KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS V.

TAN
PADILLA, J.:
These four (4) petitions, which have been consolidated because of the similarity of the main issues
involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the
Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the
National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed
to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2)
an interest, personal and substantial, of the party raising the constitutional questions; (3) the
constitutional question should be raised at the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties. According to the Solicitor General, only the third
requisite that the constitutional question should be raised at the earliest opportunity has been
complied with. He also questions the legal standing of the petitioners who, he contends, are merely asking
for an advisory opinion from the Court, there being no justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the
main procedural matters. Considering the importance to the public of the cases at bar, and in keeping with
the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of
government have kept themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every
seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase
of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price
of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is
principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and
make the tax system more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As
pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was
essentially a single stage value added tax system computed under the "cost subtraction method" or "cost
deduction method" and was imposed only on original sale, barter or exchange of articles by
manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax.
However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale,
which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January
1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as
well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority
to issue EO 273 on 25 July 1987.

The contention is without merit.

It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole
legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the President
shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of
the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and
elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on
25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's
constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July
1987). He contends that the word "convene" is synonymous with "the date when the elected members of
Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to call together,
cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual
members of Congress or their taking the oath of office. As an example, we call to mind the interim National
Assembly created under the 1973 Constitution, which had not been "convened" but some members of the
body, more particularly the delegates to the 1971 Constitutional Convention who had opted to serve
therein by voting affirmatively for the approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit
too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless
some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring
Congress to conveneonce every year on the fourth Monday of July for its regular session would be a
contrariety, since Congress would already be deemed to be in session after the individual members have
taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for
the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a
vacancy occurs in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph,
requiring Congress to convene, if not in session, to decide a conflict between the President and the Cabinet
as to whether or not the President and the Cabinet as to whether or not the President can re-assume the
powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec.
18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial
law or the suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the
framers of said Constitution had intended to terminate the exercise of legislative powers by the President
at the beginning of the term of office of the members of Congress, they should have so stated (but did not)
in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning
different from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave
abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been
defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in
other words, where the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent and gross as to amount to an evasion
of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the
VAT had been extensively discussed by this framers and other government agencies involved in its
implementation, even under the past administration. As the Solicitor General correctly sated. "The signing
of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process
started long before the signing when the data were gathered, proposals were weighed and the final
wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President
made a jump, so to speak, on the Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of
the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of
Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of
taxation; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "Taking everything into account, the differentiation against which the
plaintiffs complain conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in similar situation." This Court

is on record as accepting the view in a leading American case (Carmichael v. Southern Coal
and Coke Co., 301 US 495) 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).
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 engage
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, spared as they are from the incidence of the VAT, are expected to be relatively lower and within
the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers
Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal
Revenue Code, unduly discriminates against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs brokers)
subject to the occupation tax under the Local Tax Code, and professional services performed
by registered general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted
in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs
brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who
are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102
read:
Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and
collected, a value-added tax equivalent to 10% percent of gross receipts derived by any
person engaged in the sale of services. The phrase sale of services" means the performance
of all kinds of services for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; and similar services regardless of whether or not the
performance thereof call for the exercise or use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict
between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based upon material differences, in that the activities of
customs brokers (like those of stock, real estate and immigration brokers) partake more of a business,
rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National
Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers
then, the Court sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears
expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic
commodities and services, as well as mass actions and demonstrations against the VAT should by now be
evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made
to believe.
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse
and relief from the political branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273
was enacted and made effective as law, in the manner required by, and consistent with, the Constitution,
and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of
jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued
implementation.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.
Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes
and Grio-Aquino, JJ., concur.
Gutierrez, Jr. and Medialdea, JJ., are on leave

National Power Corporation v. Central Board of Assessment Appeals et al., G.R. No. 171470, 30
January 2009
24NOV
FACTS
First Private Power Corporation (FPPC) entered into a Build-Operate-Transfer (BOT) agreement with
NAPOCOR for the construction of Bauang Diesel Power Plant and creation of Bauang Power Plant
Corporation

(BPPC).

The

pertinent

provisions

of

the

BOT

agreement,

include

among

others:2.03 NAPOCORxxx shall be responsible for the payment of all real estate taxes and
assessments, rates, and other charges in respect of the Site and the buildings and
improvements thereon. The Municipal Assessor of Bauang issued a Notice of Assessment and Tax Bill
to BPPC. NAPOCOR sought tax exemption on the basis if Sec. 234(c) of R.A. No. 7160.
ISSUE
Under the terms of the BOT, can the GOCC be deemed the actual, direct, and exclusive user of
machineries and equipment for tax exemption purposes? If not, can it pass on its tax-exempt status to its
BOT partner, a private corporation, through the BOT agreement?
HELD
NO. Neither can NAPOCOR pass its taxexempt status to its BOT partner.

NAPOCORs basis for its claimed exemption Section 234(c) of the LGC is clear and not at all ambiguous
in its terms. Exempt from real property taxation are: (a) all machineries and equipment; (b) [that are]
actually, directly, and exclusively used by; (c) [local water districts and] government-owned or controlled
corporations engaged in the [supply and distribution of water and/or] generation and transmission of
electric power.
By [BOTs] express terms, BPPC has complete ownership both legal and beneficial of the project,
including the machineries and equipment used, subject only to the transfer of these properties without
cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for
the construction of the power plant, including the machineries and equipment needed for power
generation; thereafter, it actually operated and still operates the power plant, uses its machineries and
equipment, and receives payment for these activities and the electricity generated under a defined
compensation scheme. Notably, BPPC as owner-user is responsible for any defect in the machineries
and equipment.
Consistent with the BOT concept and as implemented, BPPC the owner-manager-operator of the project
is the actual user of its machineries and equipment. BPPCs ownership and use of the machineries and
equipment are actual, direct, and immediate, while NAPOCORs is contingent and, at this stage of the BOT
Agreement, not sufficient to support its claim for tax exemption.
NATIONAL POWER CORPORATION vs. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA),
LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA
UNION and MUNICIPAL ASSESSOR OF BAUANG, LA UNION
G.R. No. 171470
January 30, 2009
BRION, J.:
FACTS: The National Power Corporation (NAPOCOR) claims in this case that the machineries and
equipment used in a project covered by a BOT agreement, to which it is a party, should be accorded the
tax-exempt status it enjoys. The Local Board of Assessment Appeals of the Province of La Union (LBAA),
the Central Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting
NAPOCORs claim.
Hence, the present petition for review on certiorari filed under Rule 45 of the Rules of Court by NAPOCOR
challenges this uniform ruling and seeks the reversal of the CTAs Decision. In 1993, First Private Power
Corporation (FPPC) entered into a BOT agreement with NAPOCOR for the construction of the 215 Megawatt
Bauang Diesel Power Plant in Payocpoc, Bauang, La Union. The BOT Agreement provided, via an Accession
Undertaking, for the creation of the Bauang Private Power Corporation (BPPC) that will own, manage and
operate the power plant/station, and assume and perform FPPCs obligations under the BOT agreement.
For a fee, BPPC will convert NAPOCORs supplied diesel fuel into electricity and deliver the product to
NAPOCOR.
The pertinent provisions of the BOT agreement, as they relate to the submitted issues in the present case,
read:
2.08 From the date hereof until the Transfer Date, CONTRACTOR shall, directly
or indirectly, own the Power Station and all the fixtures, fittings, machinery,
and equipment on the Site or used in connection with the Power Station
which have been supplied by it or at its cost and it shall operate and
manage the Power Station for the purpose of converting fuel of NAPOCOR
into electricity.

2.09 Until the Transfer Date, NAPOCOR shall, at its own cost, supply and
deliver all Fuel for the Power Station and shall take all electricity generated
by the Power Station at the request of NAPOCOR which shall pay to
CONTRACTOR fees as provided in Clause 11.
The OIC of the Municipal Assessors Office of Bauang, La Union initially issued Declaration of Real Property
Nos. 25016 and 25022 to 25029 declaring BPPCs machineries and equipment as tax-exempt. On the
initiative of the Bauang Vice Mayor, the municipality questioned before the Regional Director of the Bureau
of Local Government Finance (BLGF) the declared tax exemption; later, the issue was elevated to the
Deputy Executive Director and Officer-in-Charge of the BLGF, Department of Finance, who ruled that
BPPCs machineries and equipments are subject to real property tax and directed the Assessors Office to
take appropriate action.
The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos. 30026 to 30033 and
30337, and cancelled the earlier issued Declarations of Real Property. The Municipal Assessor of Bauang
then issued a Notice of Assessment and Tax Bill to BPPC assessing/taxing the machineries and equipments
in the total sum of P288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on the
unpaid amounts. BPPCs Vice-President and Plant Manager received the Notice of Assessment and Tax Bill
on August 1998.
In October 1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the Revised and
Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with the LBAA. The petition asked
that, retroactive to 1995, the machineries covered by the tax declarations be exempt from real property
tax under Section 234(c) of Republic Act No. 7160 (the Local Government Code or LGC); and, that these
properties be dropped from the assessment roll pursuant to Section 206 of the LGC. Section 234(c) of the
LGC
provides:
Section 234. Exemptions from Real Property Tax. The following are exempted from the payment of real
property tax:
(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power.
The LBAA denied NAPOCORs petition for exemption. NAPOCOR appealed the LBAA ruling to the CBAA.
BPPC moved to intervene on the ground that it has a direct interest in the outcome of the litigation. CBAA
subsequently dismissed the appeal based on its finding that the BPPC, and not NAPOCOR, is the actual,
direct and exclusive user of the equipment and machineries; thus, the exemption under Section 234(c)
does not apply. NAPOCOR then filed with the CTA a petition for review. BPPC filed its own petition for review
of the CBAA decision with the CTA. The two petitions were subsequently consolidated. The CTA rendered on
February 2006 a decision dismissing the consolidated petitions. Hence, this petition for reviews by BPPC
and NAPOCOR before the SC.
ISSUE: Under the terms of the BOT Agreement, can theGOCC be deemed the actual, direct, and exclusive
user of machineries and equipment for tax exemption purposes? If not, can it pass on its tax-exempt
status to its BOT partner, a private corporation, through the BOT agreement?
Otherwise put, whether NAPOCOR was able to convincingly show the factual basis for its claimed tax
exemption?
HELD: NO, it failed to convincingly show the factual basis for its claimed tax exemption. The Court found
the petition devoid of merit.NAPOCOR failed to sufficiently show that the CTA committed any reversible
error in its ruling. NAPOCORs basis for its claimed exemption Section 234(c) of the LGC is clear and not
at all ambiguous in its terms. Exempt from real property taxation are: (a) all machineries and equipment;
(b) [that are] actually, directly, and exclusively used by; (c) [local water districts and] government-owned

or controlled corporations engaged in the [supply and distribution of water and/or] generation and
transmission of electric power.
The Court notes, in the first place, that the present case is not the first occasion where NAPOCOR claimed
real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy, Inc. v.
The Province of Batangas, the Province of Batangas assessed real property taxes against FELS Energy, Inc.
the owner of a barge used in generating electricity under an agreement with NAPOCOR. Their agreement
provided that NAPOCOR shall pay all of FELS real estate taxes and assessments. We concluded in that
case that we could not recognize the tax exemption claimed, since NAPOCOR was not the actual, direct
and exclusive user of the barge as required by Sec. 234 (c).
The Court also recognized this strictissimijuris standard in NAPOCOR v. City of Cabanatuan. Under this
standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual basis for
the claim. Thus, the real issue in a tax exemption case such as the present case is whether NAPOCOR was
able to convincingly show the factual basis for its claimed exception.
The records show that NAPOCOR, no less, admits BPPCs ownership of the machineries and equipment in
the power plant. Likewise, the provisions of the BOT agreement cited above clearly show BPPCs
ownership. Thus, ownership is not a disputed issue.Rather than ownership, NAPOCORs use of the
machineries and equipment is the critical issue, since its claim under Sec. 234(c) of the LGC is premised on
actual, direct and exclusive use. To support this claim, NAPOCOR characterizes the BOT Agreement as a
mere financing agreement where BPPC is the financier, while it (NAPOCOR) is the actual user of the
properties.
In a BOT agreement, it is the project proponent who constructs the project at its own cost and
subsequently operates and manages it. The proponent secures the return on its investments from those
using the projects facilities through appropriate tolls, fees, rentals, and charges not exceeding those
proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the project proponent
transfers the ownership of the facility to the government agency.BPPC has complete ownership both legal
and beneficial of the project, including the machineries and equipment used, subject only to the transfer
of these properties without cost to NAPOCOR after the lapse of the period agreed upon. Notably, BPPC as
owner-user is responsible for any defect in the machineries and equipment.
The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent
not only constructs and buys the necessary assets to put up the project, but operates and manages it as
well during an agreed period that would allow it to recover its basic costs and earn profits. In other words,
the private sector proponent goes into business for itself, assuming risks and incurring costs for its
account. If it receives support from the government at all during the agreed period, these are pre-agreed
items of assistance geared to ensure that the BOT agreements objectives both for the project proponent
and for the government are achieved. In this sense, a BOT arrangement is sui generis and is different
from the usual financing arrangements where funds are advanced to a borrower who uses the funds to
establish a project that it owns, subject only to a collateral security arrangement to guard against the
nonpayment of the loan. It is different, too, from an arrangement where a government agency borrows
funds to put a project from a private sector-lender who is thereafter commissioned to run the project for
the government agency. In the latter case, the government agency is the owner of the project from the
beginning, and the lender-operator is merely its agent in running the project.
BPPCs ownership and use of the machineries and equipment are actual, direct, and immediate, while
NAPOCORs is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for
tax exemption. Thus, the CTA committed no reversible error in denying NAPOCORs claim for tax
exemption.
69 SCRA 460 Taxation Delegation to Local Governments Double Taxation

PEPSI COLA BOTTLING CO V. MUN OF TANAUAN LEYTE

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality
approved Ordinance No. 23 which levies and collects from soft drinks producers and manufacturers a tai
of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked.
In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects on soft
drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo
P0.01) on each gallon of volume capacity.
Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two
instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances
impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of
taxing powers to local government units; that allowing local governments to tax companies like Pepsi Cola
is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only
Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double
taxation.
HELD: No. There is no undue delegation. The Constitution even allows such delegation. Legislative powers
may be delegated to local governments in respect of matters of local concern. By necessary implication,
the legislative power to create political corporations for purposes of local self-government carries with it
the power to confer on such local governmental agencies the power to tax. Under the New Constitution,
local governments are granted the autonomous authority to create their own sources of revenue and to
levy taxes. Section 5, Article XI provides: Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law. Withal, it
cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas assertion
that the delegation of taxing power in itself constitutes double taxation cannot be merited. It must be
observed that the delegating authority specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own

prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in other
jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of
the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where
one tax is imposed by the State and the other by the city or municipality.

CIR v. ST LUKES MEDICAL CENTER

St Lukes Medical Center Inc. (St Lukes) is a nonprofit hospital in Manila. On 16 December 2002, the
Bureau of Internal Revenue (BIR) assessed St Lukes deficiency taxes amounting to 76,063,116.06 for
1998, comprising deficiency income tax, value-added tax, withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to 63,935,351.57 during trial in the First Division of the
Court of Tax Appeals (CTA).
This was a review on certiorari under Rule 45 of the Rules of Court of the Decision of 19 November 2010 of
the CTA and its Resolution of 1 March 2011 in CTA Case No. 6746. The Supreme Court resolved this case on
a pure question of law, which involved the interpretation of sub-section 27(B) and its interaction with subsections 30(E) and (G) of the National Internal Revenue Code of the Philippines (NIRC), on the income tax
treatment of proprietary nonprofit hospitals.
St Lukes stated purposes were:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall give curative, rehabilitative and spiritual care to the
sick, diseased and disabled persons; provided that purely medical and surgical services shall be
performed by duly licensed physicians and surgeons who may be freely and individually contracted
by patients;
(b) To provide a career of health science education and provide medical services to the community
through organized clinics in such specialties as the facilities and resources of the corporation make
possible;
(c) To carry on educational activities related to the maintenance and promotion of health as well as
provide facilities for scientific and medical researches which, in the opinion of the Board of Trustees,
may be justified by the facilities, personnel, funds, or other requirements that are available;
(d) To cooperate with organized medical societies, agencies of both government and private sector;
establish rules and regulations consistent with the highest professional ethics.
The BIR had argued before the CTA that section 27(B) of the NIRC, which imposes a 10% preferential tax
rate on the income of proprietary nonprofit hospitals, should be applicable to St. Lukes. According to the
BIR, section 27(B), introduced in 1997, is a new provision intended to amend the exemption on non-profit
hospitals that were previously categorized as non-stock, non-profit corporations under Section 26 of the
1997 Tax Code.... It is a specific provision which prevails over the general exemption on income tax
granted under sub-sections 30(E) and (G) for non-stock, non-profit charitable institutions and civic
organisations promoting social welfare. The BIR contended that St Lukes was not really operating for
charitable purposes, but was for profit, on the basis that only 13% of its revenues came from its charitable
purposes.
St Lukes took the position that the BIR should not consider its total revenues, because its free services to
patients amounted to 218,187,498 or 65.20% of its 1998 operating income (i.e. total revenues less

operating expenses) of 334,642,615. St Lukes also claimed that its income did not inure to the benefit of
any individual, and that its making a profit did not affect its status as exempt from taxation under subsections 30(E) and (G) of the NIRC.
The CTA had held that section 27(B) did not apply to St Lukes. It was exempt from taxation on income
derived from all services to patients, whether paying or non-paying. Thus, the sole issue before the
Supreme Court was whether that decision was correct, i.e. whether section 27(B) did or did not apply. If it
did, then St Lukes would have to pay the 10% reduced tax rate on the income of proprietary nonprofit
hospitals. The Court held that:
Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit
hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the
other hand, can be construed together without the removal of such tax exemption. The effect of the
introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely,
proprietary non-profit educational institutions and proprietary non-profit hospitals, among the
institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the
ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary nonprofit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for
hospitals are that they must be proprietary and non-profit. Proprietary means private... Non-profit
means no net income or asset accrues to or benefits any member or specific person, with all the net
income or asset devoted to the institutions purposes and all its activities conducted not for profit.
Non-profit does not necessarily mean charitable.
The Court said that charitable institutions were not automatically granted tax exemptions. Tax exemptions
are given by the Congress under specific laws (except for exemption from real property taxation which was
given by the Constitution of the Philippines). Section 30(E) of the NIRC defines a charitable institution as:
(1) a non-stock corporation or association;
(2) organised exclusively for charitable purposes;
(3) operated exclusively for charitable purposes; and
(4) with no part of its net income or assets belonging to or inuring to the benefit of any member,
organiser, officer or any specific person.
There was no doubt that St Lukes was organised as a non-stock, non-profit charitable institution. However,
this did not automatically exempt it from paying taxes. The last paragraph of section 30 of the NIRC stated
that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any
of their activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed under this Code. (emphasis added)
Therefore, the Court said that if a tax exempt charitable institution conducts any activity for profit, such
activity is not tax exempt even if its not-for profit activities remain tax exempt. The Court added that:
The Court cannot expand the meaning of the words operated exclusively without violating the
NIRC. Services to paying patients are activities conducted for profit. They cannot be
considered any other way. There is a purpose to make profit over and above the cost of

services. The 1.73 billion total revenues from paying patients is not even incidental to St. Lukes
charity expenditure of 218,187,498 for non-paying patients. (emphasis in original)
The Court therefore held that St Lukes was not operated exclusively for charitable or social welfare
purposes. It received income from paying patients. This income was subject to 10% taxation under section
27(B) of the NIRC. As the Court held:
St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely
tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section
27(B) of the NIRC as long as it does not distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. St. Lukes, as a proprietary non-profit hospital, is
entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
Thus, St Lukes was liable for tax at the rate of 10% in the 1998 year under section 27(B) of the NIRC. It
was held not liable for surcharges or interest on the amount of tax owing.
The case may be viewed at: http://sc.judiciary.gov.ph/jurisprudence/2012/september2012/195909.pdf
Implications of this case
This case illustrates the position in the Philippines that income from commercial (for-profit) activity (in this
case, paying patients) is taxable, but the organisation remains tax-exempt on income from its actual
charitable activities. The only question is whether an activity is for-profit (commercial) or not.
G.R. No. 182399

March 12, 2014

CS GARMENT, INC.,* Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Before the Court is a Rule 45 petition for review on certiorari, assailing the respective Decision1 and
Resolution2 of the Court of Tax. Appeals (CTA) en bane in EB Case No. 287. These judgments in turn
affirmed the Decision3 and the Resolution4 of the CTA Second Division, which ordered the cancellation of
certain items in the 1998 tax assessments against petitioner CS Garment, Inc. (CS Garment or petitioner).
Accordingly, petitioner was directed to pay the Bureau of Internal Revenue (BIR) the remaining portion of
the tax assessments. This portion was comprised of the outstanding deficiency value-added tax (VAT) on
CS Garments undeclared local sales and on the incidental sale of a motor vehicle; deficiency documentary
stamp tax (DST) on a lease agreement; and deficiency income tax as a result of the disallowed expenses
and undeclared local sales. However, while the present case was pending before this Court, CS Garment
filed a Manifestation and Motion stating that the latter had availed itself of the governments tax amnesty
program under Republic Act No. (R.A.) 9480, or the 2007 Tax Amnesty Law.

FACTS

We reproduce the narration of facts culled by the CTA en banc5 as follows:

Petitioner [CS Garment] is a domestic corporation duly organized and existing under and by virtue of the
laws of the Philippines with principal office at Road A, Cavite Ecozone, Rosario, Cavite. On the other hand,
respondent is the duly appointed Commissioner of Internal Revenue of the Philippines authorized under
law to perform the duties of said office, including, inter alia, the power to assess taxpayers for [alleged]

deficiency internal revenue tax liabilities and to act upon administrative protests or requests for
reconsideration/reinvestigation of such assessments.

Petitioner is registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration
No. 89-064, duly approved on December 18, 1989. As such, it is engaged in the business of manufacturing
garments for sale abroad.On November 24, 1999, petitioner [CS Garment] received from respondent [CIR]
Letter of Authority No. 00012641 dated November 10, 1999, authorizing the examination of petitioners
books of accounts and other accounting records for all internal revenue taxes covering the period January
1, 1998 to December 31, 1998.

On October 23, 2001, petitioner received five (5) formal demand letters with accompanying Assessment
Notices from respondent, through the Office of the Revenue Director of Revenue Region No. 9, San Pablo
City, requiring it to pay the alleged deficiency VAT, Income, DST and withholding tax assessments for
taxable year 1998 in the aggregate amount of P2,046,580.10 broken down as follows:

Deficiency VAT

Basic tax due P 314,194.00

Add: Surcharge

Interest

157,097.00

188,516.00

Total Amount Payable

P 659,807.00

Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due P 78,639.00

Add: Surcharge

Interest

39,320.00

43,251.00

Total Amount Payable

P 161,210.00

Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due P 78,639.00

Add: Surcharge

Interest

39,320.00

43,251.00

Total Amount Payable

P 161,210.00

Deficiency DST

Basic tax due P 806.00

Add: Surcharge

Interest

403.00

484.00

Total Amount Payable

P 1,693.00

Deficiency EWT

Basic tax due P 22,800.00

Add: Surcharge

Interest

13,680.00

Total Amount Payable

P 47,880.00

11,400.00

GRAND TOTAL

P 2,046,580.10

On November 20, 2001, or within the 30-day period prescribed under Section 228 of the Tax Code, as
amended, petitioner filed a formal written protest with the respondent assailing the above assessments.

On January 11, 2002, or within the sixty-day period after the filing of the protest, petitioner submitted to
the Assessment Division of Revenue Region No. 9, San Pablo City, additional documents in support of its
protest.

Respondent failed to act with finality on the protest filed by petitioner within the period of one hundred
eighty (180) days from January 11, 2002 or until July 10, 2002. Hence, petitioner appealed before [the CTA]
via a Petition for Review filed on August 6, 2002 or within thirty (30) days from the last day of the aforesaid
180-day period.

The case was raffled to the Second Division of [the CTA] for decision. After trial on the merits, the Second
Division rendered the Assailed Decision on January 4, 2007 upon which the Second Division cancelled
respondents assessment against CS Garments for deficiency expanded withholding taxes for CY 1998
amounting to P47,880.00, and partially cancelled the deficiency DST assessment amounting to P1,963.00.
However, the Second Division upheld the validity of the deficiency income tax assessments by subjecting
the disallowed expenses in the amount of P14,851,478.83 and a portion of the undeclared local sales
P1,541,936.60 (amounting to P1,500,000.00) to income tax at the special rate of 5%. The remainder of
undeclared local sales of P1,541,936.06 (amounting to P41,936.60) was subjected to income tax at the
rate of 34%. The Second Division found that total tax liability of CS Garments amounted to P2,029,570.12,
plus 20% delinquency interest pursuant to Section 249(C)(3), and computed the same as follows:

Deficiency Tax

VAT

DST

Income Tax

TOTAL

at 5% at 34%

Basic Tax Due P 314,194.00 P 145.00

25% Surcharge

78,548.50

20% Interest 188,516.00

P 817,573.94 P 1,789.44

36.25 204,393.49

102.02 422,898.52

925.6

447.36

P 581,258.50

=============

P 283.27

=============

P 1,444,865.95

=============

P 3,162.40

=============

P 2,029,570.12

=============

On January 29, 2007, CS Garments filed its "Motion for Partial Reconsideration" of the said decision. On
May 25, 2007, in a resolution, the Second Division denied CS Garments motion for lack of merit. (Citations
omitted)

Petitioner appealed the case to the CTA en banc and alleged the following: (1) the Formal Assessment
Notices (FAN) issued by the Commissioner of Internal Revenue (CIR) did not comply with the requirements
of the law; (2) the income generated by CS Garment from its participation in the Cavite Export Processing
Zones trade fairs and from its sales to employees were not subject to 10% VAT; (3) the sale of the
company vehicle to its general manager was not subject to 10% VAT; (4) it had no undeclared local sales in
the amount of P1,541,936.60; and (5) Rule XX, Section 2 of the PEZA Rules and Regulations allowed
deductions from the expenses it had incurred in connection with advertising and representation; clinic and
office supplies; commissions and professional fees; transportation, freight and handling, and export fees;
and licenses and other taxes.

The CTA en banc affirmed the Decision and Resolution of the CTA Second Division. As regards the first
issue, the banc ruled that the CIR had duly apprised CS Garment of the factual and legal bases for
assessing the latters liability for deficiency income tax, as shown in the attached Schedule of
Discrepancies provided to petitioner; and in the subsequent reference of the CIR to Rule XX, Section 2 of
the Rules and Regulations of R.A. 7916. With respect to the second issue, the CTA pronounced that the
income generated by CS Garment from the trade fairs was subject to internal revenue taxes, as those
transactions were considered "domestic sales" under R.A. 7916, otherwise known as the Special Economic
Zone Act. With respect to the third issue, the CTA en banc declared that the sale of the motor vehicle by CS
Garment to the latters general manager in the amount of P1.6 million was subject to VAT, since the sale
was considered an incidental transaction within the meaning of Section 105 of the NIRC. On the fourth

issue, the CTA found that CS Garment had failed to declare the latters total local sales in the amount of
P1,541,936.60 in its 1998 income tax return. The tax court then calculated the income tax liability of
petitioner by subjecting P1.5 million of that liability to the preferential income tax rate of 5%. This amount
represented the extent of the authority of CS Garment, as a PEZA-registered enterprise, to sell in the local
market. The normal income tax rate of 34% was then charged for the excess amount of P41,936.60.
Finally, as regards the fifth issue, the CTA ruled that Section 2, Rule XX of the PEZA Rules which
enumerates the specific deductions for ECOZONE Export Enterprises does not mention certain claims of
petitioner as allowable deductions.

Aggrieved, CS Garment filed the present Petition for Review assailing the Decision of the CTA en banc.
However, on 26 September 2008, while the instant case was pending before this Court, petitioner filed a
Manifestation and Motion stating that it had availed itself of the governments tax amnesty program under
the 2007 Tax Amnesty Law. It thus prays that we take note of its availment of the tax amnesty and confirm
that it is entitled to all the immunities and privileges under the law. It has submitted to this Court the
following documents, which have allegedly been filed with Equitable PCI BankCavite EPZA Branch, a
supposed authorized agent-bank of the BIR:6

1. Notice of Availment of Tax Amnesty under R.A. 9480

2. Statement of Assets, Liabilities, and Net worth (SALN)

3. Tax Amnesty Return (BIR Form No. 2116)

4. Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No. 0617)

5. Equitable PCI Banks BIR Payment Form indicating that CS Garment deposited the amount of P250,000
to the account of the Bureau of TreasuryBIR

On 26 January 2009, the Office of the Solicitor General (OSG) filed its Comment objecting to the
Manifestation and Motion of CS Garment.7

The OSG asserts that the filing of an application for tax amnesty does not by itself entitle petitioner to the
benefits of the law, as the BIR must still assess whether petitioner was eligible for these benefits and
whether all the conditions for the availment of tax amnesty had been satisfied. Next, the OSG claims that
the BIR is given a one-year period to contest the correctness of the SALN filed by CS Garment, thus making
petitioners motion premature. Finally, the OSG contends that pursuant to BIR Revenue Memorandum
Circular No. (RMC) 19-2008, petitioner is disqualified from enjoying the benefits of the Tax Amnesty Law,
since a judgment was already rendered in favor of the BIR prior to the tax amnesty availment. The OSG
points out that CS Garment submitted its application for tax amnesty only on 6 March 2008, which was
almost two months after the CTA en banc issued its 14 January 2008 Decision and more than one year
after the CTA Second Division issued its 4 January 2007 Decision.

On 8 February 2010, the Court required both parties to prepare and file their respective memoranda within
30 days from notice.8 After this Court granted the motions for extension filed by the parties, the OSG

eventually filed its Memorandum on 18 May 2010, and CS Garment on 7 June 2010. It is worthy to note
that in its Memorandum, the OSG did not raise any argument with respect to petitioners availment of the
tax amnesty program. Neither did the OSG deny the authenticity of the documents submitted by CS
Garments or mention that a case had been filed against the latter for availing itself of the tax amnesty
program, taking into account the considerable lapse of time from the moment petitioner filed its Tax
Amnesty Return and Statement of Assets, Liabilities, and Net Worth in 2008.

On 17 July 2013, the parties were ordered9 to "move in the premises"10 by informing the Court of the
status of the tax amnesty availment of petitioner CS Garment, including any supervening event that may
be of help to the Court in its immediate disposition of the present case. Furthermore, the parties were
directed to indicate inter alia (a) whether CS Garment had complied with the requirements of the 2007 Tax
Amnesty Law, taking note of the aforementioned documents submitted; (b) whether a case had been
initiated against petitioner, with respect to its availment of the tax amnesty program; and (c) whether
respondent CIR was still interested in pursuing the case. Petitioner eventually filed its Compliance11 on 27
August 2013, and the OSG on 29 November 2013.12

According to the OSG,13 CS Garment had already complied with all documentary requirements of the 2007
Tax Amnesty Law. It also stated that the BIR Litigation Division had not initiated any case against petitioner
relative to the latters tax amnesty application. However, the OSG reiterated that the CIR was still
interested in pursuing the case.

ISSUE The threshold question before this Court is whether or not CS Garment is already immune from
paying the deficiency taxes stated in the 1998 tax assessments of the CIR, as modified by the CTA.

DISCUSSION

Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and
power to impose penalties on persons or entities guilty of violating a tax law.14 Tax amnesty aims to grant
a general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out
their records.15 In 2007, Congress enacted R.A. 9480, which granted a tax amnesty covering "all national
internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued
therefor, that have remained unpaid as of December 31, 2005."16 These national internal revenue taxes
include (a) income tax; (b) VAT; (c) estate tax; (d) excise tax; (e) donors tax; (f) documentary stamp tax;
(g) capital gains tax; and (h) other percentage taxes.17 Pursuant to Section 6 of the 2007 Tax Amnesty
Law, those who availed themselves of the benefits of the law became "immune from the payment of taxes,
as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the
National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal
revenue taxes for taxable year 2005 and prior years."

Amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law, as soon as they fulfill the suspensive conditions imposed therein

A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of conditions
one suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a condition may
be classified as suspensive when the fulfillment of the condition results in the acquisition of rights. On the

other hand, a condition may be considered resolutory when the fulfillment of the condition results in the
extinguishment of rights. In the context of tax amnesty, the rights referred to are those arising out of the
privileges and immunities granted under the applicable tax amnesty law.

The imposition of a suspensive condition under the 2007 Tax Amnesty Law is evident from the following
provisions of the law:

2007 Tax Amnesty Law Republic Act No. 9480

SECTION 2. Availment of the Amnesty. Any person, natural or juridical, who wishes to avail himself of the
tax amnesty authorized and granted under this Act shall file with the Bureau of Internal Revenue (BIR) a
notice and Tax Amnesty Return accompanied by a Statement of Assets, Liabilities and Networth (SALN) as
of December 31, 2005, in such form as may be prescribed in the implementing rules and regulations (IRR)
of this Act, and pay the applicable amnesty tax within six months from the effectivity of the IRR.

SECTION 4. Presumption of Correctness of the SALN. The SALN as of December 31, 2005 shall be
considered as true and correct except where the amount of declared networth is understated to the extent
of thirty percent (30%) or more as may be established in proceedings initiated by, or at the instance of,
parties other than the BIR or its agents: Provided, That such proceedings must be initiated within one year
following the date of the filing of the tax amnesty return and the SALN. Findings of or admission in
congressional hearings, other administrative agencies of government, and/or courts shall be admissible to
prove a thirty percent (30%) under-declaration.

SECTION 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section
5 hereof, and have fully complied with all its conditions shall be entitled to the following immunities and
privileges:

(a) The taxpayer shall be immune from the payment of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.

(b) The taxpayers Tax Amnesty Return and the SALN as of December 31, 2005 shall not be admissible as
evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar as such proceedings
relate to internal revenue taxes, before judicial, quasi-judicial or administrative bodies in which he is a
defendant or respondent, and except for the purpose of ascertaining the networth beginning January 1,
2006, the same shall not be examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in cases brought against him.

(c) The books of accounts and other records of the taxpayer for the years covered by the tax amnesty
availed of shall not be examined: Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to verify the validity or correctness
of a claim for any tax refund, tax credit (other than refund or credit of taxes withheld on wages), tax
incentives, and/or exemptions under existing laws.

All these immunities and privileges shall not apply where the person failed to file a SALN and the Tax
Amnesty Return, or where the amount of networth as of December 31, 2005 is proven to be understated to
the extent of thirty percent (30%) or more, in accordance with the provisions of Section 3 hereof.

SECTION 7. When and Where to File and Pay. The filing of the Tax Amnesty Return and the payment of
the amnesty tax for those availing themselves of the tax amnesty shall be made within six months starting
from the effectivity of the IRR. It shall be filed at the office of the Revenue District Officer which has
jurisdiction over the legal residence or principal place of business of the filer. The Revenue District Officer
shall issue an acceptance of payment form authorizing an authorized agent bank, or in the absence
thereof, the collection agent or municipal treasurer concerned, to accept the amnesty tax payment.

Department of Finance Order No. 29-07: Rules and Regulations to Implement R.A. 9480

SECTION 6. Method of Availment of Tax Amnesty.

3. Payment of Amnesty Tax and Full Compliance. Upon filing of the Tax Amnesty Return in accordance
with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax to the authorized agent bank or in the
absence thereof, the Collection Agent or duly authorized Treasurer of the city or municipality in which such
person has his legal residence or principal place of business.

The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed by the BIR for the use
of or to be accomplished by the bank, the collection agent or the Treasurer, showing the acceptance
of the amnesty tax payment. In case of the authorized agent bank, the branch manager or the assistant
branch manager shall sign the acceptance of payment form.

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return shall be
submitted to the RDO, which shall be received only after complete payment. The completion of these
requirements shall be deemed full compliance with the provisions of R.A. 9480. (Emphases supplied)

In availing themselves of the benefits of the tax amnesty program, taxpayers must first accomplish the
following forms and prepare them for submission: (1) Notice of Availment of Tax Amnesty Form; (2) Tax
Amnesty Return Form (BIR Form No. 2116); (3) Statement of Assets, Liabilities and Net worth (SALN) as of
December 31, 2005; and (4) Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No.
0617).18

The taxpayers must then compute the amnesty tax due in accordance with the rates provided in Section 5
of the law,19 using as tax base their net worth as of 31 December 2005 as declared in their SALNs. At their
option, the revenue district office (RDO) of the BIR may assist them in accomplishing the forms and
computing the taxable base and the amnesty tax due.20 The RDO, however, is disallowed from looking
into, questioning or examining the veracity of the entries contained in the Tax Amnesty Return, SALN, and
other documents they have submitted.21 Using the Tax Amnesty Payment Form, the taxpayers must make
a complete payment of the computed amount to an authorized agent bank, a collection agent, or a duly
authorized treasurer of the city or municipality.22

Thereafter, the taxpayers must file with the RDO or an authorized agent bank the (1) Notice of Availment
of Tax Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116); (3) SALN; and (4) Tax Amnesty
Payment Form.23 The RDO shall only receive these documents after complete payment is made, as shown
in the Tax Amnesty Payment Form.24 It must be noted that the completion of these requirements "shall be
deemed full compliance with the provisions of R.A. 9480."25 In our considered view, this rule means that
amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law as soon as the aforementioned documents are duly received.

The OSG has already confirmed26 to this Court that CS Garment has complied with all of the documentary
requirements of the law. Consequently, and contrary to the assertion of the OSG, no further assessment by
the BIR is necessary. CS Garment is now entitled to invoke the immunities and privileges under Section 6 of
the law.

Similarly, we reject the contention of OSG that the BIR was given a one-year period to contest the
correctness of the SALN filed by CS Garment, thus making petitioners motion premature. Neither the 2007
Tax Amnesty Law nor Department of Finance (DOF) Order No. 29-07 (Tax Amnesty Law IRR) imposes a
waiting period of one year before the applicant can enjoy the benefits of the Tax Amnesty Law. It can be
surmised from the cited provisions that the law intended the immediate enjoyment of the immunities and
privileges of tax amnesty upon fulfilment of the requirements. Further, a reading of Sections 4 and 6 of the
2007 Tax Amnesty Law shows that Congress has adopted a "no questions asked" policy, so long as all the
requirements of the law and the rules are satisfied. The one-year period referred to in the law should thus
be considered only as a prescriptive period within which third parties, meaning "parties other than the BIR
or its agents," can question the SALN not as a waiting period during which the BIR may contest the SALN
and the taxpayer prevented from enjoying the immunities and privileges under the law.

This clarification, however, does not mean that the amnesty taxpayers would go scot-free in case they
substantially understate the amounts of their net worth in their SALN. The 2007 Tax Amnesty Law imposes
a resolutory condition insofar as the enjoyment of immunities and privileges under the law is concerned.
Pursuant to Section 4 of the law, third parties may initiate proceedings contesting the declared amount of
net worth of the amnesty taxpayer within one year following the date of the filing of the tax amnesty
return and the SALN. Section 6 then states that "All these immunities and privileges shall not apply x x x
where the amount of networth as of December 31, 2005 is proven to be understated to the extent of thirty
percent (30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly, Section 10
provides that amnesty taxpayers who willfully understate their net worth shall be (a) liable for perjury
under the Revised Penal Code; and (b) subject to immediate tax fraud investigation in order to collect all
taxes due and to criminally prosecute those found to have willfully evaded lawful taxes due.

Nevertheless, in this case we note that the OSG has already Indicated27 that the CIR had not filed a case
relative to the tax amnesty application of CS Garment, from the time the documents were filed in March
2008. Neither did the OSG mention that a third party had initiated proceedings challenging the declared
amount of net worth of the amnesty taxpayer within the one-year period.

Taxpayers with pending tax cases are still qualified to avail themselves of the tax amnesty program.

With respect to its last assertion, the OSG quotes the following guidelines under BIR RMC 19-2008 to
establish that CS Garment is disqualified from availing itself of the tax amnesty program:28

A BASIC GUIDE ON THE TAX AMNESTY ACT OF 2007

The following is a basic guide for taxpayers who wish to avail of tax amnesty pursuant of Republic Act No.
9480 (Tax Amnesty Act of 2007).

Who may avail of the amnesty?

EXCEPT:

[x] Withholding agents with respect to their withholding tax liabilities

[x] Those with pending cases:

Under the jurisdiction of the PCGG

Involving violations of the Anti-Graft and Corrupt Practices Act

Involving violations of the Anti-Money Laundering Law

For tax evasion and other criminal offenses under the NIRC and/or the RPC

[x] Issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer.(e.g. Taxpayers who have failed to observe or follow BOI and/or PEZA
rules on entitlement to Income Tax Holiday Incentives and other incentives)

[x] Cases involving issues ruled with finality by the Supreme Court prior to the effectivity of R.A. 9480 (e.g.
DST on Special Savings Account)

[x] Taxes passed-on and collected from customers for remittance to the BIR

[x] Delinquent Accounts/Accounts Receivable considered as assets of the BIR/Government, including selfassessed tax (Emphasis supplied)

To resolve the matter, we refer to the basic text of the Tax Amnesty Law and its implementing rules and
regulations, viz:

Republic Act No. 9480

SECTION 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following
persons or cases existing as of the effectivity of this Act:

(f) Tax cases subject of final and executory judgment by the courts.

DOF Order No. 29-07: Rules and Regulations to Implement R.A. 9480

SECTION 5. Exceptions. The tax amnesty shall not extend to the following persons or cases existing as
of the effectivity of R.A. 9480:

7. Tax cases subject of final and executory judgment by the courts. (Emphases supplied)

We cull from the aforementioned provisions that neither the law nor the implementing rules state that a
court ruling that has not attained finality would preclude the availment of the benefits of the Tax Amnesty
Law. Both R.A. 9480 and DOF Order No. 29-07 are quite precise in declaring that "[t]ax cases subject of
final and executory judgment by the courts" are the ones excepted from the benefits of the law. In fact, we
have already pointed out the erroneous interpretation of the law in Philippine Banking Corporation (Now:
Global Business Bank, Inc.) v. Commissioner of Internal Revenue, viz: The BIRs inclusion of "issues and
cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment
of the taxpayer" as one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is specifically clear that
the exceptions to the tax amnesty program include "tax cases subject of final and executory judgment by
the courts." The present case has not become final and executory when Metrobank availed of the tax
amnesty program.29 (Emphasis supplied)

While tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority,30 it is also a well-settled doctrine31 that the rule-making power of
administrative agencies cannot be extended to amend or expand statutory requirements or to embrace
matters not originally encompassed by the law.1wphi1 Administrative regulations should always be in
accord with the provisions of the statute they seek to carry into effect, and any resulting inconsistency
shall be resolved in favor of the basic law. We thus definitively declare that the exception "[i]ssues and
cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment
of the taxpayer" under BIR RMC 19-2008 is invalid, as the exception goes beyond the scope of the
provisions of the 2007 Tax Amnesty Law.

Considering the completion of the aforementioned requirements, we find that petitioner has successfully
availed itself of the tax amnesty benefits granted under the Tax Amnesty Law. Therefore, we no longer see
any need to further discuss the issue of the deficiency tax assessments. CS Garment is now deemed to
have been absolved of its obligations and is already immune from the payment of taxes including the
assessed deficiency in the payment of VAT, DST, and income tax as affirmed by the CTA en banc as well
as of the additions thereto (e.g., interests and surcharges). Furthermore, the tax amnesty benefits include
immunity from "the appurtenant civil, criminal, or administrative penalties under the NIRC of 1997, as
amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior
years."33

WHEREFORE, the instant Petition for Review is GRANTED. The 14 January 2008 Decision and 2 April 2008
Resolution of the Court of Tax Appeals en banc in CTA EB Case No. 287 is hereby SET ASIDE, and the
remaining assessments for deficiency taxes for taxable year 1998 are hereby CANCELLED solely in the
light of the availment by CS Garment, Inc. of the tax amnesty program under Republic Act No. 9480.

ANGELES UNIVERSITY vs. CITY OF ANGELES. JULIET G. QUINSAAT

G.R. No. 189999, June 27, 2012

Facts:

Angeles University was converted into a non-stock, non-profit education foundation under the provisions of
Republic Act (R.A.) No. 6055. Petitioner filed with the Office of the City Building Official an application for a
building permit for the construction of an 11-storey building of the Angeles University Foundation Medical
Center in its main campus the said office issue a Building permit fee and Locational Clearance Fee.
Petitioner make a letter to respondent City Tresurer Juliet G. Quinssat and City Building Official Donato Z.
Dizon alleging that it is exempt from payment of the building permit and locational clearance fee.
Petitioner also reminded the respondent that they have previously issued building permit acknowledging
such exemption from payment of building permit fees. The DOJ and trial court render decision in favor to
petitioner for exempting in payment. But the CA reverse the decision of court in favor to respondent.
Petitioner file a MR but it was denied by CA.

Issue: WON the Angeles University is exempted in Building permit fee and Locational Clearance Fee.

Ruling: No. Under R.A. No. 6055, petitioner was granted exemption only from income tax derived from its
educational activities and real property used exclusively for educational purposes. Regardless of the
repealing clause in the National Building Code, the CA held that petitioner is still not exempt because a
building permit cannot be considered as the other charges mentioned in Sec. 8 of R.A. No. 6055 which
refers to impositions in the nature of tax, import duties, assessments and other collections for revenue
purposes, following the ejusdem generisrule. The CA further stated that petitioner has not shown that the
fees collected were excessive and more than the cost of surveillance, inspection and regulation. And
while petitioner may be exempt from the payment of real property tax, petitioner in this case merely
alleged that the subject property is to be used actually, directly and exclusively for educational
purposes, declaring merely that such premises is intended to house the sports and other facilities of the
university but by reason of the occupancy of informal settlers on the area, it cannot yet utilize the same for
its intended use. Thus, the CA concluded that petitioner is not entitled to the refund of building permit and
related fees, as well as real property tax it paid under protest.

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to nonstock, non-profit educational foundations. Section 8 of said law provides:

SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties, assessments,
and other charges imposed by the Government onall income derived from or property, real or personal,
used exclusively for the educational activities of the Foundation.(Emphasis supplied.)

A charge is broadly defined as the price of, or rate for, something, while the word fee pertains to a
charge fixed by law for services of public officers or for use of a privilege under control of government.
As used in the Local Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary liability, as

rents or fees against persons or property, whilefee means a charge fixed by law or ordinance for the
regulation or inspection of a business or activity.