such research with profit in mind. This is clear from a reading of the regulations
governing universities:
 31.In addition to the legal requisites an institution must meet, among others, the following
requirements before an application for university status shall be considered:
xxxxxxxxx
(e) The institution must undertake research and operate with a competent qualified
staff at least three graduate departments in accordance with the rules and standards
for graduate education. One of the departments shall be science and
technology. The competence of the staff shall be judged by their effective
teaching, scholarly publications and research activities published in its school
journal as well as their leadership activities in the profession.
(f) The institution must show evidence of adequate and stable financial resources
and support, a reasonable portion of which should be devoted to institutional
development and research. (underscoring supplied)
xxxxxxxxx
32. University status may be withdrawn, after due notice and hearing, for failure to maintain
satisfactorily the standards and requirements therefor.[20]
Petitioners contention that it is the Institute of Philippine Culture that is being taxed and not
the Ateneo is patently erroneous because the former is not an independent juridical entity that is
separate and distinct from the latter.
Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the Institute
of Philippine Culture) that as far as grants from sponsored research it is possible
that the grant sometimes is less than the actual cost. Will you please tell us in
this case when the actual cost is a lot less than the grant who shoulders the
additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university, because a university
has to have its own research institute.[24]
So, why is it that Ateneo continues to operate and conduct researches through its Institute of
Philippine Culture when it undisputedly loses not an insignificant amount in the process? The plain
and simple answer is that private respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its commitments to education and,
ultimately, to public service. For the institute to have tenaciously continued operating for so long
despite its accumulation of significant losses, we can only agree with both the Court of Tax Appeals
and the Court of Appeals that education and not profit is [IPCs] motive for undertaking the research
projects.[25]
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the
Court of Appeals is hereby AFFIRMED in full.

SO ORDERED.
Narvasa, C.J., (Chairman) , Davide, Jr., Melo, and Francisco, JJ., concur.
Factual Findings and Conclusions of the Court of Tax Appeals
Affirmed by the Court of Appeals Generally Conclusive

In addition, we reiterate that the Court of Tax Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to
determine the issue of whether[21]Ateneo de Manila University may be deemed a subject of the three
percent contractors tax through the evidence presented before it. Consequently, as a matter of
principle, this Court will not set aside the conclusion reached by x x x the Court of Tax Appeals
which is, by the very nature of its function, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject unless there has been an
abuse or improvident exercise of authority x x x.[22] This point becomes more evident in the case
before us where the findings and conclusions of both the Court of Tax Appeals and the Court of
Appeals appear untainted by any abuse of authority, much less grave abuse of discretion. Thus, we
find the decision of the latter affirming that of the former free from any palpable error.

Public Service, Not Profit, is the Motive

The records show that the Institute of Philippine Culture conducted its research activities at a
huge deficit of P1,624,014.00 as shown in its statements of fund and disbursements for the period
1972 to 1985.[23] In fact, it was Ateneo de Manila University itself that had funded the research
projects of the institute, and it was only when Ateneo could no longer produce the needed funds
that the institute sought funding from outside. The testimony of Ateneos Director for Accounting
Services, Ms. Leonor Wijangco, provides significant insight on the academic and nonprofit nature
of the institutes research activities done in furtherance of the universitys purposes, as follows:
SMART VS DAVAO
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart
Communications, Inc. (Smart) against the City of Davao, represented by its Mayor, Hon. Rodrigo R. Duterte,
and the Sangguniang Panlungsod of Davao City, to annul the Decision [1] dated July 19, 2002 of the Regional
Trial Court (RTC) and its Order[2] dated September 26, 2002 in Sp. Civil Case No. 28,976-2002.
The Facts
On February 18, 2002, Smart filed a special civil action for declaratory relief[3] under Rule 63 of the Rules of
Court, for the ascertainment of its rights and obligations under the Tax Code of the City
of Davao,[4]particularly Section 1, Article 10 thereof, the pertinent portion of which reads:
Notwithstanding any exemption granted by any law or other special law, there is hereby
imposed a tax on businesses enjoying a franchise, at a rate of seventy-five percent
(75%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the income or receipts realized within the territorial jurisdiction of Davao
City.
Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the
following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 7294 [5] subsequent to R.A.
No. 7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160;[6] (b) Section 137
of R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future
exemptions; (c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations
such as the in lieu of all taxes clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise
tax by the City of Davao would amount to a violation of the constitutional provision against impairment of
contracts.[7]
On March 2, 2002, respondents filed their Answer[8] in which they contested the tax exemption claimed by
Smart. They invoked the power granted by the Constitution to local government units to create their own
sources of revenue.[9]
On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case,
the RTC issued an order requiring the parties to submit their respective memoranda and, thereafter, the case
would be deemed submitted for resolution.[10]
On July 19, 2002, the RTC rendered its Decision[11] denying the petition. The trial court noted that the
ambiguity of the in lieu of all taxes provision in R.A. No. 7294, on whether it covers both national and local
taxes, must be resolved against the taxpayer.[12] The RTC ratiocinated that tax exemptions are construed
in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and, thus, those who
assert a tax exemption must justify it with words too plain to be mistaken and too categorical not to be
misinterpreted.[13] On the issue of violation of the non-impairment clause of the Constitution, the trial court
cited Mactan Cebu International Airport Authority v. Marcos,[14] and declared that the citys power to tax is
based not merely on a valid delegation of legislative power but on the direct authority granted to it by the
fundamental law. It added that while such power may be subject to restrictions or conditions imposed by
Congress, any such legislated limitation must be consistent with the basic policy of local autonomy. [15]
Smart filed a motion for reconsideration which was denied by the trial court in an Order [16] dated September
26, 2002.
Thus, the instant case.
Smart assigns the following errors:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONERS FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS
 THE IN LIEU OF ALL TAXES CLAUSE, AND WHICH IS A SPECIAL LAW
ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City
FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT
CITY. of Davao.

[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS

FRANCHISE IS A GENERAL LAW AND DID NOT REPEAL RELEVANT
PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL GOVERNMENT The Ruling of the Court
CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.

[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF
THE LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151 We rule in the affirmative.
THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX,
AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL
OF TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.
I. Prospective Effect of R.A. No. 7160
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137
AND 193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO
EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT
NOT TO FUTURE EXEMPTIONS. On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect. Section 9 thereof, quoted

hereunder, is at the heart of the present controversy:

[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY
CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY
AGAINST THE TAXPAYER.
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay
the same taxes on their real estate buildings and personal property, exclusive of' this
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
franchise, as other persons or corporations which are now or hereafter may be required
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND
by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, THE PUBLIC
franchise tax equivalent to three percent (3%) of all gross receipts of the business
TELECOMMUNICATIONS POLICY ACT, TAKING INTO ACCOUNT THE
transacted under this franchise by the grantee, its successors or assigns and the
FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229),
said percentage shall be in lieu of all taxes on this franchise or earnings
WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO
thereof: Provided, That the grantee, its successors or assigns shall continue to be liable
THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL
for income taxes payable under Title II of the National Internal Revenue Code pursuant
GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY
to Section 2 of Executive Order No. 72 unless the latter enactment is amended or
RESPONDENT CITY.
repealed, in which case the amendment or repeal shall be applicable thereto.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE
The grantee shall file the return with and pay the tax due thereon to the Commissioner
DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
of Internal Revenue or his duly authorized representative in accordance with the
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
National Internal Revenue Code and the return shall be subject to audit by the Bureau
PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL
of Internal Revenue. (Emphasis supplied.)
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.

[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION
OF THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE
Smart alleges that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all taxes, both
CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS.
local and national, except the national franchise tax (now VAT), income tax, and real property tax. [18]
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.[17]

On January 1, 1992, two months ahead of Smarts franchise, the Local Government Code (R.A. No. 7160)
The Issue
took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax
by the local government units; while Section 193 thereof provided for the withdrawal of tax exemption

privileges granted prior to the issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.: The in lieu of all taxes clause in Smarts franchise is put in issue before the Court. In order to ascertain its

meaning, consistent with fundamentals of statutory construction, all the words in the statute must be
Section 137. Franchise Tax. Notwithstanding any exemption granted by any law
or other special law, the province may impose a tax on businesses enjoying a considered. The grant of tax exemption by R.A. No. 7294 is not to be interpreted from a consideration of a
franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming single portion or of isolated words or clauses, but from a general view of the act as a whole. Every part of the
receipt, or realized, within its territorial jurisdiction.
statute must be construed with reference to the context.[19]
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax shall be based
on the gross receipts for the preceding calendar year, or any fraction thereon, as Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise
provided herein.
tax (now VAT), income tax, and real property tax.[20] It claims exemption from the local franchise tax because
Section 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the
city may levy the taxes, fees, and charges which the province or municipality may the in lieu of taxes clause in its franchise does not distinguish between national and local taxes.[21]
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section
The rates of taxes that the city may levy may exceed the maximum rates
9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of
allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes.
the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise

or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is exempted from. It
Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
is not clear whether the in lieu of all taxes provision in the franchise of Smart would include exemption from
whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-stock local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%)
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. (Emphasis supplied.) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption

would include exemption from exactions by both the local and the national government is not unequivocal.
Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160, because its

franchise was granted after the effectivity of the said law. We agree with Smarts contention on this matter. The
withdrawal of tax exemptions or incentives provided in R.A. No. 7160 can only affect those franchises granted
prior to the effectivity of the law. The intention of the legislature to remove all tax exemptions or incentives
granted prior to the said law is evident in the language of Section 193 of R.A. No. 7160. No interpretation is
necessary.
The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is exempted from both
local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart
has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt
from all kinds of franchise taxes whether local or national. However, Smart failed in this regard.

Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of
II. The in lieu of all taxes Clause in R.A. No. 7294 the taxing authority.[22] They can only be given force when the grant is clear and categorical.[23] The surrender
of the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable
construction consistent with the reservation of the power. If the intention of the legislature is open to doubt,
then the intention of the legislature must be resolved in favor of the State. [24]
In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes clause applies
only to national internal revenue taxes and not to local taxes. As appropriately pointed out in the separate
opinion of Justice Antonio T. Carpio in a similar case[25] involving a demand for exemption from local
franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than
income tax, imposed under the National Internal Revenue Code. The "in lieu of all
taxes" clause does not apply to local taxes. The proviso in the first paragraph of Section
9 of Smart's franchise states that the grantee shall "continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code." Also, the second
paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner
of Internal Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same paragraph declares that the tax
returns "shall be subject to audit by the Bureau of Internal Revenue." Nothing is
mentioned in Section 9 about local taxes. The clear intent is for the "in lieu of all taxes"
clause to apply only to taxes under the National Internal Revenue Code and not to local
taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes"
clause does not apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply
to local taxes, Congress would have expressly mentioned the exemption from
municipal and provincial taxes. Congress could have used the language in Section 9(b)
of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority
whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, x x x. (Emphasis
supplied).
However, Congress did not expressly exempt Smart from local taxes. Congress used
the "in lieu of all taxes" clause only in reference to national internal revenue taxes. The
only interpretation, under the rule on strict construction of tax exemptions, is that the
"in lieu of all taxes" clause in Smart's franchise refers only to national and not to local
taxes.
It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has become functus officio with the
abolition of the franchise tax on telecommunications companies.[26] As admitted by Smart in its pleadings,
it is no longer paying the 3% franchise tax mandated in its franchise. Currently, Smart along with other
telecommunications companies pays the uniform 10% value-added tax.[27]
The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived
from the sale or exchange of services.[28] R.A. No. 7716, as amended by the Expanded Value Added Tax
Law (R.A. No. 8241), the pertinent portion of which is hereunder quoted, amended Section 9 of R.A. No.
7294:
SEC. 102. Value-added tax on sale of services and use or lease of properties. (a)
Rate and base of tax. There shall be levied assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers
in securities; lending investors; transportation contractors on their transport of goods
or cargoes, including persons who transport goods or cargoes for hire and other
domestic common carriers by land, air, and water relative to their transport of goods or
cargoes; services of franchise grantees of telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under
Section 117 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop insurances)
including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. x x x.[29]
R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative
to the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules
and regulations, or parts thereof which are inconsistent with it. [30] In effect, the in lieu of all taxes clause in
R.A. No. 7294 was rendered ineffective by the advent of the VAT Law.[31]

However, the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of
R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of
the gross annual receipts for the preceding calendar year based on the income on receipts realized within the
territorial jurisdiction of Davao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the in lieu of all taxes clause is to be construed as an exemption from local
franchise taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August
[32]
13, 1998 and February 24, 1998, regarding the franchises of Smart and Globe, respectively. Smart presents
the same arguments as the Philippine Long Distance Telephone Company in the previous cases already
[33]
decided by this Court. As previously held by the Court, the findings of the BLGF are not conclusive on the
courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of petitioner and
in effect restored its exemptions from local taxes. Petitioner contends that courts should
not set aside conclusions reached by the BLGF because its function is precisely the
study of local tax problems and it has necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on questions of
fact are given weight and deference in the courts. The authorities cited by petitioner
pertain to the Court of Tax Appeals, a highly specialized court which performs judicial
functions as it was created for the review of tax cases. In contrast, the BLGF was
created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment, and
other related matters, among others. The question raised by petitioner is a legal
question, to wit, the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis
for claiming expertise for the BLGF that administrative agencies are said to possess in
their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the
performance of its duty. It does enjoy this presumption, but this has nothing to do with
the question in this case. This case does not concern the regularity of performance of
the BLGF in the exercise of its duties, but the correctness of its interpretation of a
provision of law.[34]
IV. Tax Exclusion/Tax Exemption
Smart gives another perspective of the in lieu of all taxes clause in Section 9 of R.A. No. 7294 in order to
avoid the payment of local franchise tax. It says that, viewed from another angle, the in lieu of all taxes clause
partakes of the nature of a tax exclusion and not a tax exemption. A tax exemption means that the taxpayer
does not pay any tax at all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more
accurately a tax exclusion.[35]
However, as previously held by the Court, both in their nature and effect, there is no essential difference
between a tax exemption and a tax exclusion. An exemption is an immunity or a privilege; it is the freedom
from a charge or burden to which others are subjected. An exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable
deductions. An exclusion is, thus, also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that a tax exemption should be applied in strictissimi juris against
the taxpayer and liberally in favor of the government applies equally to tax exclusions. [36]
V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A. No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications Industry. Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type
of service authorized by the franchise. (Emphasis supplied.)

In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the franchise of
Globe (R.A. No. 7227),[37] which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the most favored treatment clause
or the equality clause, the provision in the franchise of Globe exempting it from local taxes is automatically
incorporated in the franchise of Smart.[38] Smart posits that, since the franchise of Globe contains a provision
exempting it from municipal or local franchise tax, this provision should also benefit Smart by virtue of
Section 23 of R.A. No. 7925. The provision in Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each year after the
audit and approval of the accounts as prescribed in this Act, one and one-half per
centum of all gross receipts from business transacted under this franchise by the said
grantee in the Philippines, in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which the grantee is hereby expressly
exempted, effective from the date of the approval of Republic Act Numbered Sixteen
hundred eighteen.[39]
We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section
23 of R.A. No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long Distance
Telephone Company, Inc. v. City of Davao,[40] and recently in Digital Telecommunications Philippines, Inc.
(Digitel) v. Province of Pangasinan,[41] Congress, in approving Section 23 of R.A. No. 7925, did not intend it
to operate as a blanket tax exemption to all telecommunications entities. [42] The language of Section 23 of
R.A. No. 7925 and the proceedings of both Houses of Congress are bereft of anything that would signify the
grant of tax exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by R.A. No. 7160.[43] The term exemption in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission.[44]
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated that it will be
liable for one and one-half per centum of all gross receipts from business transacted under the franchise, in
lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any authority
whatsoever, municipal, provincial, or national, from which the grantee is hereby expressly exempted.[45] The
grant of exemption from municipal, provincial, or national is clear and categorical that aside from the
franchise tax collected by virtue of R.A. No. 7229, no other franchise tax may be collected from Globe
regardless of who the taxing power is. No such provision is found in the franchise of Smart; the kind of tax
from which it is exempted is not clearly specified.
As previously explained by the Court, the stance of Smart would lead to absurd consequences.
The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-
half percentum (1%) of all gross receipts from its transactions while Smart is required
to pay a tax of three percent (3%) on all gross receipts from business transacted.
Petitioner's theory would require that, to level the playing field, any "advantage, favor,
privilege, exemption, or immunity" granted to Globe must be extended to all
telecommunications companies, including Smart. If, later, Congress again grants a
franchise to another telecommunications company imposing, say, one percent (1%)
franchise tax, then all other telecommunications franchises will have to be adjusted to
"level the playing field" so to speak. This could not have been the intent of Congress
in enacting 23 of Rep. Act 7925. Petitioner's theory will leave the Government with
the burden of having to keep track of all granted telecommunications franchises, lest
some companies be treated unequally. It is different if Congress enacts a law
specifically granting uniform advantages, favor, privilege, exemption, or immunity to
all telecommunications entities.[46]
VI. Non-impairment Clause of the Constitution
Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate
the constitutional prohibition against impairment of contracts. The franchise, according to petitioner, is in the
nature of a contract between the government and Smart.[47]
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As

previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes.

Absent the express provision on such exemption under the franchise, we are constrained to rule against it.

The in lieu of all taxes clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this

ambiguity in the law, the doubt must be resolved against the grant of tax exemption.

Moreover, Smarts franchise was granted with the express condition that it is subject to amendment, alteration,

or repeal.[48] As held in Tolentino v. Secretary of Finance: [49]

It is enough to say that the parties to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read into contracts as a
basic postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to
secure the peace and good order of society.

In truth, the Contract Clause has never been thought as a limitation on the exercise of
the States power of taxation save only where a tax exemption has been granted for a
valid consideration. x x x.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.