G.R. No.

L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner
Revenue
Region
No.
vs.
HON. JOSE F. FERNANDEZ, Judge of
FRANCIS A. TONGOY, Administrator

of Internal Revenue, and JAIME ARANETA, as Regional Director,

14,
Bureau
of
Internal
Revenue, petitioners,
the Court of First Instance of Negros Occidental, Branch V, and
of the Estate of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29,
1969 dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June
3, 1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo).
The claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos.
11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to
Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the
respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969
(Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed,
of the order of July 29, 1969, but was denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the
New Rule of Court, bars claim of the government for unpaid taxes, still within the period of
limitation prescribed in Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion
for Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set forth as counter
claims in any action that the executor or administrator may bring against the
claimants. Where the executor or administrator commence an action, or prosecutes
an action already commenced by the deceased in his lifetime, the debtor may set
forth may answer the claims he has against the decedents, instead of presenting
them independently to the court has herein provided, and mutual claims may be set
off against each other in such action; and in final judgment is rendered in

favored of the decedent, the amount to determined shall be considered the true
balance against the estate, as though the claim has been presented directly before
the court in the administration proceedings. Claims not yet due, or contingent may
be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character
from the claims expressly enumerated therein, such as: "all claims for money against the decedent
arising from contract, express or implied, whether the same be due, not due or contingent, all
claim for funeral expenses and expenses for the last sickness of the decedent and judgment for
money against the decedent." Under the familiar rule of statutory construction of expressio unius
est exclusio alterius, the mention of one thing implies the exclusion of another thing not
mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything else
must necessarily, and by implication be excluded from its operation and effect (Crawford,
Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No.
L-23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as
well as the matter of prescription thereof are governed by the provisions of the National
Internal revenue Code, particularly Sections 331 and 332 thereof, and not by other provisions of
law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal
Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the
provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been
also in the mind of the Court as not affecting the aforecited Section of the National Internal
Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that
"taxes assessed against the estate of a deceased person ... need not be submitted to the
committee on claims in the ordinary course of administration. In the exercise of its control over
the administrator, the court may direct the payment of such taxes upon motion showing that the
taxes have been assessed against the estate." The abolition of the Committee on Claims does not
alter the basic ruling laid down giving exception to the claim for taxes from being filed as the
other claims mentioned in the Rule should be filed before the Court. Claims for taxes may be
collected even after the distribution of the decedent's estate among his heirs who shall be
liable therefor in proportion of their share in the inheritance. (Government of the Philippines
vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the
form of exception from the application of the statute of non-claims, is not hard to find. Taxes
are the lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA
105). Upon taxation depends the Government ability to serve the people for whose benefit taxes
are collected. To safeguard such interest, neglect or omission of government officials entrusted
with the collection of taxes should not be allowed to bring harm or detriment to the people, in
the same manner as private persons may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of their personal affairs. This should
not hold true to government officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a general rule, from the operation
of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177;
Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April
30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of
Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic
vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora
vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs.
Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may
be collected even after the distribution of the estate of the decedent among his heirs
(Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas,supra Clara
Diluangco Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last
paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was made by the Commissioner of
Internal Revenue until paid with interests, penalties, etc. By virtue of such lien, this court

held that the property of the estate already in the hands of an heir or transferee may be subject
to the payment of the tax due the estate. A fortiori before the inheritance has passed to the
heirs, the unpaid taxes due the decedent may be collected, even without its having been presented
under Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of
the estate of the decedent has vested in the heirs, the decedent, represented by his estate,
continues as if he were still alive, subject to the payment of such taxes as would be collectible
from the estate even after his death. Thus in the case above cited, the income taxes sought to be
collected were due from the estate, for the three years 1946, 1947 and 1948 following his death
in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in
Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even after the
expiration of the time originally fixed therein, as may be gleaned from the italicized portion of
the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in
the preceding section, the court shall state the time for the filing of claims
against the estate, which shall not be more than twelve (12) nor less than six (6)
months after the date of the first publication of the notice. However, at any time
before an order of distribution is entered, on application of a creditor who has
failed to file his claim within the time previously limited the court may, for
cause shown and on such terms as are equitable, allow such claim to be flied
within a time not exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an
Order of Payment of Taxes) which, though filed after the expiration of the time previously
limited but before an order of the distribution is entered, should have been granted by the
respondent court, in the absence of any valid ground, as none was shown, justifying denial of the
motion, specially considering that it was for allowance Of claim for taxes due from the estate,
which in effect represents a claim of the people at large, the only reason given for the denial
that the claim was filed out of the previously limited period, sustaining thereby private
respondents' contention, erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the
total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code
is a final one and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered
to pay and discharge the same, subject only to the limitation of the interest collectible thereon
as provided by the Tax Code. No pronouncement as to costs.
SO ORDERED.

G.R. Nos. L-49839-46

April 26, 1991
JOSE
B.
L.
REYES
and
EDMUNDO
A.
REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed and Acting
Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO,
RAUL C. FLORES, in their capacities as appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central
Board of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et
al. v. Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the
March 29, 1976 decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J,
615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros
Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City
Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units
or of lands on which another's dwelling is located, where such rentals do not exceed three
hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter.
The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from
its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual
legal period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by
making absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases with a definite
period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals
and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with the Board
of Tax Assessment Appeals. They averred that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the income
approach should have been used in determining the land values instead of the comparable sales
approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment
Appeals, however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market values and of the base
schedule of building unit values, as approved by the Secretary of Finance, the cases
should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1wphi1 They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject
properties of petitioners are located. To better appreciate the locational and physical features
of the land, the Board of Hearing Commissioners conducted an ocular inspection with the presence
of two representatives of the City Assessor prior to the healing of the case. Neither the owners
nor their authorized representatives were present during the said ocular inspection despite
proper notices served them. It was found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266,
the appealed Decision is modified by allowing a 20% reduction in their respective market
values and applying therein the assessment level of 30% to arrive at the corresponding
assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD IN FIXING THE
ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in
question. Petitioners maintain that the "Income Approach" method would have been more realistic
for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the
properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high and successive that the resulting annual real
estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the
dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values
assigned to their properties as revised and increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and
study of land values as in the case of properties affected by the Rent Control Law for they do
not project the true market value in the open market (Rollo, p. 21). Thus, respondents opted
instead for the "Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a uniform and a
more credible standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely ignore the effects of the
restrictions of P.D. No. 20 on the market value of properties within its coverage. In any event,
it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and Business
Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the propriety of one
as against the other would of course depend on several factors. Hence, as early as 1923 in the
case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has
been stressed that the assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion in reaching
conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must
not only be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property
of the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers
of government. But for all its plenitude the power to tax is not unconfined as there are
restrictions. Adversely effecting as it does property rights, both the due process and equal
protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases
a revenue measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." The web or unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The
power to tax is not the power to destroy while this Court sits. So it is in the Philippines "
(Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue,
139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of power (Sison v.
Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes
of taxation but the government's act must not be prompted by a spirit of hostility, or at the
very least discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different both in the privileges conferred
and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much
lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial notice that for properties covered

by P.D. 20 especially during the time in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential properties not burdened by P.D. 20.
Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed
under distressed conditions clearly implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more convincingly demonstrated by the
fact that the law has existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxations, which is the promotion of the common good, may be achieved (Commissioner of Internal
Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result
in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of
Manila and the City Assessor of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla,
Bidin, Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto
J.
Gonzaga
for
appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E.
Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality
of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due
to the threat to our industry by the imminent imposition of export taxes upon sugar as provided
in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United
States market"; wherefore, the national policy was expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality of the loss of its preferential position
in the United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3
levies on owners or persons in control of lands devoted to the cultivation of sugar cane and
ceded to others for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and
shall be paid out only for any or all of the following purposes or to attain any or all of
the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual
loss of the preferntial position of the Philippine sugar in the United States market, and
ultimately to insure its continued existence notwithstanding the loss of that market and
the consequent necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof the mill, the landowner, the planter of the sugar cane, and the
laborers in the factory and in the field so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production
production thereof; and

of

sugar

to

areas

more

economically

suited

to

the

Fourth, to afford labor employed in the industry a living wage and to improve their living
and working conditions: Provided, That the President of the Philippines may, until the
adjourment of the next regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment and operation of
sugar experiment station or stations and the undertaking of researchers (a) to increase

the recoveries of the centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable
to different district conditions in the Philippines, (c) to lower the costs of raising
sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor
fuel, (e) to determine the possibility of utilizing the other by-products of the industry,
(f) to determine what crop or crops are suitable for rotation and for the utilization of
excess cane lands, and (g) on other problems the solution of which would help rehabilitate
and stabilize the industry, and (2) for the improvement of living and working conditions
in sugar mills and sugar plantations, authorizing him to organize the necessary agency or
agencies to take charge of the expenditure and allocation of said funds to carry out the
purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund
herein created of the necessary amount or amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949
and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose
for which a tax may be constitutioally levied. The action having been dismissed by the Court of
First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section
17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products; that it
gives employment to thousands of laborers in fields and factories; that it is a great source of
the state's wealth, is one of the important sources of foreign exchange needed by our government,
and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence
it was competent for the legislature to find that the general welfare demanded that the sugar
industry should be stabilized in turn; and in the wide field of its police power, the lawmaking
body could provide that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So.
853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be
within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a
matter of public concern, it follows that the Legislature may determine within reasonable bounds
what is necessary for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed fully play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the law (above quoted) bear no relation to the
objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of the state's police power
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U.
S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to
be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in

the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal &
Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the
Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar
industry, since it is that very enterprise that is being protected. It may be that other
industries are also in need of similar protection; that the legislature is not required by the
Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs.
Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is
most felt, it is not to be overthrown because there are other instances to which it might have
been applied;" and that "the legislative authority, exerted within its proper field, need not
embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S.
1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion
of tax money to experimental stations to seek increase of efficiency in sugar production,
utilization of by-products and solution of allied problems, as well as to the improvements of
living and working conditions in sugar mills or plantations, without any part of such money being
channeled directly to private persons, constitutes expenditure of tax money for private purposes,
(compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.

G.R. No. L-4817

May 26, 1954
SILVESTER
M.
PUNSALAN,
ET
AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog
and
Alafriz
for
plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own
behalf and in behalf of other professionals practising in the City of Manila who may desire to
join it." Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila
together with the provision of the Manila charter authorizing it and the refund of taxes
collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on
July 25, 1950, imposes a municipal occupation tax on persons exercising various professions in
the city and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion
of the court." Among the professions taxed were those to which plaintiffs belong. The ordinance
was enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila
(as amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the
same under protest and then brought the present suit for the purpose already stated. The lower
court upheld the validity of the provision of law authorizing the enactment of the ordinance but
declared the ordinance itself illegal and void on the ground that the penalty there in provided
for non-payment of the tax was not legally authorized. From this decision both parties appealed
to this Court, and the only question they have presented for our determination is whether this
ruling is correct or not, for though the decision is silent on the refund of taxes paid
plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The
last paragraph (kk) of the very section that authorizes the enactment of this tax ordinance
(section 18 of the Manila Charter) in express terms also empowers the Municipal Board "to fix
penalties for the violation of ordinances which shall not exceed to(sic) two hundred pesos fine
or six months" imprisonment, or both such fine and imprisonment, for a single offense."Hence, the
pronouncement below that the ordinance in question is illegal and void because it imposes a
penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law
authorizing it constitute class legislation, are unjust and oppressive, and authorize what
amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not
that the professions to which they respectively belong have been singled out for the imposition
of this municipal occupation tax; and in any event, the Legislature may, in its discretion,
select what occupations shall be taxed, and in the exercise of that discretion it may tax all, or
it may select for taxation certain classes and leave the others untaxed. (Cooley on Taxation,
Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the
City of Manila to impose the said tax, it has withheld that authority from other chartered
cities, not to mention municipalities. We do not think it is for the courts to judge what
particular cities or municipalities should be empowered to impose occupation taxes in addition to
those imposed by the National Government. That matter is peculiarly within the domain of the
political departments and the courts would do well not to encroach upon it. Moreover, as the seat
of the National Government and with a population and volume of trade many times that of any other
Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice
of the professions, so that it is but fair that the professionals in Manila be made to pay a
higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates
discrimination within a class in that while professionals with offices in Manila have to pay the
tax, outsiders who have no offices in the city but practice their profession therein are not
subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The
ordinance imposes the tax upon every person "exercising" or "pursuing" in the City of Manila
naturally any one of the occupations named, but does not say that such person must have his
office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter of
judicial determination. The argument against double taxation may not be invoked where one tax is
imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p.
492), it being widely recognized that there is nothing inherently obnoxious in the requirement
that license fees or taxes be exacted with respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares
Ordinance No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the

validity of the provision of the Manila charter authorizing it. With costs against plaintiffsappellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Separate Opinions
PARAS, C.J., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal
Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The
plaintiffs-appellants two lawyers, a physician, an accountant, a dentist and a pharmacist had
already paid the occupation tax under section 201 of the National Internal Revenue Code and are
thereby duly licensed to practice their respective professions throughout the Philippines; and
yet they had been required to pay another occupation tax under Ordinance No. 3398 for practising
in the City of Manila. This is a glaring example of contradiction the license granted by the
National Government is in effect withdrawn by the City in case of non-payment of the tax under
the ordinance. I fit be argued that the national occupation tax is collected to allow the
professional residing in Manila to pursue his calling in other places in the Philippines, it
should then be exacted only from professionals practising simultaneously in and outside of
Manila. At any rate, we are confronted with the following situation: Whereas the professionals
elsewhere pay only one occupation tax, in the City of Manila they have to pay two, although all
are on equal footing insofar as opportunities for earning money out of their pursuits are
concerned. The statement that practice in Manila is more lucrative than in the provinces, may be
true perhaps with reference only to a limited few, but certainly not to the general mass of
practitioners in any field. Again, provincial residents who have occasional or isolated practice
in Manila may have to pay the city tax. This obvious discrimination or lack of uniformity cannot
be brushed aside or justified by any trite pronouncement that double taxation is legitimate or
that legislation may validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal
Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed
by Ordinance No. 3398. The City cannot give what said professional already has. I would not say
that this Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the
Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board to impose a
municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either
under the Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a
practitioner in Manila.

G.R. No. L-18994

June 29, 1963

MELECIO
R.
DOMINGO,
as
Commissioner
of
Internal
Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price,respondents.
Office
of
the
Solicitor
General
Benedicto and Martinez for respondents.

and

Atty.

G.

H.

Mantolino

for

petitioner.

LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance
of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and
for an order in this Court directing the respondent court below to execute the judgment in favor
of the Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30,
1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court
of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the
Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the
estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution
of the judgment. The petition was, however, denied by the court which held that the execution is
not justifiable as the Government is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary
Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon
dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director
Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum
of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the
administratrix Simeona K. Price, as directed in the above note of the President.
Considering these facts, the Court orders that the payment of inheritance taxes in the sum
of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July
5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in
G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the
Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government
to her without further delay. (Order of August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that
the payment of the claim of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the administratrix herein amounting to
P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a
debtor, to its accounts to its citizens-creditors before it can insist in the prompt
payment of the latter's account to it, specially taking into consideration that the amount
due to the Government draws interests while the credit due to the present state does not
accrue any interest. (Order of September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim
of the Government against the estate must be denied for lack of merit. The ordinary procedure by
which to settle claims of indebtedness against the estate of a deceased person, as an inheritance
tax, is for the claimant to present a claim before the probate court so that said court may order
the administrator to pay the amount thereof. To such effect is the decision of this Court in
Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949,
thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for
the payment of debts and expenses of administration. The proper procedure is for the court
to order the sale of personal estate or the sale or mortgage of real property of the
deceased and all debts or expenses of administrator and with the written notice to all the
heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3,
and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the
regulations contained in Rule 90, section 7, should be complied with.1wph1.t
Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of
the debts and expenses of administration and it is later ascertained that there are such
debts and expenses to be paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of their several
liabilities, and order how much and in what manner each person shall contribute, and
mayissue execution if circumstances require" (Rule 89, section 6; see also Rule 74,
Section 4; Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to
settle the estate of a deceased person, the properties belonging to the estate are under the
jurisdiction of the court and such jurisdiction continues until said properties have been
distributed among the heirs entitled thereto. During the pendency of the proceedings all the
estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the
court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court
having jurisdiction of the estate had found that the claim of the estate against the Government
has been recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes
place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the
Civil Code, and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
It is clear, therefore, that the petitioner has no clear right to execute the judgment for
taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the
remedy.
The petition is, therefore, dismissed, without costs.

[G.R. No. 117359. July 23, 1998]

DAVAO GULF LUMBER CORPORATION, petitioner,
APPEALS, respondents.

vs. COMMISSIONER

OF

INTERNAL

REVENUE

and

COURT

OF

D E C I S I O N
PANGANIBAN, J.:
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 twentysix 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 percentum
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
petitioners claim for refund. RA 1435 provides:

statutory

provisions

do

not

clearly

support

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
capacity, eight centavos; and

other

similar

products

of

distillation,

per

liter

of

volume

(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.
x x x x x x x x x
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 twentysix 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.)
x x x x x x x x x
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.
x x x x x x x x x
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.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo,
Mendoza, Martinez, Quisumbing, and Purisima, JJ., concur.

Melo,

Puno,

Vitug,

Kapunan,

G.R. Nos. 141104 & 148763

June 8, 2007
ATLAS
CONSOLIDATED
MINING
AND
DEVELOPMENT
CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein
petitioner Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the
refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its
zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the
Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various
mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer.
It was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to
register anew with the appropriate revenue district office (RDO) of the Bureau of Internal
Revenue (BIR) when it moved its principal place of business, and it was re-issued VAT
Registration No. 32-0-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It
alleged that it likewise filed with the BIR the corresponding application for the refund/credit
of its input VAT on its purchases of capital goods and on its zero-rated sales in the amount
of P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR,
petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as
CTA Case No. 5102. Asserting that it was a "zero-rated VAT person," it prayed that the CTA order
herein respondent Commissioner of Internal Revenue (respondent Commissioner) to refund/credit
petitioner corporation with the amount of P26,030,460.00, representing the input VAT it had paid
for the first quarter of 1992. The respondent Commissioner opposed and sought the dismissal of
the petition for review of petitioner corporation for failure to state a cause of action. After
due trial, the CTA promulgated its Decision4 on 24 November 1997 with the following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the
ground of prescription, insufficiency of evidence and failure to comply with Section 230
of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack
of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15
April 1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court,
in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no
reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of Appeals in its
Resolution,7 dated 14 December 1999.
Thus,
petitioner
corporation
comes
before
this
Court, via a
Petition
for
Review
on Certiorari under Rule 45 of the Revised Rules of Court, assigning the following errors
committed by the Court of Appeals
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS NO. 2-88
THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST
CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT
EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL
DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE
PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE
FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR
PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above,
except that it relates to the claims of petitioner corporation for refund/credit of input VAT on
its purchases of capital goods and on its zero-rated sales made in the last three taxable
quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth
quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It
submitted separate applications to the BIR for the refund/credit of the input VAT paid on its
purchases of capital goods and on its zero-rated sales, the details of which are presented as
follows
Date of Application

Period Covered

Amount Applied For

21 August 1990

2nd Quarter, 1990

P 54,014,722.04

21 November 1990

3rd Quarter, 1990

75,304,774.77

19 February 1991

4th Quarter, 1990

43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed
with the CTA the following petitions for review
Date Filed

Period Covered

CTA Case No.

20 July 1992

2nd Quarter, 1990

4831

9 October 1992

3rd Quarter, 1990

4859

14 January 1993

4th Quarter, 1990

4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions
and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in
its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the
prescriptive periods for filing the same had expired. In a Resolution, 10 dated 15 January 1998,
the CTA denied the motion for reconsideration of petitioner corporation since the latter
presented no new matter not already discussed in the court's prior Decision. In the same
Resolution, the CTA also denied the alternative prayer of petitioner corporation for a new trial
since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised
Rules of Court, and it was not supported by affidavits of merits required by Section 2 of the
same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CAG.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding
that although petitioner corporation timely filed its Petitions for Review with the CTA, it still
failed to substantiate its claims for the refund/credit of its input VAT for the last three
quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the motion
for reconsideration of petitioner corporation, finding no cogent reason to reverse its previous
Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising
the following issues
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS BARRED
UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70%
THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE
INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO GRANT
PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling
of this Court in these cases hinges on how it will resolve the following key issues: (1)
prescription of the claims of petitioner corporation for input VAT refund/credit; (2) validity
and applicability of Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a
requirement for the VAT zero-rating of its sales, the burden of proving that the buyer companies
were not just BOI-registered but also exporting 70% of their total annual production; (3)
sufficiency of evidence presented by petitioner corporation to establish that it is indeed
entitled to input VAT refund/credit; and (4) legal ground for granting the motion of petitioner
corporation for re-opening of its cases or holding of new trial before the CTA so it could be
given the opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zerorated sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977,
as amended, which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by
paragraph (a) above, whose sales are zero-rated may, within two years after the close of
the quarter when such sales were made, apply for the issuance of a tax credit certificate
or refund of the input taxes attributable to such sales to the extent that such input tax
has not been applied against output tax.
x x x x
(e) Period within which refund of input taxes may be made by the Commissioner. The
Commissioner shall refund input taxes within 60 days from the date the application for
refund was filed with him or his duly authorized representative. No refund of input taxes

shall be allowed unless the VAT-registered person files an application for refund within
the period prescribed in paragraphs (a), (b) and (c) as the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the
application for refund/credit of input VAT on zero-rated sales shall be determined from the close
of the quarter when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not
from the close of the quarter when the zero-rated sales were made, but from the date of filing of
the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with
Section 110(b) of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be filed and the tax
paid within 20 days following the end of each quarter specifically prescribed for a VATregistered
person
under
regulations
to
be
promulgated
by
the
Secretary
of
Finance: Provided, however, That any person whose registration is cancelled in accordance
with paragraph (e) of Section 107 shall file a return within 20 days from the cancellation
of such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or
proceeding for recovery of corporate income tax erroneously or illegally paid under Section
23013 of the Tax Code of 1977, as amended, was to be counted from the filing of the final
adjustment return. This Court already set out in ACCRA Investments Corporation v. Court of
Appeals,14 the rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for refund can prosper
inasmuch as the respondent Commissioner by his own rules and regulations mandates that the
corporate taxpayer opting to ask for a refund must show in its final adjustment return the
income it received from all sources and the amount of withholding taxes remitted by its
withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its
final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution
dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia
Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within
which to claim a refund commences to run, at the earliest, on the date of the filing of
the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984
within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that
the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to
reiterate its claim before the Court of Tax Appeals through a petition for review on April
13, 1984, the respondent appellate court manifestly committed a reversible error in
affirming the holding of the tax court that ACCRAIN's claim for refund was barred by
prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it
filed its final adjustment return is the fact that it was only then that ACCRAIN could
ascertain whether it made profits or incurred losses in its business operations. The "date
of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due
upon its filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further
expounded on the same matter
A re-examination of the aforesaid minute resolution of the Court in the Pacific
Procon case is warranted under the circumstances to lay down a categorical pronouncement
on the question as to when the two-year prescriptive period in cases of quarterly
corporate income tax commences to run. A full-blown decision in this regard is rendered
more imperative in the light of the reversal by the Court of Tax Appeals in the instant
case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted
in relation to the other provisions of the Tax Code in order to give effect the
legislative intent and to avoid an application of the law which may lead to inconvenience
and absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated
that statutes should receive a sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO
TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is
ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted.
Furthermore, courts must give effect to the general legislative intent that can be
discovered from or is unraveled by the four corners of the statute, and in order to
discover said intent, the whole statute, and not only a particular provision thereof,
should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA
162 [1976) Every section, provision or clause of the statute must be expounded by
reference to each other in order to arrive at the effect contemplated by the legislature.
The intention of the legislator must be ascertained from the whole text of the law and
every part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931
[1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation
vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of
the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section
86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax
Payment and Section 321 (now Section 232) on keeping of books of accounts. All these
provisions of the Tax Code should be harmonized with each other.
x x x x
Therefore, the filing of a quarterly income tax returns required in Section 85 (now
Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered mere installments of the annual tax due. These quarterly tax payments
which are computed based on the cumulative figures of gross receipts and deductions in
order to arrive at a net taxable income, should be treated as advances or portions of the
annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is
reinforced by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive period
provided in Section 292 (now Section 230) of the Tax Code should be computed from the time
of filing the Adjustment Return or Annual Income Tax Return and final payment of income
tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year
prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the
date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since
the two-year prescriptive period should be counted from the filing of the Adjustment
Return on April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive
period for claims for refund of illegally or erroneously collected income tax may also apply to
the Petitions at bar involving the same prescriptive period for claims for refund/credit of input
VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every
quarter, but is eventually subjected to a final adjustment at the end of the taxable year, VAT is
computed and paid on a purely quarterly basis without need for a final adjustment at the end of
the taxable year. However, it is also equally true that until and unless the VAT-registered
taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing
with certainty just how much input VAT16 the taxpayer may apply against its output VAT;17how much
output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over to the
following quarter; or how much of its input VAT it may claim as refund/credit. It should be
recalled that not only may a VAT-registered taxpayer directly apply against his output VAT due
the input VAT it had paid on its importation or local purchases of goods and services during the
quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to
the succeeding quarters for application against its future output VAT liabilities, or (2) file an
application for refund or issuance of a tax credit certificate covering the amount of such input
VAT.18 Hence, even in the absence of a final adjustment return, the determination of any output
VAT payable necessarily requires that the VAT-registered taxpayer make adjustments in its VAT
return every quarter, taking into consideration the input VAT which are creditable for the
present quarter or had been carried over from the previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that
it does have refundable or creditable input VAT, and the same has not been applied against its
output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT
returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer's
VAT return/s for the taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as
illegally or erroneously collected, its refund/credit is a privilege extended to qualified and
registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same
as any illegally or erroneously collected national internal revenue tax, consists of monetary
amounts which are currently in the hands of the government but must rightfully be returned to the
taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected
national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for
filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive
period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of
filing of the return and payment of the tax due which, according to the law then existing, should
be made within 20 days from the end of each quarter. Having established thus, the relevant dates
in the instant cases are summarized and reproduced below
Period Covered

Date
Filing(Return

of
w/

Date
Filing(Application

of
w/

Date of Filing(Case
w/ CTA)

BIR)

BIR)

2nd Quarter, 1990

20 July 1990

21 August 1990

20 July 1992

3rd Quarter, 1990

18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

20 January 1991

19 February 1991

14 January 1993

1st Quarter, 1992

20 April 1992

--

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner
corporation for refund of its input VAT on its zero-rated sales for the last three quarters of
1990 were all filed within the prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input
VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem that
petitioner corporation filed in time its judicial claim with the CTA, there is no showing that it
had previously filed an administrative claim with the BIR. Section 106(e) of the Tax Code of
1977, as amended, explicitly provided that no refund of input VAT shall be allowed unless the
VAT-registered taxpayer filed an application for refund with respondent Commissioner within the
two-year prescriptive period. The application of petitioner corporation for refund/credit of its
input VAT for the first quarter of 1992 was not only unsigned by its supposed authorized
representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not dated, stamped,
and initialed by the BIR official who purportedly received the same. The CTA, in its
Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations
This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund
of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the
petitioner on account of the fact that it does not bear the BIR stamp showing the date
when such application was filed together with the signature or initial of the receiving
officer of respondent's Bureau. Worse still, it does not show the date of application and
the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be
petitioner's authorized filer.
A review of the records reveal that the original of the aforecited application was lost
during the time petitioner transferred its office (TSN, p. 6, Hearing of December 9,
1994). Attempt was made to prove that petitioner exerted efforts to recover the original
copy, but to no avail. Despite this, however, We observe that petitioner completely failed
to establish the missing dates and signatures abovementioned. On this score, said
application has no probative value in demonstrating the fact of its filing within two
years after the [filing of the VAT return for the quarter] when petitioner's sales of
goods were made as prescribed under Section 106(b) of the Tax Code. We believe thus that
petitioner failed to file an application for refund in due form and within the legal
period set by law at the administrative level. Hence, the case at bar has failed to
satisfy the requirement on the prior filing of an application for refund with the
respondent before the commencement of a judicial claim for refund, as prescribed under
Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner
corporation timely filed its administrative claim for refund of its input VAT for the first
quarter of 1992, but also whether petitioner corporation actually filed such administrative claim
in the first place. For failing to prove that it had earlier filed with the BIR an application
for refund/credit of its input VAT for the first quarter of 1992, within the period prescribed by
law, then the case instituted by petitioner corporation with the CTA for the refund/credit of the
very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same
provision subjected the following sales made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to
zero-rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to
a foreign country, irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominated sales. "Foreign currency denominated sales", means sales to
nonresidents of goods assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign currency remitted through
the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction
for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of
goods and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its

purchases of goods or services related to such zero-rated sale shall be available as tax credit
or refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the
said regulations imposed additional requirements, not found in the law itself, for the zerorating of its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine
Phosphate, Inc. (PHILPHOS), both of which are registered not only with the BOI, but also with the
then Export Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of
raw materials to export-oriented BOI-registered enterprises whose export sales, under
rules and regulations of the Board of Investments, exceed seventy percent (70%) of total
annual production, shall be subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying
for zero-rating for each and every separate buyer, in accordance with Section 8(d)
of Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the
manufacture, processing or repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales
invoice. The exporter (buyer) can no longer claim from the Bureau of Internal
Revenue or any other government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident
foreign buyer for delivery to a resident local export-oriented BOI-registered enterprise
to be used in manufacturing, processing or repacking of the said buyer's goods and paid
for in foreign currency, inwardly remitted in accordance with Central Bank rules and
regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals,
that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be
entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VATregistered seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered
corporations, but also that more than 70% of the total annual production of these corporations
are actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the
BOI on export-oriented corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it
finds that its application must be limited and placed in the proper context. Note that Section 2
of Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to exportoriented BOI-registered enterprises whose export sales, under BOI rules and regulations, should
exceed seventy percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the
sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized
that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with
the EPZA and located within an export-processing zone. Petitioner corporation does not claim that
its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were made to exportoriented BOI-registered corporations, but rather, on the basis that the sales were made to EPZAregistered enterprises operating within export processing zones. Although sales to exportoriented BOI-registered enterprises and sales to EPZA-registered enterprises located within
export processing zones were both deemed export sales, which, under Section 100(a) of the Tax
Code of 1977, as amended, shall be subject to 0% VAT distinction must be made between these two
types of sales because each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale
and shipment or exportation of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominated sales." Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned
(i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a
more comprehensive definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered export producer
or the net selling price of export product sold by a registered export producer or to an
export trader that subsequently exports the same: Provided, That sales of export products
to another producer or to an export trader shall only be deemed export sales whenactually
exported by the latter, as evidenced by landing certificates of similar commercial
documents: Provided, further, That without actual exportation the following shall be
considered constructively exportedfor purposes of this provision: (1) sales to bonded
manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing
zones; (3) sales to registered export traders operating bonded trading warehouses
supplying raw materials used in the manufacture of export products under guidelines to be
set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of
Customs; (4) sales to foreign military bases, diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of locally manufactured, assembled or

repacked products whether paid for in foreign currency or not: Provided, further, That
export sales of registered export trader may include commission income; and Provided,
finally, That exportation of goods on consignment shall not be deemed export sales until
the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government and paid for in convertible
foreign currency inwardly remitted through the Philippine banking systems shall also be
considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or export trader
must be registered with the BOI and is required to actually export more than 70% of its annual
production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation
specifically identified by the said provision are sales to export processing zones. Sales to
export processing zones are subjected to special tax treatment. Article 77 of the same Code
establishes the tax treatment of goods or merchandise brought into the export processing zones.
Of particular relevance herein is paragraph 2, which provides that "Merchandise purchased by a
registered zone enterprise from the customs territory and subsequently brought into the zone,
shall be considered as export sales and the exporter thereof shall be entitled to the benefits
allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle,22 goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine 23 mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must be free of VAT, while those destined for
use or consumption within the Philippines shall be imposed with 10% VAT. 24 Export processing
zones25 are to be managed as a separate customs territory from the rest of the Philippines and,
thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales
by persons from the Philippine customs territory to those inside the export processing zones are
already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales,
which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that
petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to
PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to
export-oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises
operating within export processing zones is actually supported by subsequent development in tax
laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as
amended,26 the BIR defined with more precision what are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas(BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon
accreditation as such under the provisions of the Export Development Act (R.A. 7844) and
its implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which
are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which
applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be
applied to the applications for refund/credit of input VAT filed by petitioner corporation since

it based its applications on the zero-rating of export sales to enterprises registered with the
EPZA and located within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and
factual bases of its claim for tax credit or refund, but once it has submitted all the required
documents, it is the function of the BIR to assess these documents with purposeful dispatch. 28 It
therefore falls upon herein petitioner corporation to first establish that its sales qualify for
VAT zero-rating under the existing laws (legal basis), and then to present sufficient evidence
that said sales were actually made and resulted in refundable or creditable input VAT in the
amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation
cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more
thorough perusal of its applications, VAT returns, pleadings, and other records of these cases
would reveal that it is also claiming refund/credit of its input VAT on purchases of capital
goods and sales of gold to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have
sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of
the Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to
enterprises operating within export processing zones and registered with the EPZA, since such
export sales were deemed to be effectively zero-rated sales. 29 The fact that PASAR and PHILPHOS,
to whom petitioner corporation sold its products, were operating inside an export processing zone
and duly registered with EPZA, was never raised as an issue herein. Moreover, the same fact was
already judicially recognized in the case Atlas Consolidated Mining & Development Corporation v.
Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VATregistered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or
locally purchased to the extent that such input VAT has not been applied against its output VAT.
Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 1991 31 was already
affirmed by this Court in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it
ruled that
At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated.
The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980
which prescribed that gold sold to the Central Bank shall be considered export and
therefore shall be subject to the export and premium duties. In coming out with this
interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960 which
states that all sales of gold to the Central Bank are considered constructive exports. x x
x.
This Court now comes to the question of whether petitioner corporation has sufficiently
established the factual bases for its applications for refund/credit of input VAT. It is in this
regard that petitioner corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the
said applications must have been in accordance with Revenue Regulations No. 3-88, amending
Section 16 of Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
x x x x
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly
with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall
be submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit
Certificate or refund. In addition, the following documents shall be attached whenever
applicable:
x x x x
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the
first time.
"ii) sales invoice or receipt showing name of the person or entity to whom
the sale of goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase,
purchase price, amount of value-added tax paid and description of the
capital equipment locally purchased.
"ii) with respect to capital equipment imported, the photo copy of import
entry document for internal revenue tax purposes and the confirmation

receipt issued by the Bureau of Customs for the payment of the value-added
tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government
agencies, a statement therefrom showing the amount and description of sale of goods and
services, name of persons or entities (except in case of exports) to whom the goods or
services were sold, and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to
the amount of the value-added tax (VAT) paid directly and entirely attributable to the
zero-rated transaction during the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods
and services, and the VAT paid (inputs) on purchases of goods and services cannot be
directly attributed to any of the aforementioned transactions, the following formula shall
be used to determine the creditable or refundable input tax for zero-rated sale:
Amount
of
Zero-rated
Sale
Total Sales
X
Total
Amount
of
Input
Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the
BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already
file a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous
documents, such as receipts, invoices, vouchers or long accounts, their presentation before the
CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full below
In the interest of speedy administration of justice, the Court hereby promulgates the
following rules governing the presentation of voluminous documents and/or long accounts,
such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant
to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania
Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act
No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers,
dates and amounts covered by the invoices or receipts and the amount/s of tax
paid; and (b) a Certification of an independent Certified Public Accountant
attesting to the correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts and invoices. The
name of the accountant or partner of the firm in charge must be stated in the
motion so that he/she can be commissioned by the Court to conduct the audit and,
thereafter, testify in Court relative to such summary and certification pursuant
to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before
the Court or Clerk of Court anymore after the introduction of the summary and CPA
certification. It is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence must be pre-marked by
the party concerned and submitted to the Court in order to be made accessible to the
adverse party who desires to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts, invoices or accounts
must be ready for verification and comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said
Circular was issued, then petitioner corporation must have complied therewith during the course
of the trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zerorated sales of gold to the CBP because it was unable to substantiate its claim. In the same case,
this Court emphasized the importance of complying with the substantiation requirements for
claiming refund/credit of input VAT on zero-rated sales, to wit
For a judicial claim for refund to prosper, however, respondent must not only prove that
it is a VAT registered entity and that it filed its claims within the prescriptive
period. It
must substantiate the
input
VAT
paid
by
purchase invoices or official
receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.
x x x x
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed
before it are litigatedde novo, party litigants should prove every minute aspect of their
cases. No evidentiary value can be given the purchase invoices or receipts submitted to

the BIR as the rules on documentary evidence require that these documents must be formally
offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAToutput tax but this does not ipso fact mean that [the seller] is entitled to the
amount of refund sought as it is required by law to present evidence showing the
input taxes it paid during the year in question. What is being claimed in the
instant petition is the refund of the input taxes paid by the herein petitioner on
its purchase of goods and services. Hence, it is necessary for the Petitioner to
show proof that it had indeed paid the input taxes during the year 1991. In the
case at bar, Petitioner failed to discharge this duty. It did not adduce in
evidence the sales invoice, receipts or other documents showing the input value
added tax on the purchase of goods and services.
x x x
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence
accordingly if
they
desire
the
Court
to
take
such
evidence
into
consideration. (Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to sell
or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money
or other settlement between seller and buyer of goods, debtor or creditor, or person
rendering services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the
actual amount or quantity of goods sold and their selling price, and taken collectively
are the best means to prove the input VAT payments.36
Although the foregoing decision focused only on the proof required for the applicant for
refund/credit to establish the input VAT payments it had made on its purchases from suppliers,
Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated
VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if
filing for the first time; (2) sales invoice or receipt showing the name of the person or entity
to whom the goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered; and (3) the evidence of actual receipt of goods or
services.
Also worth noting in the same decision is the weight given by this Court to the certification by
the independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the independent CPA attesting to
the correctness of the contents of the summary of suppliers' invoices or receipts which
were examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95
as amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments.
x x x x
The circular, in the interest of speedy administration of justice, was promulgated to
avoid the time-consuming procedure of presenting, identifying and marking of documents
before the Court. It does not relieve respondent of its imperative task of premarking photocopies of sales receipts and invoices andsubmitting the same to the
court after the independent CPA shall have examined and compared them with the originals.
Without presenting these pre-marked documents as evidence from which the summary and
schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA
in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation,
No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled
to a refund of input VAT.
x x x x
While the CTA is not governed strictly by technical rules of evidence, as rules of
procedure are not ends in themselves but are primarily intended as tools in the
administration of justice, the presentation of the purchase receipts and/or invoices is
not mere procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of the respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for
input VAT refund for the first semester of 1991. Except for the summary and schedules of
input VAT payments prepared by respondent itself, no other evidence was adduced in support
of its claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it
employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan &
Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments
made by the Makati Office of Manila Mining Corporation for the period from July 1
to December 31, 1991. Our examination included inspection of the pertinent
suppliers' invoices and official receipts and such other auditing procedures as we
considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary"
and not auditing procedures which are in accordance with generally accepted auditing
principles and standards, and that the examination was made on "input tax payments by the
Manila Mining Corporation," without specifying that the said input tax payments are
attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its
zero-rated sales in the first quarter of 1992, this Court already found that the petitioner
corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing
the two-year prescriptive period for the filing of the application for refund/credit thereof.
This bars the grant of the application for refund/credit, whether administratively or judicially,
by express mandate of Section 106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the
input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed,
petitioner corporation still failed to present together with its application the required
supporting documents, whether before the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of
proof rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed
to substantiate its claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on
Revenue Regulations No. 2-88 in determining compliance with the documentary
requirements for a successful refund or issuance of tax credit. Unmentioned is the
applicable and specific amendment later introduced by Revenue Regulations No. 3-88
dated April 7, 1988 (issued barely after two months from the promulgation of
Revenue Regulations No. 2-88 on February 15, 1988), which amended Section 16 of
Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.
x x x x
"A thorough examination of the evidence submitted by the petitioner before this
court reveals outright the failure to satisfy documentary requirements laid down
under the above-cited regulations. Specifically, petitioner was not able to
present the following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment
locally purchased; and
"f) photocopy of import entry document and confirmation receipt on imported
capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain
the actual amount or quantity of goods sold and their selling price. Without them,
this Court cannot verify the correctness of petitioner's claim inasmuch as the
regulations require that the input taxes being sought for refund should be limited
to the portion that is directly and entirely attributable to the particular zerorated transaction. In this instance, the best evidence of such transaction are the
said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the further need to submit
evidence that such goods were actually received by the buyer, in this case, by
CBP, Philp[h]os and PASAR.
x x x x
"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods
without the required purchase invoice or receipt, as the case may be, and
confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or
attested photocopies of petitioner's invoices or receipts, confirmation receipts
and import entry documents in order that a full ascertainment of the claimed
amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the
missing documentsabovementioned. Cases filed before this Court are litigated de
novo. This means that party litigants should endeavor to prove at the first

instance every minute aspect of their cases strictly in accordance with the Rules
of Court, most especially on documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or
entity claiming the exemption. The taxpayer who claims for exemption must justify his
claim by the clearest grant of organic or statute law and should not be permitted to stand
on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil.
Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968;
Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and
Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is
"self-destructive", as it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose
of the Company. We make no presentation regarding the sufficiency of these
procedures for such purpose. We did not compare the total of the input tax claimed
each quarter against the pertinent VAT returns and books of accounts. The above
procedures do not constitute an audit made in accordance with generally accepted
auditing standards. Accordingly, we do not express an opinion on the company's
claim for input VAT refund or credit. Had we performed additional procedures, or
had we made an audit in accordance with generally accepted auditing standards,
other matters might have come to our attention that we would have accordingly
reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent
auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation
on its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court
likewise found that petitioner corporation failed to sufficiently establish its claims. Already
disregarding the declarations made by the Court of Appeals on its erroneous application of
Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of the appellate court
after evaluating the evidence submitted in accordance with the requirements under Revenue
Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to
Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate
all needful rules and regulations for the effective enforcement of the provisions of this
Code." Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input
VATs or the issuance of a tax credit certificate with the BIR x x x to prove sales to such
buyers as required by Revenue Regulations No. 3-98. Logically, the same evidence should be
presented in support of an action to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts
showing sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and
[PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of
actual receipt by the said buyers of the mineral products. It merely presented receipts of
purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of Tax
Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit
certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June
2000, this Court directed the parties to file memoranda discussing, among others, the
submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite
to buyers." Nevertheless, the parties, including the petitioner, failed to address this
issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on
this point.39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for
well-settled is the general rule that the jurisdiction of this Court in cases brought before it
from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, is limited to reviewing or revising errors of law; findings of fact of
the latter are conclusive.40 This Court is not a trier of facts. It is not its function to review,
examine and evaluate or weigh the probative value of the evidence presented.41
The distinction between a question of law and a question of fact is clear-cut. It has been held
that "[t]here is a question of law in a given case when the doubt or difference arises as to what
the law is on a certain state of facts; there is a question of fact when the doubt or difference
arises as to the truth or falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these
sales in the amount it had declared in its returns; whether all the input VAT subject of its
applications for refund/credit can be attributed to its zero-rated sales; and whether it had not
previously applied the input VAT against its output VAT liabilities, are all questions of fact
which could only be answered after reviewing, examining, evaluating, or weighing the probative
value of the evidence it presented, and which this Court does not have the jurisdiction to do in
the present Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of
fact under particular circumstances,43 none of these exist in the instant cases. The Court of
Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the

input VAT of petitioner corporation, and the records bear out this finding. Petitioner
corporation itself cannot dispute its non-compliance with the requirements set forth in Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its
assertion that the substantiation requirements under Revenue Regulations No. 2-88 should not have
applied to it, while being conspicuously silent on the evidentiary requirements mandated by other
relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the reopening of its cases or holding of new trial before the CTA for the reception of additional
evidence, may be granted. Petitioner corporation prays that the Court exercise its discretion on
the matter in its favor, consistent with the policy that rules of procedure be liberally
construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already
rendered in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration.
Within the period for taking an appeal, the aggrieved party may move the trial court to
set aside the judgment or final order and grant a new trial for one or more of the
following causes materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.
Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to
justify the decision or final order, or that the decision or final order is contrary to
law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of
its cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its
counsel to adduce the necessary evidence should be construed as excusable negligence or mistake
which should constitute basis for such re-opening of trial as for a new trial, as counsel was of
the belief that such evidence was rendered unnecessary by the presentation of unrebutted evidence
indicating that respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS]
to be zero-rated." 44 The CTA denied such motion on the ground that it was not accompanied by an
affidavit of merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of
Appeals affirmed the denial of the motion, but apart from this technical defect, it also found
that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its
cases and/or holding of new trial based on the technicality that said motion was unaccompanied by
an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which
should otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged
and incorporated in the motion itself; and this will be deemed a substantial compliance with the
formal requirements of the law, provided, of course, that the movant, or other individual with
personal knowledge of the facts, take oath as to the truth thereof, in effect converting the
entire motion for new trial into an affidavit.45 The motion of petitioner corporation was prepared
and verified by its counsel, and since the ground for the motion was premised on said counsel's
excusable negligence or mistake, then the obvious conclusion is that he had personal knowledge of
the facts relating to such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial was in
substantial compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation
for the re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution, 46 dated 20 July 1998, by the
CTA in another case, CTA Case No. 5296, involving the claim of petitioner corporation for
refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the reopening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation
the opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial
court,47 may likewise be extended to the CTA. When the denial of the motion rests upon the
discretion of a lower court, this Court will not interfere with its exercise, unless there is
proof of grave abuse thereof.48
That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a similar motion in another case filed by the same party, does not
necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA.
Although the cases involve identical parties, the causes of action and the evidence to support
the same can very well be different. As can be gleaned from the Resolution, dated 20 July 1998,
in CTA Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT on its
zero-rated sales, consisting of actual export sales, to Mitsubishi Metal Corporation in Tokyo,
Japan. The CTA took into account the presentation by petitioner corporation of inward remittances

of its export sales for the quarter involved, its Supply Contract with Mitsubishi Metal
Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its
application for refund. In contrast, the present Petitions involve the claims of petitioner
corporation for refund/credit of the input VAT on its purchases of capital goods and on
its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for
the second, third, and fourth quarters of 1990 and first quarter of 1992. There being a
difference as to the bases of the claims of petitioner corporation for refund/credit of input VAT
in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting variances as to the
evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation
to present evidence "is applicable pro hac vice or in this occasion only as it is the finding of
[the CTA] that petitioner [corporation] has established a few of the aforementioned material
points regarding the possible existence of the export documents together with the prior and
succeeding returns for the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in
the present cases, cannot be bound by its ruling in CTA Case No. 5296, when these cases do not
involve the exact same circumstances that compelled it to grant the motion of petitioner
corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents
was due to the fault of the counsel of petitioner corporation, this Court finds that it does not
constitute excusable negligence or mistake which would warrant the re-opening of the cases and/or
holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the
client. To follow a contrary rule and allow a party to disown his counsel's conduct would render
proceedings indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing
the counsel. What the aggrieved litigant should do is seek administrative sanctions against the
erring counsel and not ask for the reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the client is bound by the
action of his counsel in the conduct of his case and he cannot therefore complain that the result
of the litigation might have been otherwise had his counsel proceeded differently. It has been
held time and again that blunders and mistakes made in the conduct of the proceedings in the
trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify
as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases,
there would never be an end to litigation so long as a new counsel could be employed to allege
and show that the prior counsel had not been sufficiently diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could
not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988,
had been in effect more than two years prior to the filing by petitioner corporation of its
earliest application for refund/credit of input VAT involved herein on 21 August 1990. CTA
Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had filed its
Petitions before the CTA, but still during the pendency of the cases of petitioner corporation
before the tax court. The counsel of petitioner corporation does not allege ignorance of the
foregoing administrative regulation and tax court circular, only that he no longer deemed it
necessary to present the documents required therein because of the presentation of alleged
unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call
made by the counsel as to which evidence to present in support of his client's cause, later
proved to be unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-presentation
of the required documentary evidence was due to the excusable mistake of its counsel, a ground
under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake,"
as it is referred to in the said rule, must be a mistake of fact, not of law, which relates to
the case.52 In the present case, the supposed mistake made by the counsel of petitioner
corporation is one of law, for it was grounded on his interpretation and evaluation that Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended, did not apply to his client's cases
and that there was no need to comply with the documentary requirements set forth therein. And
although the counsel of petitioner corporation advocated an erroneous legal position, the effects
thereof, which did not amount to a deprivation of his client's right to be heard, must bind
petitioner corporation. The question is not whether petitioner corporation succeeded in
establishing its interests, but whether it had the opportunity to present its side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on
the ground of mistake must show that ordinary prudence could not have guarded against it. A new
trial is not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated
the presentation of all available evidence that would have supported the claims for refund/credit
of input VAT of petitioner corporation. Without sound legal basis, counsel for petitioner
corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as
amended, did not apply to its client's claims. The obstinacy of petitioner corporation and its
counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate
administrative regulations and tax court circular in pursuing the claims for refund/credit, now
subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span of
more than two years. It is also evident in the failure of petitioner corporation to address the

issue and to present additional evidence despite being given the opportunity to do so by the
Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September
2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties
to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless,
the parties, including the petitioner, failed to address this issue, thereby necessitating
the affirmance of the ruling of the Court of Tax Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of
filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating
within economic processing zones were effectively zero-rated and were not covered by Revenue
Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its
input VAT on its purchases of capital goods and effectively zero-rated sales during the second,
third, and fourth quarters of 1990 and the first quarter of 1992, for not being established and
substantiated by appropriate and sufficient evidence. Petitioner corporation is also not entitled
to the re-opening of its cases and/or holding of new trial since the non-presentation of the
required documentary evidence before the BIR and the CTA by its counsel does not constitute
excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of
Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos.
47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

G.R. Nos. 167274-75

July 21, 2008
COMMISSIONER
OF
INTERNAL
REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.
D E C I S I O N
TINGA, J.:
Simple and uncomplicated is the central issue involved, yet whopping is the amount at stake in
this case.
After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals, Fortune Tobacco
Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing specific taxes
erroneously collected from its tobacco products. The tax refund is being re-claimed by the
Commissioner of Internal Revenue (Commissioner) in this petition.
The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed
Decision1 dated 28 September 2004:
CAG.R. SP No. 80675
x x x x
Petitioner2 is a domestic corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, with principal address at Fortune Avenue, Parang, Marikina
City.
Petitioner is the manufacturer/producer of, among others, the following cigarette brands, with
tax rate classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to
wit:
Brand

Tax Rate

Champion M 100

P1.00

Salem M 100

P1.00

Salem M King

P1.00

Camel F King

P1.00

Camel Lights Box 20s

P1.00

Camel Filters Box 20s

P1.00

Winston F Kings

P5.00

Winston Lights

P5.00

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad
valorem tax pursuant to then Section 142 of the Tax Code of 1977, as amended. However, on January
1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system to the
specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under
[S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions
of which are quoted thus:
Section 145. Cigars and Cigarettes(A) Cigars. There shall be levied, assessed and collected on cigars a tax of One peso
(P1.00) per cigar.
"(B) Cigarettes packed by hand. There shall be levied, assessesed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the tax shall be Twelve (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value added
tax) exceeds Six pesos and Fifty centavos ( P6.50) but does not exceed Ten pesos
(P10.00) per pack, the tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax)
is Five pesos (P5.00) but does not exceed Six Pesos and fifty centavos ( P6.50) per
pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is
below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;
"Variants of existing brands of cigarettes which are introduced in the domestic market after the
effectivity of R.A. No. 8240 shall be taxed under the highest classification of any variant of
that brand.
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity
of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1,
1996. Provided, however, that in cases were (sic) the excise tax rate imposed in paragraphs (1),
(2), (3) and (4) hereinabove will result in an increase in excise tax of more than seventy
percent (70%), for a brand of cigarette, the increase shall take effect in two tranches: fifty

percent (50%) of the increase shall be effective in 1997 and one hundred percent (100%) of the
increase shall be effective in 1998.
Duly registered or existing brands of cigarettes or new brands thereof packed by machine shall
only be packed in twenties.
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof,
shall be increased by twelve percent (12%) on January 1, 2000. (Emphasis supplied)
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the cigarette is sold on
retail in twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and value-added
tax. For brands which are marketed only outside Metro [M]anila, the net retail price shall mean
the price at which the cigarette is sold in five (5) major supermarkets in the region excluding
the amount intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average retail price as of October 1,
1996, as set forth in Annex "D," shall remain in force until revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to the
root name of the brand and/or a different brand which carries the same logo or design of the
existing brand.
To implement the provisions for a twelve percent (12%) increase of excise tax on, among others,
cigars and cigarettes packed by machines by January 1, 2000, the Secretary of Finance, upon
recommendation of the respondent Commissioner of Internal Revenue, issued Revenue Regulations No.
17-99, dated December 16, 1999, which provides the increase on the applicable tax rates on cigar
and cigarettes as follows:
SECTION

ARTICLES

PRESENT
SPECIFIC
TAX
NEW SPECIFIC TAX RATE
RATE PRIOR TO JAN. 1,
EFFECTIVE JAN. 1, 2000
2000

145

(A)

P1.00/cigar

P1.12/cigar

(B)Cigarettes packed by machine

(1) Net retail price (excluding VAT P12.00/pack
and excise) exceeds P10.00 per pack

P13.44/ pack

(2) Exceeds P10.00 per pack

P8.00/pack

P8.96/pack

(3) Net retail price (excluding VAT P5.00/pack

and excise) is P5.00 to P6.50 per
pack

P5.60/pack

(4) Net Retail Price (excluding VAT P1.00/pack

and excise) is below P5.00 per pack

P1.12/pack

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof,
"(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000."
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all
brands manufactured and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondents Appellate Division a claim for refund or
tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount
of P35,651,410.00
On June 21, 2001, petitioner filed with respondents Legal Service a letter dated June 20, 2001
reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on various
dates, including the present claim for the month of January 2000 in the amount of P35,651,410.00.
As there was no action on the part of the respondent, petitioner filed the instant petition for
review with this Court on December 11, 2001, in order to comply with the two-year period for
filing a claim for refund.
In his answer filed on January 16, 2002, respondent raised the following Special and Affirmative
Defenses;
4. Petitioners alleged claim for refund is subject to administrative routinary
investigation/examination by the Bureau;
5. The amount of P35,651,410 being claimed by petitioner as alleged overpaid excise tax
for the month of January 2000 was not properly documented.
6. In an action for tax refund, the burden of proof is on the taxpayer to establish its
right to refund, and failure to sustain the burden is fatal to its claim for
refund/credit.
7. Petitioner must show that it has complied with the provisions of Section 204(C) in
relation [to] Section 229 of the Tax Code on the prescriptive period for claiming tax
refund/credit;
8. Claims for refund are construed strictly against the claimant for the same partake of
tax exemption from taxation; and

9. The last paragraph of Section 1 of Revenue Regulation[s] [No.]17-99 is a valid

implementing regulation which has the force and effect of law."
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said case questions the CTAs
December 4, 2003 decision in CTA Case No. 6612 granting respondents 3 claim for refund of the
amount of P355,385,920.00 representing erroneously or illegally collected specific taxes covering
the period January 1, 2002 to December 31, 2002, as well as its March 17, 2004 Resolution denying
a reconsideration thereof.
x x x x
In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of Tax Appeals reduced the issues
to be resolved into two as stipulated by the parties, to wit: (1) Whether or not the last
paragraph of Section 1 of Revenue Regulation[s] [No.] 17-99 is in accordance with the pertinent
provisions of Republic Act [No.] 8240, now incorporated in Section 145 of the Tax Code of 1997;
and (2) Whether or not petitioner is entitled to a refund ofP35,651,410.00 as alleged overpaid
excise tax for the month of January 2000.
x x x x
Hence, the respondent CTA in its assailed October 21, 2002 [twin] Decisions[s] disposed in CTA
Case Nos. 6365 & 6383:
WHEREFORE, in view of the foregoing, the court finds the instant petition meritorious and in
accordance with law. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount
of P35,651.410.00 representing erroneously paid excise taxes for the period January 1 to January
31, 2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted decision. In [twin] resolution[s]
[both] dated July 15, 2003, the Tax Court, in an apparent change of heart, granted the
petitioners consolidated motions for reconsideration, thereby denying the respondents claim for
refund.
However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos.
6363 and 6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this time
with a semblance of finality, that the respondent is entitled to the refund claimed. Hence, in a
resolution dated November 4, 2003, the tax court reinstated its December 21, 2002 Decision and
disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383 are hereby REINSTATED. Accordingly,
respondent is hereby ORDERED to REFUND petitioner the total amount of P680,387,025.00
representing erroneously paid excise taxes for the period January 1, 2000 to January 31, 2000 and
February 1, 2000 to December 31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered decision in CTA Case No. 6612
granting the prayer for the refund of the amount of P355,385,920.00 representing overpaid excise
tax for the period covering January 1, 2002 to December 31, 2002. The tax court disposed of the
case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is hereby
ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing overpaid excise tax
for the period covering January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated
March 17, 2004.4 (Emphasis supplied) (Citations omitted)
The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant
of refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675, whereas that
assailing the grant of refund in the amount of P355,385,920.00 was docketed as CA-G.R. SP No.
83165. The petitions were consolidated and eventually denied by the Court of Appeals. The
appellate court also denied reconsideration in its Resolution5 dated 1 March 2005.
In its Memorandum6 22 dated November 2006, filed on behalf of the Commissioner, the Office of the
Solicitor General (OSG) seeks to convince the Court that the literal interpretation given by the
CTA and the Court of Appeals of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a
lower tax imposable on 1 January 2000 than that imposable during the transition period. Instead
of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the
Tax Code, the appellate courts ruling would result in a significant decrease in the tax rate by
as much as 66%.
The OSG argues that Section 145 of the Tax Code admits of several interpretations, such as:
1. That by January 1, 2000, the excise tax on cigarettes should be the higher tax imposed
under the specific tax system and the tax imposed under the ad valorem tax system plus the
12% increase imposed by par. 5, Sec. 145 of the Tax Code;
2. The increase of 12% starting on January 1, 2000 does not apply to the brands of
cigarettes listed under Annex "D" referred to in par. 8, Sec. 145 of the Tax Code;
3. The 12% increment shall be computed based on the net retail price as indicated in par.
C, sub-par. (1)-(4), Sec. 145 of the Tax Code even if the resulting figure will be lower
than the amount already being paid at the end of the transition period. This is the
interpretation followed by both the CTA and the Court of Appeals.7
This being so, the interpretation which will give life to the legislative intent to raise revenue
should govern, the OSG stresses.

Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must,
therefore, be construed strictly against the taxpayer, such as Fortune Tobacco.
In its Memorandum8 dated 10 November 2006, Fortune Tobacco argues that the CTA and the Court of
Appeals merely followed the letter of the law when they ruled that the basis for the 12% increase
in the tax rate should be the net retail price of the cigarettes in the market as outlined in
paragraph C, sub paragraphs (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has
gone beyond his delegated rule-making power when he promulgated, enforced and implemented Revenue
Regulation No. 17-99, which effectively created a separate classification for cigarettes based on
the excise tax "actually being paid prior to January 1, 2000."9
It should be mentioned at the outset that there is no dispute between the fact of payment of the
taxes sought to be refunded and the receipt thereof by the Bureau of Internal Revenue (BIR).
There is also no question about the mathematical accuracy of Fortune Tobaccos claim since the
documentary evidence in support of the refund has not been controverted by the revenue agency.
Likewise, the claims have been made and the actions have been filed within the two (2)-year
prescriptive period provided under Section 229 of the Tax Code.
The power to tax is inherent in the State, such power being inherently legislative, based on the
principle that taxes are a grant of the people who are taxed, and the grant must be made by the
immediate representatives of the people; and where the people have laid the power, there it must
remain and be exercised.10
This entire controversy revolves around the interplay between Section 145 of the Tax Code and
Revenue Regulation 17-99. The main issue is an inquiry into whether the revenue regulation has
exceeded the allowable limits of legislative delegation.
For ease of reference, Section 145 of the Tax Code is again reproduced in full as follows:
Section 145. Cigars and Cigarettes(A) Cigars.There shall be levied, assessed and collected on cigars a tax of One peso
(P1.00) per cigar.
(B). Cigarettes packed by hand.There shall be levied, assessed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine.There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is
above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per
pack;
(2) If the net retail price (excluding the excise tax and the value added
tax) exceeds Six pesos and Fifty centavos ( P6.50) but does not exceed Ten pesos
(P10.00) per pack, the tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is
Five pesos (P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is
below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;
Variants of existing brands of cigarettes which are introduced in the domestic market after the
effectivity of R.A. No. 8240 shall be taxed under the highest classification of any variant of
that brand.
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity
of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1,
1996. Provided, however, That in cases where the excise tax rates imposed in paragraphs (1), (2),
(3) and (4) hereinabove will result in an increase in excise tax of more than seventy percent
(70%), for a brand of cigarette, the increase shall take effect in two tranches: fifty percent
(50%) of the increase shall be effective in 1997 and one hundred percent (100%) of the increase
shall be effective in 1998.
Duly registered or existing brands of cigarettes or new brands thereof packed by machine shall
only be packed in twenties.
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof,
shall be increased by twelve percent (12%) on January 1, 2000.
New brands shall be classified according to their current net retail price.
For the above purpose, net retail price shall mean the price at which the cigarette is sold on
retail in twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and value-added
tax. For brands which are marketed only outside Metro Manila, the net retail price shall mean
the price at which the cigarette is sold in five (5) major intended to cover the applicable
excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average retail price as of October 1,
1996, as set forth in Annex "D," shall remain in force until revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to the
root name of the brand and/or a different brand which carries the same logo or design of the
existing brand.11 (Emphasis supplied)
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the
Secretary of Finance to promulgate rules and regulations for the effective implementation of the
Tax Code,12 interprets the above-quoted provision and reflects the 12% increase in excise taxes in
the following manner:

SECTION

DESCRIPTION OF ARTICLES

PRESENT
SPECIFIC
TAX
NEW SPECIFIC TAX RATE
RATES PRIOR TO JAN. 1,
Effective Jan.. 1, 2000
2000

145

(A)

P1.00/cigar

P1.12/cigar

(1) Net Retail Price (excluding VAT P12.00/pack

and Excise) exceeds P10.00 per pack

P13.44/pack

(2) Net Retail Price (excluding VAT P8.00/pack

and Excise) is P6.51 up to P10.00
per pack

P8.96/pack

(3) Net Retail Price (excluding VAT P5.00/pack

and excise) is P5.00 to P6.50 per
pack

P5.60/pack

(4) Net Retail Price (excluding VAT P1.00/pack

and excise) is below P5.00 per pack)

P1.12/pack

(B)Cigarettes packed by Machine

This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective
on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4). However,
Revenue Regulation No. 17-99 went further and added that "[T]he new specific tax rate for any
existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is actually being paid prior to January 1,
2000."13
Parenthetically, Section 145 states that during the transition period, i.e., within the next
three (3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes
shall not be lower than the tax due from each brand on 1 October 1996. This qualification,
however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and
unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due
to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection
starting from this period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not
be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-99
effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the
end of the three (3)-year transition period and the specific tax under paragraph C, sub-paragraph
(1)-(4), as increased by 12%a situation not supported by the plain wording of Section 145 of the
Tax Code.
This is not the first time that national revenue officials had ventured in the area of
unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes,14 respondent was not informed in writing of the law
and the facts on which the assessment of estate taxes was made pursuant to Section 228 of the
1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely notified of the
findings by the Commissioner, who had simply relied upon the old provisions of the law and
Revenue Regulation No. 12-85 which was based on the old provision of the law. The Court held that
in case of discrepancy between the law as amended and the implementing regulation based on the
old law, the former necessarily prevails. The law must still be followed, even though the
existing tax regulation at that time provided for a different procedure.15
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,16 the tax authorities gave
the term "tax credit" in Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation muddled up the intent of
Congress to grant a mere discount privilege and not a sales discount. The Court, striking down
the revenue regulation, held that an administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it cannot engraft additional
requirements not contemplated by the legislature. The Court emphasized that tax administrators
are not allowed to expand or contract the legislative mandate and that the "plain meaning rule"
or verba legis in statutory construction should be applied such that where the words of a statute
are clear, plain and free from ambiguity, it must be given its literal meaning and applied
without attempted interpretation.
As we have previously declared, rule-making power must be confined to details for regulating the
mode or proceedings in order to carry into effect the law as it has been enacted, and it cannot
be extended to amend or expand the statutory requirements or to embrace matters not covered by
the statute. Administrative regulations must always be in harmony with the provisions of the law
because any resulting discrepancy between the two will always be resolved in favor of the basic
law.17
In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,18 Commissioner Jose Ong
issued Revenue Memorandum Order (RMO) No. 15-91, as well as the clarificatory Revenue Memorandum
Circular (RMC) 43-91, imposing a 5% lending investors tax under the 1977 Tax Code, as amended by

Executive Order (E.O.) No. 273, on pawnshops. The Commissioner anchored the imposition on the
definition of lending investors provided in the 1977 Tax Code which, according to him, was broad
enough to include pawnshop operators. However, the Court noted that pawnshops and lending
investors were subjected to different tax treatments under the Tax Code prior to its amendment by
the executive order; that Congress never intended to treat pawnshops in the same way as lending
investors; and that the particularly involved section of the Tax Code explicitly subjected
lending investors and dealers in securities only to percentage tax. And so the Court affirmed the
invalidity of the challenged circulars, stressing that "administrative issuances must not
override, supplant or modify the law, but must remain consistent with the law they intend to
carry out."19
In Philippine Bank of Communications v. Commissioner of Internal Revenue, 20 the then acting
Commissioner issued RMC 7-85, changing the prescriptive period of two years to ten years for
claims of excess quarterly income tax payments, thereby creating a clear inconsistency with the
provision of Section 230 of the 1977 Tax Code. The Court nullified the circular, ruling that the
BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress. The Court held:
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in
the sense of more specific and less general interpretations of tax laws) which are issued from
time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and
will be ignored if judicially found to be erroneous. Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement.21
In Commissioner of Internal Revenue v. CA, et al.,22 the central issue was the validity of RMO 487 which had construed the amnesty coverage under E.O. No. 41 (1986) to include only assessments
issued by the BIR after the promulgation of the executive order on 22 August 1986 and not
assessments made to that date. Resolving the issue in the negative, the Court held:
x x x all such issuances must not override, but must remain consistent and in harmony with, the
law they seek to apply and implement. Administrative rules and regulations are intended to carry
out, neither to supplant nor to modify, the law.23
x x x
If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985
tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have
simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it
is that the executive order has been designed to be in the nature of a general grant of tax
amnesty subject only to the cases specifically excepted by it.24
In the case at bar, the OSGs argument that by 1 January 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax system and the tax imposed under the ad
valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is
an unsuccessful attempt to justify what is clearly an impermissible incursion into the limits of
administrative legislation. Such an interpretation is not supported by the clear language of the
law and is obviously only meant to validate the OSGs thesis that Section 145 of the Tax Code is
ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands
of cigarettes listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8, Section
145 of the Tax Code simply states that, "[T]he classification of each brand of cigarettes based
on its average net retail price as of October 1, 1996, as set forth in Annex D, shall remain in
force until revised by Congress." This declaration certainly does not lend itself to the
interpretation given to it by the OSG. As plainly worded, the average net retail prices of the
listed brands under Annex "D," which classify cigarettes according to their net retail price into
low, medium or high, obviously remain the bases for the application of the increase in excise tax
rates effective on 1 January 2000.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly
flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the passage of
the Tax Code is to generate additional revenues for the government. Revenue generation has
undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by the
legislative record,25 the shift from the ad valorem system to the specific tax system is likewise
meant to promote fair competition among the players in the industries concerned, to ensure an
equitable distribution of the tax burden and to simplify tax administration by classifying
cigarettes, among others, into high, medium and low-priced based on their net retail price and
accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we have
held, the meaning of the law is clear on its face and free from the ambiguities that the
Commissioner imputes. We simply cannot disregard the letter of the law on the pretext of pursuing
its spirit.26
Finally, the Commissioners contention that a tax refund partakes the nature of a tax exemption
does not apply to the tax refund to which Fortune Tobacco is entitled. There is parity between
tax refund and tax exemption only when the former is based either on a tax exemption statute or a
tax refund statute. Obviously, that is not the situation here. Quite the contrary, Fortune

Tobaccos claim for refund is premised on its erroneous payment of the tax, or better still the
governments exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the burden of
taxation must justify his claim by showing that the legislature intended to exempt him by words
too plain to be mistaken.27 The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under which it is granted clearly
and distinctly show that such was the intention.28
A claim for tax refund may be based on statutes granting tax exemption or tax refund. In such
case, the rule of strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed
unless granted in the most explicit and categorical language. The taxpayer must show that the
legislature intended to exempt him from the tax by words too plain to be mistaken.29
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace
but on the legal principle which underlies all quasi-contracts abhorring a persons unjust
enrichment at the expense of another.30The dynamic of erroneous payment of tax fits to a tee the
prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also
mistake in law.31
The Government is not exempt from the application of solutio indebiti. 32 Indeed, the taxpayer
expects fair dealing from the Government, and the latter has the duty to refund without any
unreasonable delay what it has erroneously collected. 33 If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, it must hold itself against the same standard
in refunding excess (or erroneous) payments of such taxes. It should not unjustly enrich itself
at the expense of taxpayers.34 And so, given its essence, a claim for tax refund necessitates only
preponderance of evidence for its approbation like in any other ordinary civil case.
Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract principle, a
claim for tax refund may be based on the following: (a) erroneously or illegally assessed or
collected internal revenue taxes; (b) penalties imposed without authority; and (c) any sum
alleged to have been excessive or in any manner wrongfully collected.35
What is controlling in this case is the well-settled doctrine of strict interpretation in the
imposition of taxes, not the similar doctrine as applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously. 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. 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. 36 As
burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax
laws.37
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675,
dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
DANTE
O.
TINGA
Associate Justice
WE CONCUR:
G.R. No. L-23645
October 29, 1968
BENJAMIN
P.
GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity
as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo
P.
Navarro
and
Narvaro
Belar
S.
Navarro
for
petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero
and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act
2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall
order for the period from August nineteen to September thirty every year the printing and
issue of semi-postal stamps of different denominations with face value showing the regular
postage charge plus the additional amount of five centavos for the said purpose, and
during the said period, no mail matter shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional charge of five centavos shall be
imposed on newspapers. The additional proceeds realized from the sale of the semi-postal
stamps shall constitute a special fund and be deposited with the National Treasury to be
expended by the Philippine Tuberculosis Society in carrying out its noble work to prevent
and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10

(July 15, 1960). All these administrative orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5
+ 5" centavos and another at "10 + 5" centavos, will soon be released for use by the
public on their mails to be posted during the same period starting with the year 1958.
xxx
xxx
xxx
During the period from August 19 to September 30 each year starting in 1958, no mail
matter of whatever class, and whether domestic or foreign, posted at any Philippine Post
Office and addressed for delivery in this country or abroad, shall be accepted for mailing
unless it bears at least one such semi-postal stamp showing the additional value of five
centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or
impressions of postage meters, each piece of such mail shall bear at least one such semipostal stamp if posted during the period above stated starting with the year 1958, in
addition to being charged the usual postage prescribed by existing regulations. In the
case of business reply envelopes and cards mailed during said period, such stamp should be
collected from the addressees at the time of delivery. Mails entitled to franking
privilege like those from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also bear one such semipostal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or postoffice mail boxes without the required semi-postal stamp, shall be returned to the sender,
if known, with a notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and forwarded to the Dead Letter
Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking
privilege which are not exempted from the payment of the five centavos intended for the
Philippine Tuberculosis Society, such extra charge may be collected in cash, for which
official receipt (General Form No. 13, A) shall be issued, instead of affixing the semipostal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge
of five centavos for the Philippine Tuberculosis Society shall be collected on each
separately-addressed piece of second-class mail matter, and the total sum thus collected
shall be entered in the same official receipt to be issued for the postage at the secondclass rate. In making such entry, the total number of pieces of second-class mail posted
shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra
charge shall be entered separate from the postage in both of the official receipt and the
Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition
to the five-centavo extra charge intended for said society. The total extra charge thus
received shall be entered in the same official receipt to be issued for the postage
collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered
mail permit issued by this Bureau, the extra charge of five centavos for said society
shall be collected in cash and an official receipt issued for the total sum thus received,
in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition
to the required postage which may also be paid in cash. An official receipt shall be
issued for the total postage and total extra charge received, in the manner shown in
subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other
persons entitled to the franking privilege under existing laws may pay in cash such extra
charge intended for said society, instead of affixing the semi-postal stamps to their
mails, provided that such mails are presented at the post-office window, where the fivecentavo extra charge for said society shall be collected on each piece of such mail
matter. In such case, an official receipt shall be issued for the total sum thus
collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office
window shall be affixed with the necessary semi-postal stamps. If found in mail boxes
without such stamps, they shall be treated in the same way as herein provided for other
mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as
amended, exempts "copies of periodical publications received for mailing under any class of mail
matter, including newspapers and magazines admitted as second-class mail."

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post
office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of
1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of
First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection
clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower
court declared the statute and the orders unconstitutional; hence this appeal by the respondent
postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a
breach of the statute. While conceding that the mailing by the petitioner of a letter without the
additional anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the
Rules of Court, "If before the final termination of the case a breach or violation of ... a
statute ... should take place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6
of the same rule, which allows the court to treat an action for declaratory relief as an ordinary
action, applies only if the breach or violation occurs after the filing of the action but before
the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the
firing of this action, then indeed the remedy of declaratory relief cannot be availed of, much
less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did
not constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in
the mails unless it bears such semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people
who use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere
offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere attempt to
use the mails without the stamp constitutes a violation of the statute. It is not required that
the mail be accepted by postal authorities. That requirement is relevant only for the purpose of
fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this
suit was filed not only with respect to the letter which he mailed on September 15, 1963, but
also with regard to any other mail that he might send in the future. Thus, in his complaint, the
petitioner prayed that due course be given to "other mails without the semi-postal stamps which
he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos prescribed by the same
Republic Act." As one whose mail was returned, the petitioner is certainly interested in a ruling
on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing
orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the purpose
of the tax while leaving untaxed the rest of the population and that even among postal patrons
the statute discriminatorily grants exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to offices performing governmental
functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise
tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. 4 This power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification.6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the selection of
mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8

While the principle that there must be a reasonable relationship between classification
made by the legislation and its purpose is undoubtedly true in some contexts, it has no
application to a measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of reasonable comprehension, be
that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v.
Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone
the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by
those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is
now a settled principle of law that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for imposing a tax on a well
recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most
important and influential consideration that led the legislature to select mail users as subjects
of the tax is the relative ease and convenienceof collecting the tax through the post offices.
The small amount of five centavos does not justify the great expense and inconvenience of
collecting through the regular means of collection. On the other hand, by placing the duty of
collection on postal authorities the tax was made almost self-enforcing, with as little cost and
as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a
class. Mail users were already a class by themselves even before the enactment of the statue and
all that the legislature did was merely to select their class. Legislation is essentially empiric
and Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As
Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to
disregard [them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are too common in the law; they
have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted
from the levy the law and administrative officials have sanctioned an invidious discrimination
offensive to the Constitution. The application of the lower courts theory would require all mail
users to be taxed, a conclusion that is hardly tenable in the light of differences in status of
mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax
in order to foster what it conceives to be a beneficent enterprise. 11 This is the case of
newspapers which, under the amendment introduced by Republic Act 2631, are exempt from the
payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly construed. 12 Administrative Order 9 of the
respondent Postmaster General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-known
principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to
the exclusion of other diseases which, it is said, are equally a menace to public health. But it
is never a requirement of equal protection that all evils of the same genus be eradicated or none
at all.13 As this Court has had occasion to say, "if the law presumably hits the evil where it is
most felt, it is not to be overthrown because there are other instances to which it might have
been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue to mail users as taxpayers, and second,
because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say
that the only benefit to which the taxpayer is constitutionally entitled is that derived from his
enjoyment of the privileges of living in an organized society, established and safeguarded by the
devotion of taxes to public purposes. Any other view would preclude the levying of taxes except
as they are used to compensate for the burden on those who pay them and would involve the
abandonment of the most fundamental principle of government that it exists primarily to provide
for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent
of the service rendered. We have said that considerations of administrative convenience and cost
afford an adequate ground for classification. The same considerations may induce the legislature
to impose a flat tax which in effect is a charge for the transaction, operating equally on all

persons within the class regardless of the amount involved. 16 As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100 face
value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a
fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there
is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not
the only thing to be considered. As was pointed out by the court of appeals, the familiar
stamp tax of 2 cents on checks, irrespective of income or earning capacity, and many
others, illustrate the necessity and practice of sometimes substituting count for
weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for
the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation
by law. But as the Solicitor General points out, the Society is not really the beneficiary but
only the agency through which the State acts in carrying out what is essentially a public
function. The money is treated as a special fund and as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one of
the grounds on which the lower court invalidated Republic Act 1631, as amended, namely, that it
constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain
classes of mail matters (such as mail permits, metered mails, business reply cards, etc.), the
five-centavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further
states that mails deposited during the period August 19 to September 30 of each year in mail
boxes without the stamp should be returned to the sender, if known, otherwise they should be
treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may be
necessary to prevent a failure of the undertaking. The authority given to the Postmaster General
to raise funds through the mails must be liberally construed, consistent with the principle that
where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would
be to make them pay much more because the cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not
bear the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that such mail matter is
nonmailable within the meaning of section 1952 of the Administrative Code. Administrative Order 7
of the Postmaster General is but a restatement of the law for the guidance of postal officials
and employees. As for Administrative Order 9, we have already said that in listing the offices
and entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from
taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended
by Republic Act No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and
lucidity subject to one qualification. With all due recognition of its inherently persuasive
character, it would seem to me that the same result could be achieved if reliance be had on
police power rather than the attribute of taxation, as the constitutional basis for the
challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the
performance of the public service. I refer of course to the government postal function, one of
respectable and ancient lineage. The United States Constitution of 1787 vests in the federal
government acting through Congress the power to establish post offices. 1 The first act providing
for the organization of government departments in the Philippines, approved Sept. 6, 1901,
provided for the Bureau of Post Offices in the Department of Commerce and Police.2 Its creation
is thus a manifestation of one of the many services in which the government may engage for public
convenience and public interest. Such being the case, it seems that any legislation that in
effect would require increase cost of postage is well within the discretionary authority of the
government.

It may not be acting in a proprietary capacity but in fixing the fees that it collects for the
use of the mails, the broad discretion that it enjoys is undeniable. In that sense, the principle
announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely
controlling furnishes for me more than ample support for the validity of the challenged
legislation. Thus: "Certain exactions, imposable under an authority other than police power, are
not subject, however, to qualification as to the amount chargeable, unless the Constitution or
the pertinent laws provide otherwise. For instance, the rates of taxes, whether national or
municipal, need not be reasonable, in the absence of such constitutional or statutory limitation.
Similarly, when a municipal corporation fixes the fees for the use of its properties, such as
public markets, it does not wield the police power, or even the power of taxation. Neither does
it assert governmental authority. It exercises merely a proprietary function. And, like any
private owner, it is in the absence of the aforementioned limitation, which does not exist in
the Charter of Cabanatuan City (Republic Act No. 526) free to charge such sums as it may deem
best, regardless of the reasonableness of the amount fixed, for the prospective lessees are free
to enter into the corresponding contract of lease, if they are agreeable to the terms thereof or,
otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the "delicate and
awesome" power of passing on the validity of a statute would not be inappropriate. "The
Constitution is the supreme law, and statutes are written and enforced in submission to its
commands."4 It is likewise common place in constitutional law that a party adversely affected
could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened, the
judgment of the courts."5
Since the power of judicial review flows logically from the judicial function of ascertaining the
facts and applying the law and since obviously the Constitution is the highest law before which
statutes must bend, then inferior tribunals can, in the discharge of their judicial functions,
nullify legislative acts. As a matter of fact, in clear cases, such is not only their power but
their duty. In the language of the present Chief Justice: "In fact, whenever the conflicting
claims of the parties to a litigation cannot properly be settled without inquiring into the
validity of an act of Congress or of either House thereof, the courts have, not only jurisdiction
to pass upon said issue but, also, theduty to do so, which cannot be evaded without violating the
fundamental law and paving the way to its eventual destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be
kept in mind. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment, will
shrink from exercising in any case where he can conscientiously and with due regard to duty and
official oath decline the responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to
paraphrase Freund, when the challenged legislation imperils freedom of the mind and of the
person, for given such an undesirable situation, "it is freedom that commands a momentum of
respect." Here then, fidelity to the great ideal of liberty enshrined in the Constitution may
require the judiciary to take an uncompromising and militant stand. As phrased by us in a recent
decision, "if the liberty involved were freedom of the mind or the person, the standard of its
validity of governmental acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the
controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found
in the majority opinion. It may not be amiss to recall to mind, however, the language of Justice
Laurel in the leading case ofPeople v. Vera,9 to the effect that the basic individual right of
equal protection "is a restraint on all the three grand departments of our government and on the
subordinate instrumentalities and subdivisions thereof, and on many constitutional powers, like
the police power, taxation and eminent domain." 10 Nonetheless, no jurist was more careful in
avoiding the dire consequences to what the legislative body might have deemed necessary to
promote the ends of public welfare if the equal protection guaranty were made to constitute an
insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident
from the various citations from his pen found in the majority opinion. For him, it would be a
misreading of the equal protection clause to ignore actual conditions and settled practices. Not
for him the at times academic and sterile approach to constitutional problems of this sort. Thus:
"It would be a narrow conception of jurisprudence to confine the notion of 'laws' to what is
found written on the statute books, and to disregard the gloss which life has written upon it.
Settled state practice cannot supplant constitutional guaranties, but it can establish what is
state law. The Equal Protection Clause did not write an empty formalism into the Constitution.
Deeply embedded traditional ways of carrying out state policy, such as those of which petitioner
complains, are often tougher and truer law than the dead words of the written text." 11 This too,
from the same distinguished jurist: "The Constitution does not require things which are different
in fact or opinion to be treated in law as though they were the same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative
power at times occasions difficulties. Its strict view has been announced by Justice Laurel in
the aforecited case of People v. Verain this language. Thus: "In testing whether a statute
constitutes an undue delegation of legislative power or not, it is usual to inquire whether the

statute was complete in all its terms and provisions when it left the hands of the legislature so
that nothing was left to the judgment of any other appointee or delegate of the legislature. ....
InUnited States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it held an act of
the legislature void in so far as it undertook to authorize the Governor-General, in his
discretion, to issue a proclamation fixing the price of rice and to make the sale of it in
violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation deals not with an administrative function but one
essentially and eminently legislative in character. What could properly be stigmatized though to
quote Justice Cardozo, is delegation of authority that is "unconfined and vagrant, one not
canalized within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not
legislative in character. Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted
that within certain limits, there being a need for coping with the more intricate problems of
society, the principle of "subordinate legislation" has been accepted, not only in the United
States and England, but in practically all modern governments. This view was reiterated by him in
a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service Commission.17 Thus:
"Accordingly, with the growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency toward the delegation of greater powers by the legislature, and
toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal
protection clause and the non-delegation principle, it is apparent how far the lower court
departed from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as
amended. Fortunately, the matter has been set right with the reversal of its decision, the
opinion of the Court, manifesting its fealty to constitutional law precepts, which have been
reiterated time and time again and for the soundest of reasons.

G.R. No. L-4376

May 22, 1953

ASSOCIATION
OF
CUSTOMS
BROKERS,
INC.
and
G.
MANLAPIT,
INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City
of Manila, respondents-appellees.
Teotimo
A.
Roja
for
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

appellants.

BAUTISTA ANGELO, J.:

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by
the Municipal Board of the City of Manila on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said
association, also a public service operator of the trucks in said City, challenge the validity of
said ordinance on the ground that (1) while it levies a so-called property tax it is in reality a
license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said
ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double
taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged
ordinance imposes a property tax which is within the power of the City of Manila to impose under
its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does
not violate the rule of uniformity of taxation, nor does it constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of
the ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the
authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the
municipal board the power "to tax motor and other vehicles operating within the City of Manila
the provisions of any existing law to the contrary notwithstanding." It is contended that this
power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing
the property tax on motor vehicles operating within the city limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of
the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the
municipal corporation to impose tax on motor vehicles operating in any highway in the
Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by
highway, bridge or ferry, or for the exercise of the profession of chauffeur,
operation of any motor vehicle by the owner thereof: Provided, however, That
this Act shall be construed to exempt any motor vehicle from the payment of any
equitable insular, local or municipal property tax imposed thereupon. . . .

any public
or for the
nothing in
lawful and

Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to
the property tax which may be imposed by a municipal corporation. This provision is all-inclusive
in that sense that it applies to all motor vehicles. In this sense, this provision should be
construed as limiting the broad grant of power conferred upon the City of Manila by its Charter
to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a
tax on motor vehicles operating within its limit, it can only refers to property tax as a
different interpretation would make it repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance
Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in

its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also
provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City
and shall be expended exclusively for the repair, maintenance and improvement of its streets and
bridges." Considering the wording used in the ordinance in the light in the purpose for which the
tax is created, can we consider the tax thus imposed as property tax, as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some
authorities, the rule should not be taken in its absolute sense if the nature and purpose of the
tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it
has been held that "If a tax is in its nature an excise, it does not become a property tax
because it is proportioned in amount to the value of the property used in connection with the
occupation, privilege or act which is taxed. 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 the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it
will be considered an excise." (26 R. C. L., 35-36.) It has also been held that
The character of the tax as a property tax or a license or occupation tax must be
determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or by the
mode adopted in fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally and in form it is a license or occupation tax; and, on the
other hand, if the tax is levied upon persons on account of their business, it will be
construed as a license or occupation tax, even though it is graduated according to the
property used in such business, or on the gross receipts of the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it
is fixed ad valoremyet we cannot reject the idea that it is merely levied on motor vehicles
operating within the City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the streets and bridges in said city.
This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason
that, under said Act, municipal corporation already participate in the distribution of the
proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and
public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent
duplication in the imposition of fees for the same purpose. It is for this reason that we believe
that the ordinance in question merely imposes a license fee although under the cloak of an ad
valorem tax to circumvent the prohibition above adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation
ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish between a motor vehicle for hire and
one which is purely for private use. Neither does it distinguish between a motor vehicle
registered in the City of Manila and one registered in another place but occasionally comes to
Manila and uses its streets and public highways. The distinction is important if we note that the
ordinance intends to burden with the tax only those registered in the City of Manila as may be
inferred from the word "operating" used therein. The word "operating" denotes a connotation which
is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated
without previous payment of the registration fees. There is no pretense that the ordinance
equally applies to motor vehicles who come to Manila for a temporary stay or for short errands,
and it cannot be denied that they contribute in no small degree to the deterioration of the
streets and public highway. The fact that they are benefited by their use they should also be
made to share the corresponding burden. And yet such is not the case. This is an inequality which
we find in the ordinance, and which renders it offensive to the Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

G.R. No. L-23794

February 17, 1968

ORMOC
SUGAR
COMPANY,
INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor
of Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiffappellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series
of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to
the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March
20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of
Leyte, with service of a copy upon the Solicitor General, a complaint 3 against the City of Ormoc
as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III,
Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside
from being an export tax forbidden under Section 2287 of the Revised Administrative Code. It
further alleged that the tax is neither a production nor a license tax which Ormoc City under
Section 15-kk of its charter and under Section 2 of Republic Act 2264, otherwise known as the
Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee or
charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both
the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's
power to enact under the Local Autonomy Act and that the same did not violate the afore-cited
constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of
First Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the
ordinance and declared the taxing power of defendant chartered city broadened by the Local
Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any
and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in
Ormoc City, a municipal tax equivalent to one per centum (1%) per export sale to the United
States of America and other foreign countries." Though referred to as a tax on the export of
centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not
taxable; the only time the tax applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an
export tax, in view of Section 2287 of the Revised Administrative Code which denies from
municipal councils the power to impose an export tax. Section 2287 in part states: "It shall not
be in the power of the municipal council to impose a tax in any form whatever, upon goods and
merchandise carried into the municipality, or out of the same, and any attempt to impose an
import or export tax upon such goods in the guise of an unreasonable charge for wharfage use of
bridges or otherwise, shall be void."

Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes
just and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co.
v. Municipality of Roxas 4 held the former to have been repealed by the latter. And expressing Our
awareness of the transcendental effects that municipal export or import taxes or licenses will
have on the national economy, due to Section 2 of Republic Act 2264, We stated that there was no
other alternative until Congress acts to provide remedial measures to forestall any unfavorable
results.
The point remains to be determined, however, whether constitutional limits on the power
of taxation, specifically the equal protection clause and rule of uniformity of taxation, were
infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied
the equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the
equal protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where
(1) it is based on substantial distinctions which make real differences; (2) these are germane to
the purpose of the law; (3) the classification applies not only to present conditions but also to
future conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet
them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc.
and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is
true, was the only sugar central in the city of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future conditions as well. The taxing ordinance
should not be singular and exclusive as to exclude any subsequently established sugar central, of
the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax because the ordinance expressly points only to
Ormoc City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were
not arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of
collection, the ordinance provided a sufficient basis to preclude arbitrariness, the same being
then presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants-appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L.,
Fernando, JJ., concur.1wph1.t

Dizon,

Makalintal,

Zaldivar,

Sanchez,

Castro,

Angeles

and

G.R. No. 115455 October 30, 1995

ARTURO
M.
TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN
T.
DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL
S.
ROCO
and
the
INTEGRATED
BAR
OF
THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION;
PHILIPPINE
JOURNALISTS,
INC.;
JOSE
L.
PAVIA;
and
OFELIA
L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER
OF
REAL
ESTATE
AND
BUILDERS
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

ASSOCIATIONS,

INC.,

(CREBA), petitioner,

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE
T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL
G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE
BIBLE
SOCIETY,
INC.
and
WIGBERTO
TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE
AIRLINES,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

INC., petitioner,

G.R. No. 115873 October 30, 1995

COOPERATIVE
UNION
OF
THE
PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T.

GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
R E S O L U T I O N

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the
several petitioners in these cases, with the exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute,
Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed
a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners
(Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and
Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not
"originate exclusively" in the House of Representatives as required by Art. VI, 24 of the
Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives
where it passed three readings and that afterward it was sent to the Senate where after first
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did
not pass it on second and third readings. Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House
bill and the Senate version just becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992. This Act is actually a consolidation of H.
No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920, which was
approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992.
This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives
on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates
on which the laws were approved by the President and dates the separate bills of the two chambers
of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES
OR
AGENCIES
INCLUDING
GOVERNMENT-OWNED
OR
CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT (6%)
ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS
UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES
(November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED
AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise
of its power to propose amendments to bills required to originate in the House, passed its own
version of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630,
petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would
make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is
submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to
the subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another
which covers a subject distinct from that proposed in the original bill or
resolution. (emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine
Senate possesses less power than the U.S. Senate because of textual differences between
constitutional provisions giving them the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but
the Senate may propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop
the phrase "as on other Bills" in the American version, according to petitioners, shows the
intention of the framers of our Constitution to restrict the Senate's power to propose amendments
to revenue bills. Petitioner Tolentino contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to show
that these bills were not to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the power of
the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became
necessary to provide for the procedure for lawmaking by the Senate and the House of
Representatives. The work of proposing amendments to the Constitution was done by the National
Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly
they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local
application, and private bills shall originate exclusively in the Assembly, but
the Senate may propose or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same by a two-thirds vote of
all its members, and thereupon, the bill so repassed shall be deemed enacted and
may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after
thirty days from the opening of the next regular session of the same legislative
term, reapprove the same with a vote of two-thirds of all the members of the
Assembly. And upon such reapproval, the bill shall be deemed enacted and may be
submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the
proposal. It deleted everything after the first sentence. As rewritten, the proposal was approved
by the National Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people
and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the
present Constitution was derived. It explains why the word "exclusively" was added to the
American text from which the framers of the Philippine Constitution borrowed and why the phrase
"as on other Bills" was not copied. Considering the defeat of the proposal, the power of the
Senate to propose amendments must be understood to be full, plenary and complete "as on other
Bills." Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without such bills. After a
revenue bill is passed and sent over to it by the House, however, the Senate certainly can pass
its own version on the same subject matter. This follows from the coequality of the two chambers
of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur
is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without
restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace
of the original bill. For example, a general revenue bill passed by the lower
house of the United States Congress contained provisions for the imposition of an
inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme Court
to be sufficiently broad to enable it to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and therefore also more
representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the
legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to
propose or concur with amendments to the bills initiated by the House of
Representatives. Thus, in one case, a bill introduced in the U.S. House of
Representatives was changed by the Senate to make a proposed inheritance tax a
corporation tax. It is also accepted practice for the Senate to introduce what is
known as an amendment by substitution, which may entirely replace the bill
initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of this power, the Senate may propose an
entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text,
a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting
or adding sections or altering its language; (3) to make and endorse an entirely
new bill as a substitute, in which case it will be known as a committee bill; or
(4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause
must be preserved although the text of the Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of
H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume
that S. No. 1630 is an independent and distinct bill. Hence their repeated references to its
certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something
substantially different between the reference to S. No. 1129 and the reference to H. No. 11197.
From this premise, they conclude that R.A. No. 7716 originated both in the House and in the
Senate and that it is the product of two "half-baked bills because neither H. No. 11197 nor S.
No. 1630 was passed by both houses of Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates
that the provisions of the Senate bill were precisely intended to be amendments to the House
bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it
was referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630
be passed by the House of Representatives before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630.
When the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure
of bank deposits), were referred to a conference committee, the question was raised whether the
two bills could be the subject of such conference, considering that the bill from one house had
not been passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House
bill is passed by the House but not passed by the Senate, and a Senate bill of a
similar nature is passed in the Senate but never passed in the House, can the two
bills be the subject of a conference, and can a law be enacted from these two
bills? I understand that the Senate bill in this particular instance does not
refer to investments in government securities, whereas the bill in the House,
which was introduced by the Speaker, covers two subject matters: not only
investigation of deposits in banks but also investigation of investments in
government securities. Now, since the two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely
in cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are
distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's)
contention that because the President separately certified to the need for the immediate
enactment of these measures, his certification was ineffectual and void. The certification had to
be made of the version of the same revenue bill which at the momentwas being considered.
Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as
many bills as are presented in a house of Congress even though the bills are merely versions of
the bill he has already certified. It is enough that he certifies the bill which, at the time he
makes the certification, is under consideration. Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which had to be certified. For that matter on June 1,
1993 the President had earlier certified H. No. 9210 for immediate enactment because it was the
one which at that time was being considered by the House. This bill was later substituted,
together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main
decision that the phrase "except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of
a bill] in its final form [must be] distributed to the members three days before its passage" but
also the requirement that before a bill can become a law it must have passed "three readings on
separate days." There is not only textual support for such construction but historical basis as
well.

Art. VI, 21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar
days prior to its passage, except when the President shall have certified to the
necessity of its immediate enactment. Upon the last reading of a bill, no
amendment thereof shall be allowed and the question upon its passage shall be
taken immediately thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to the
Members three days before its passage, except when the Prime Minister certifies to
the necessity of its immediate enactment to meet a public calamity or emergency.
Upon the last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and nays entered
in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of
the present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on
separate days are required and a bill has to be printed in final form before it can be passed,
the need for a law may be rendered academic by the occurrence of the very emergency or public
calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the
case, an enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the
situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the
call of the President by voting on the bill on second and third readings on the same day. While
the judicial department is not bound by the Senate's acceptance of the President's certification,
the respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of
the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate
where it was discussed for six days. Only its distribution in advance in its final printed form
was actually dispensed with by holding the voting on second and third readings on the same day
(March 24, 1994). Otherwise, sufficient time between the submission of the bill on February 8,
1994 on second reading and its approval on March 24, 1994 elapsed before it was finally voted on
by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially achieved in the
case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in
violation of the constitutional policy of full public disclosure and the people's right to know
(Art. II, 28 and Art. III, 7) the Conference Committee met for two days in executive session
with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a
new rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at
least staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case who
on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep
notes of their meetings. Above all, the public's right to know was fully served because the
Conference Committee in this case submitted a report showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments."
These changes are shown in the bill attached to the Conference Committee Report. The members of
both houses could thus ascertain what changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform
Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a point of
order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report
of the conference committee regarding House Bill No. 2557 by reason of the
provision of Section 11, Article XII, of the Rules of this House which provides
specifically that the conference report must be accompanied by a detailed
statement of the effects of the amendment on the bill of the House. This
conference committee report is not accompanied by that detailed statement, Mr.
Speaker. Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, butthis provision applies to those cases where only portions of the
bill
have
been
amended. In
this
case
before
us
an
entire
bill
is
presented; therefore, it can be easily seen from the reading of the bill what the
provisions are. Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision
cited by the gentleman from Pangasinan is when there are only certain words or
phrases inserted in or deleted from the provisions of the bill included in the
conference report, and we cannot understand what those words and phrases mean and
their relation to the bill. In that case, it is necessary to make a detailed
statement on how those words and phrases will affect the bill as a whole; but when
the entire bill itself is copied verbatim in the conference report, that is not
necessary. So when the reason for the Rule does not exist, the Rule does not
exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was
sustained
by
a
vote
of
48
to
5.
(Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the
Senate and the House. It may propose an entirely new provision. What is important is that its
report is subsequently approved by the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new provisions had been added by the conference
committee, there was thereby a violation of the constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners'
charges that an amendment was made upon the last reading of the bill that
eventually became R.A. No. 7354 and that copiesthereof in its final form were not
distributed among the members of each House. Both the enrolled bill and the
legislative journals certify that the measure was duly enacted i.e., in accordance
with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official
assurances from a coordinate department of the government, to which we owe, at the
very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines
in a 1979 study:
Conference committees may be of two types: free or instructed. These committees
may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and
this is why they are often critically referred to as "the little legislatures."
Once bills have been sent to them, the conferees have almost unlimited authority
to change the clauses of the bills and in fact sometimes introduce new measures
that were not in the original legislation. No minutes are kept, and members'
activities on conference committees are difficult to determine. One congressman
known for his idealism put it this way: "I killed a bill on export incentives for
my interest group [copra] in the conference committee but I could not have done so
anywhere else." The conference committee submits a report to both houses, and
usually it is accepted. If the report is not accepted, then the committee is
discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

AND

In citing this study, we pass no judgment on the methods of conference committees. We cite it
only to say that conference committees here are no different from their counterparts in the
United States whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all
events, under Art. VI, 16(3) each house has the power "to determine the rules of its
proceedings," including those of its committees. Any meaningful change in the method and
procedures of Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI,
26 (1) of the Constitution which provides that "Every bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof." PAL contends that the amendment of
its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of
the law.

Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of any kind,
nature, or description, imposed, levied, established, assessed or collected by any municipal,
city, provincial or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements
to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its intention to amend any provision of the NIRC
which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by
specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the
constitutional requirement, since it is already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is 103(q), in order to widen the base of the
VAT. Actually, it is the bill which becomes a law that is required to express in its title the
subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred
to 103 of the NIRC as among the provisions sought to be amended. We are satisfied that
sufficient notice had been given of the pendency of these bills in Congress before they were
enacted
into
what
is
now
R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING
ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR
OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking privileges.
It was contended that the withdrawal of franking privileges was not expressed in the title of the
law. In holding that there was sufficient description of the subject of the law in its title,
including the repeal of franking privileges, this Court held:

To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be
unreasonable
but
would
actually
render
legislation
impossible.
[Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in
its title, but matter germane to the subject as expressed in the
title, and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in
the same act the machinery by which the act is to be enforced, to
prescribe the penalties for its infraction, and to remove obstacles
in the way of its execution. If such matters are properly connected
with the subject as expressed in the title, it is unnecessary that
they should also have special mention in the title. (Southern Pac.
Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition,
the press is not exempt from the taxing power of the State and that what the constitutional
guarantee of free press prohibits are laws which single out the press or target a group belonging
to the press for special treatment or which in any way discriminate against the press on the
basis of the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred,
"even
nondiscriminatory
taxation
of
constitutionally
guaranteed
freedom
is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the
press a privilege, the law could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in
the cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80
L. Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising
receipts only of newspapers whose weekly circulation was over 20,000, with the result that the
tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature which enacted the license tax. The
censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could
have been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of
using, storing or consuming tangible goods, the press was not. Instead, the press was exempted
from both taxes. It was, however, later made to pay a specialuse tax on the cost of paper and ink
which made these items "the only items subject to the use tax that were component of goods to be
sold at retail." The U.S. Supreme Court held that the differential treatment of the press
"suggests that the goal of regulation is not related to suppression of expression, and such goal
is presumptively unconstitutional." It would therefore appear that even a law that favors the
press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those
previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to
exemptions which are partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An

enumeration of some of these transactions will suffice to show that by and large this is not so
and that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions
are granted, in some cases, to encourage agricultural production and, in other cases, for the
personal benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers,
seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn, sugar cane and raw
sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture
of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the
press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does
not acquire constitutional validity because it classifies the privileges protected
by the First Amendment along with the wares and merchandise of hucksters and
peddlers and treats them all alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of religion are in
preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly
for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint
on the exercise of its right. Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or
property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil.
386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged
in the sale of general merchandise. It was held that the tax could not be imposed on the sale of
bibles by the American Bible Society without restraining the free exercise of its right to
propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange
of goods or properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. To subject the press to its payment is not to burden the exercise of its right
any more than to make the press pay income tax or subject it to general regulation is not to
violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing copies which are given
free to those who cannot afford to pay so that to tax the sales would be to increase the price,
while reducing the volume of sale. Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it difficult to differentiate it from
any other economic imposition that might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of
vestments would be to lay an impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7
of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of
registration and enforcement of provisions such as those relating to accounting in 108 of the
NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not
excuse it from the payment of this fee because it also sells some copies. At any rate whether the
PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed this tax
by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2)
classifies transactions as covered or exempt without reasonable basis and (3) violates the rule
that taxes should be uniform and equitable and that Congress shall "evolve a progressive system
of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would result
in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the buyer did not anticipate at the time
he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new
subject, or an increased tax on an old one, interferes with a contract or impairs its obligation,
within the meaning of the Constitution. Even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen the security of another, or may
impose additional burdens upon one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation
of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla CoSiong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the
essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal
order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts
must be understood as having been made in reference to the possible exercise of the rightful
authority of the government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should
likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential
goods and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of petitioner to the payment of the VAT.
Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the

example given by petitioner, because the second group or middle class can afford to rent houses
in the meantime that they cannot yet buy their own homes. The two social classes are thus
differently situated in life. "It is inherent in the power to tax that the State be free to
select the subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134
Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art.
VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the
same class be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation. To satisfy this requirement it is enough that
the statute or ordinance applies equally to all persons, forms and corporations placed in similar
situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At
382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities, spared as they
are from the incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability
to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT,
are regressive. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that "direct taxes
are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1)
was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if
not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay.
In the case of the VAT, the law minimizes the regressive effects of this imposition by providing

for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted
from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers,
seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn sugar cane and raw
sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture
of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods
and services which are used or availed of mainly by higher income groups. These include real
properties held primarily for sale to customers or for lease in the ordinary course of trade or
business, the right or privilege to use patent, copyright, and other similar property or right,
the right or privilege to use industrial, commercial or scientific equipment, motion picture
films, tapes and discs, radio, television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars
for rent, tourist buses, and other common carriers, services of franchise grantees of telephone
and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations
by tendering issues not at retail but at wholesale and in the abstract. There is no fully
developed record which can impart to adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the law to actual contracts and exemplify
its effect on property rights. For the fact is that petitioner's members have not even been
assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness.
A mere allegation, as here, does not suffice. There must be a factual foundation
of such unconstitutional taint. Considering that petitioner here would condemn
such a provision as void on its face, he has not made out a case. This is merely
to adhere to the authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an
actual case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not
really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that
"there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the government." This duty can only arise if an actual
case or controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of
"cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine questions of grave abuse of discretion
by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power
of a court to hear and decide cases pending between parties who have the right to sue and be sued
in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished
from legislative and executive power. This power cannot be directly appropriated until it is
apportioned among several courts either by the Constitution, as in the case of Art. VIII, 5, or
by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary
Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law upon a court or judge to take cognizance
of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without
an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of
grave abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union
of the Philippines (CUP), after briefly surveying the course of legislation, argues that it was
to adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would
therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175
was promulgated exempting cooperatives from the payment of income taxes and sales taxes but in
1984, because of the crisis which menaced the national economy, this exemption was withdrawn by
P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption;
and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the
government adverse to the interests of the cooperatives, that is, the repeated revocation of the
tax exemption to cooperatives and instead upheld the policy of strengthening the cooperatives by
way of the grant of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full
and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall
be encouraged to broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955
singled out cooperatives by withdrawing their exemption from income and sales taxes under P.D.
No. 175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential
treatments theretofore granted to private business enterprises in general, in view of the
economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had restored
the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1,
but then again cooperatives were not the only ones whose exemptions were withdrawn. The
withdrawal of tax incentives applied to all, including government and private entities. In the
second place, the Constitution does not really require that cooperatives be granted tax
exemptions in order to promote their growth and viability. Hence, there is no basis for
petitioner's assertion that the government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end
to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are
exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28
(3), and non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives
the equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination
that there is greater need to provide cheaper electric power to as many people as possible,
especially those living in the rural areas, than there is to provide them with other necessities
in life. We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A.
No. 7716. We have in fact taken the extraordinary step of enjoining its enforcement pending
resolution of these cases. We have now come to the conclusion that the law suffers from none of
the infirmities attributed to it by petitioners and that its enactment by the other branches of
the government does not constitute a grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as the body which is electorally
responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in quite as great a degree as are the
courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)).
It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the
public accountability of legislators, that those who took part in passing the law in question by
voting for it in Congress should later thrust to the courts the burden of reviewing measures in
the flush of enactment. This Court does not sit as a third branch of the legislature, much less
exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.
SO ORDERED.