PHIL. COCONUT PRODUCERS VS REPUBLIC G.R.

177857 24 JAN 2012

FACTS: In 1971, Republic Act No. 6260 was enacted creating the Coconut
Investment Fund (CIF). The source of the CIF was a P0.55 levy on the sale of
every 100 kg. of copra. The Philippine Coconut Administration was tasked to
collect and administer the Fund. Out of the 0.55 levy, P0.02 was placed at the
disposition of the COCOFED, the recognized national association of coconut
producers declared by the PCA. Cocofund receipts were ought to be issued to
every copra seller.
During the Martial Law regime, then President Ferdinand Marcos issued several
Presidential Decrees purportedly for the improvement of the coconut industry.
The most relevant among these is P.D. No. 755 which permitted the use of the
Fund for the acquisition of a commercial bank for the benefit of coconut
farmers and the distribution of the shares of the stock of the bank it [PCA]
acquired free to the coconut farmers (Sec.2).
Thus, the PCA acquired the First United Bank, later renamed the United Coconut
Planters Bank (UCPB). The PCA bought the 72.2% of PUBs outstanding capital
stock or 137,866 shares at P200 per share (P27, 573,200.00) from Pedro
Cojuangco in behalf of the coconut farmers. The rest of the Fund was
deposited to the UCPB interest free.
Farmers who had paid the CIF and registered their receipts with PCA were given
their corresponding UCPB stock certificates. Only 16 million worth of
COCOFUND receipts were registered and a large number of the coconut farmers
opted to sell all/part of their UCPB shares to private individuals.
Simply put, parts of the coconut levy funds went directly or indirectly to various
projects and/or was converted into different assets or investments through the
years.
After the EDSA Revolution, President Corazon Aquino issued Executive Order 1
which created the Presidential Commission on Good Government (PCGG).
The PCGG aimed to assist the President in the recovery of ill-gotten wealth
accumulated by the Marcoses and their cronies. PCGG was empowered to file
cases for sequestration in the Sandiganbayan.
Among the sequestered properties were the shares of stock in the UCPB
registered in the name of over a million coconut farmers held in trust by the
PCA. The Sandiganbayan allowed the sequestration by ruling in a Partial
Summary Judgment that the Coconut Levy Funds are prima facie public funds
and that Section 1 and 2 of PD No. 755 (and some other PDs) were
unconstitutional.
The COCOFED representing the over a million coconut farmers via Petition for
review under Rule 45 sought the reversal of the ruling contending among
others that the sequestration amounted to taking of private property without
just compensation and impairment of vested right of ownership.
ISSUE: What is the NATURE of the Coconut Levy Fund?
RULING: The SC ruled in favor of the REPUBLIC.

To begin with, the Coconut Levy was imposed in the exercise of the States
inherent power of taxation. Indeed, the Coconut Levy Funds partake the nature
of TAXES. The Funds were generated by virtue of statutory enactments by the
proper legislative authorities and for public purpose.
The Funds were collected to advance the government avowed policy of
protecting the coconut industry. The SC took judicial notice of the fact that the
coconut industry is one of the great economic pillars of our nation, and
coconuts and their byproducts occupy a leading position among the countries
export products. Taxation is done not merely to raise revenues to support the
government, but also to provide means for the rehabilitation and the
stabilization of a threatened industry, which is so affected with public interest.
Taxation; Coconut Levy Funds; The coconut levy funds were sourced
from forced exactions decreed under P.D. Nos. 232, 276 and 582,
among others, with the end-goal of developing the entire coconut
industry.We have ruled time and again that taxes are imposed only for a
public purpose. They cannot be used for purely private purposes or for the
exclusive benefit of private persons. When a law imposes taxes or levies from
the public, with the intent to give undue benefit or advantage to private
persons, or the promotion of private enterprises, that law cannot be said to
satisfy the requirement of public purpose. In Gaston v. Republic Planters Bank,
158 SCRA 626 (1988), the petitioning sugar producers, sugarcane planters and
millers sought the distribution of the shares of stock of the Republic Planters
Bank, alleging that they are the true beneficial owners thereof. In that case, the
investment, i.e., the purchase of the said bank, was funded by the deduction of
PhP 1.00 per picul from the sugar proceeds of the sugar producers pursuant to
P.D. No. 388. In ruling against the petitioners, the Court held that to rule in their
favor would contravene the general principle that revenues received from the
imposition of taxes or levies cannot be used for purely private purposes or for
the exclusive benefit of private persons. The Court amply reasoned that the
Stabilization Fund must be utilized for the benefit of the entire sugar industry,
and all its components, stabilization of the domestic market including foreign
market, the industry being of vital importance to the countrys economy and to
national interest. Similarly in this case, the coconut levy funds were sourced
from forced exactions decreed under P.D. Nos. 232, 276 and 582, among
others, with the end-goal of developing the entire coconut industry. Clearly, to
hold therefore, even by law, that the revenues received from the imposition of
the coconut levies be used purely for private purposes to be owned by private
individuals in their private capacity and for their benefit, would contravene the
rationale behind the imposition of taxes or levies.
Same; Same; Supreme Court has ruled in Republic v. COCOFED, 372
SCRA 462 (2001), that the coconut levy funds are not only affected
with public interest; they are prima facie public funds.Plainly enough,
the coconut levy funds are public funds. We have ruled in Republic v. COCOFED,
372 SCRA 462 (2001), that the coconut levy funds are not only affected with
public interest; they are prima facie public funds. In fact, this pronouncement
that the levies are government funds was admitted and recognized by
respondents, COCOFED, et al., in G.R. No. 147062-64. And more importantly, in
the same decision, We clearly explained exactly what kind of government fund
the coconut levies are. We were categorical in saying that coconut levies are
treated as special funds by the very laws which created them.

Same; Same; Article VI, Section 29 (3) of the 1987 Constitution,

restating a general principle on taxation, enjoins the disbursement of
a special fund in accordance with the special purpose for which it was
collected, the balance, if there be any, after the purpose has been
fulfilled or is no longer forthcoming, to be transferred to the general
funds of the government.Article VI, Section 29 (3) of the 1987
Constitution, restating a general principle on taxation, enjoins the disbursement
of a special fund in accordance with the special purpose for which it was
collected, the balance, if there be any, after the purpose has been fulfilled or is
no longer forthcoming, to be transferred to the general funds of the
government, thus: Section 29(3). (3) All money collected on any tax levied for
a special purpose shall be treated as a special fund and paid out for such
purpose only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred to the general
funds of the Government. Correlatively, Section 2 of P.D. No. 755 clearly states
that: Section 2. Financial Assistance. To enable the coconut farmers to comply
with their contractual obligations under the aforesaid Agreement, the [PCA] is
hereby directed to draw and utilize the collections under the Coconut
Consumers Stabilization Fund [CCSF] authorized to be levied by [P.D.] 232, as
amended, to pay for the financial commitments of the coconut farmers under
the said agreement. and the Coconut Industry Development Fund as
prescribed by Presidential Decree No. 582 shall not be considered or construed,
under any law or regulation, special and/or fiduciary funds and do not form part
of the general funds of the national government within the contemplation of
Presidential Decree No. 711. Philippine Coconut Producers Federation, Inc.
(COCOFED) vs. Republic, 663 SCRA 514, G.R. Nos. 177857-58 January 24, 2012

ISSUE: W/N respondent, despite incurring a net loss, may still claim the 20%
sales discount as a tax credit.

CENTRAL LUZON DRUG, GR 159647, APRIL 15, 2005

If a net loss is reported by, and no other taxes are currently due from, a
business establishment, there will obviously be no tax liability against which
any tax credit can be applied. For the establishment to choose the immediate
availment of a tax credit will be premature and impracticable. Nevertheless,
the irrefutable fact remains that, under RA 7432, Congress has granted without
conditions a tax credit benefit to all covered establishments. However, for the
losing establishment to immediately apply such credit, where no tax is due, will
be an improvident usance.

FACTS: Respondent is a domestic corporation engaged in the retailing of

medicines and other pharmaceutical products. In 1996 it operated six (6)
drugstores under the business name and style Mercury Drug. From January to
December 1996 respondent granted 20% sales discount to qualified senior
citizens on their purchases of medicines pursuant to RA 7432. For said period
respondent granted a total of 904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year 1996
declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a
claim for tax refund/credit of 904,769.00 alledgedly arising from the 20%
sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the CTA via Petition for Review. CTA dismissed
the same but on MR, CTA reversed its earlier ruling and ordered petitioner to
issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057
(May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA
7432 deals exclusively with illegally collected or erroneously paid taxes but that
there are other situations which may warrant a tax credit/refund.
CA affirmed CTA decision reasoning that RA 7432 required neither a tax liability
nor a payment of taxes by private establishments prior to the availment of a
tax credit. Moreover, such credit is not tantamount to an unintended benefit
from the law, but rather a just compensation for the taking of private property
for public use.

RULING: Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the
privilege of obtaining a 20% discount on their purchase of medicine from any
private establishment in the country. The latter may then claim the cost of the
discount as a tax credit. Such credit can be claimed even if the establishment
operates at a loss.
A tax credit generally refers to an amount that is subtracted directly from
ones total tax liability. It is an allowance against the tax itself or a
deduction from what is owed by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of
these is tax deduction which is subtraction from income for tax purposes, or
an amount that is allowed by law to reduce income prior to the application of
the tax rate to compute the amount of tax which is due. In other words,
whereas a tax credit reduces the tax due, tax deduction reduces the income
subject to tax in order to arrive at the taxable income.
Since a tax credit is used to reduce directly the tax that is due, there ought to
be a tax liability before the tax credit can be applied. Without that liability,
any tax credit application will be useless. There will be no reason for deducting
the latter when there is, to begin with, no existing obligation to the
government. However, as will be presented shortly, the existence of a tax
credit or its grant by law is not the same as the availment or use of such credit.
While the grant is mandatory, the availment or use is not.

In addition, while a tax liability is essential to the availment or use of any tax
credit, prior tax payments are not. On the contrary, for the existence or grant
solely of such credit, neither a tax liability nor a prior tax payment is needed.
The Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.
Petition is denied.
CARLOS SUPERDRUG, GR 166494 JUNE 29, 2007 (POL. PWR)
FACTS: Petitioners are domestic corporations and proprietors operating
drugstores in the Philippines. Meanwhile, AO 171 or the Policies and Guidelines
to Implement the Relevant Provisions of Republic Act 9257, otherwise known as
the Expanded Senior Citizens Act of 2003 was issued by the DOH, providing
the grant of twenty percent (20%) discount in the purchase of unbranded
generic medicines from all establishments dispensing medicines for the
exclusive use of the senior citizens.

DOH issued Administrative Order No 177 amending A.O. No. 171. Under A.O.
No. 177, the twenty percent discount shall not be limited to the purchase of
unbranded generic medicines only, but shall extend to both prescription and
non-prescription medicines whether branded or generic. Thus, it stated that
[t]he grant of twenty percent (20%) discount shall be provided in the purchase
of medicines from all establishments dispensing medicines for the exclusive
use of the senior citizens.
Petitioners assert that Section 4(a) of the law is unconstitutional because
it constitutes deprivation of private property. Compelling drugstore owners and
establishments to grant the discount will result in a loss of profit and capital
because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will
be justly compensated for the discount.
RULING: The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the takers gain
but the owners loss. The word just is used to intensify the meaning of the
word compensation, and to convey the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount.
As such, it would not meet the definition of just compensation.
Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program.
The Court believes so.
The law grants a twenty percent discount to senior citizens for medical and
dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture,
leisure and amusement; fares for domestic land, air and sea travel; utilization
of services in hotels and similar lodging establishments, restaurants and
recreation centers; and purchases of medicines for the exclusive use or
enjoyment of senior citizens. As a form of reimbursement, the law provides that
business establishments extending the twenty percent discount to senior
citizens may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of
eminent domain, has general welfare for its object. Police power is not capable
of an exact definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and provide enough
room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits. Accordingly, it has been described as the

most essential, insistent and the least limitable of powers, extending as it does
to all the great public needs. It is [t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or without, not
repugnant to the constitution, as they shall judge to be for the good and
welfare of the commonwealth, and of the subjects of the same.
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general welfare.
Police power as an attribute to promote the common good would be diluted
considerably if on the mere plea of petitioners that they will suffer loss of
earnings and capital, the questioned provision is invalidated. Moreover, in the
absence of evidence demonstrating the alleged confiscatory effect of the
provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.
Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners
have not taken time to calculate correctly and come up with a financial report,
so that they have not been able to show properly whether or not the tax
deduction scheme really works greatly to their disadvantage.
The Court is not oblivious of the retail side of the pharmaceutical industry and
the competitive pricing component of the business. While the Constitution
protects property rights, petitioners must accept the realities of business and
the State, in the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws
and jurisprudence, particularly on agrarian reform and the regulation of
contracts and public utilities, continuously serve as a reminder that the right to
property can be relinquished upon the command of the State for the promotion
of public good.
CIR VS SM PRIME HOLDINGS GR 183505 26 FEB 2010 (IS PWR TO TX
DESTRUCTIVE)
FACTS: Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty
Development Corporation (First Asia) are domestic corporations duly organized
and existing under the laws of the Republic of the Philippines. Both are
engaged in the business of operating cinema houses, among others.7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a
Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on
cinema ticket sales in the amount of P119,276,047.40 for taxable year 2000. In
response, SM Prime filed a letter-protest dated December 15, 2003. On
December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the
alleged VAT deficiency, which the latter protested in a letter dated January 14,

2004. On September 6, 2004, the BIR denied the protest filed by SM Prime and
ordered it to pay the VAT deficiency for taxable year 2000 in the amount of
P124,035,874. On October 15, 2004, SM Prime filed a Petition for Review before
the CTA docketed as CTA Case No. 7079.

ISSUE: WON the enumeration of services subject to VAT under Section 108 of
the NIRC is exhaustive.

CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on cinema
ticket sales for taxable year 1999 in the total amount of P35,823,680.93. First
Asia protested the PAN in a letter dated July 9, 2002. Subsequently, the BIR
issued a Formal Letter of Demand for the alleged VAT deficiency which was
protested by First Asia in a letter dated December 12, 2002. On September 6,
2004, the BIR rendered a Decision denying the protest and ordering First Asia to
pay the amount of P35,823,680.93 for VAT deficiency for taxable year
1999.16Accordingly, on October 20, 2004, First Asia filed a Petition for Review
before the CTA, docketed as CTA Case No. 7085.

The petition is bereft of merit.

The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC.108.Value-added Tax on Sale of Services and Use or Lease of
Properties.
(A)Rate and Base of Tax.There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from
the sale or exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators or keepers
of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land, air and water relative to their transport of goods or cargoes;
services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119
of this Code; services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar
services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase sale or
exchange of services shall likewise include:
(1)The lease or the use of or the right or privilege to use any copyright,
patent, design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
xxxx
(7)The lease of motion picture films, films, tapes and discs; and
(8)The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration
of the sale or exchange of services subject to VAT is not exhaustive. The
words, including, similar services, and shall likewise include, indicate that
the enumeration is by way of example only.39
Among those included in the enumeration is the lease of motion picture films,
films, tapes and discs. This, however, is not the same as the showing or
exhibition of motion pictures or films. As pointed out by the CTA En Banc:
Exhibition in Blacks Law Dictionary is defined as To show or display. x x x To
produce anything in public so that it may be taken into possession (6th ed., p.
573). While the word lease is defined as a contract by which one owning
such property grants to another the right to possess, use and enjoy it on

CTA Case No. 7111

On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema
ticket sales for taxable year 2000 in the amount of P35,840,895.78. First Asia
protested the PAN through a letter dated April 22, 2004. Thereafter, the BIR
issued a Formal Letter of Demand for alleged VAT deficiency. First Asia
protested the same in a letter dated July 9, 2004. On October 5, 2004, the BIR
denied the protest and ordered First Asia to pay the VAT deficiency in the
amount of P35,840,895.78 for taxable year 2000. This prompted First Asia to
file a Petition for Review before the CTA on December 16, 2004. The case was
docketed as CTA Case No. 7111.
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the
total amount of P32,802,912.21 was issued against First Asia by the BIR. In
response, First Asia filed a protest-letter dated November 11, 2004. The BIR
then sent a Formal Letter of Demand, which was protested by First Asia on
December 14, 2004.23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of
P28,196,376.46 for the taxable year 2003 was issued by the BIR against First
Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A
Formal Letter of Demand was thereafter issued by the BIR to First Asia, which
the latter protested through a letter dated November 11, 2004. 24On May 11,
2005, the BIR rendered a Decision denying the protests. It ordered First Asia to
pay the amounts of P33,610,202.91 and P28,590,826.50 for VAT deficiency for
taxable years 2002 and 2003, respectively.25Thus, on June 22, 2005, First Asia
filed a Petition for Review before the CTA, docketed as CTA Case No. 7272.
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions
filed by SM Prime and First Asia.27On July 1, 2005, SM Prime filed a Motion to
Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079 on
the grounds that the issues raised therein are identical and that SM Prime is a
majority shareholder of First Asia. The motion was granted.28Upon submission
of the parties respective memoranda, the consolidated cases were submitted
for decision on the sole issue of whether gross receipts derived from admission
tickets by cinema/theater operators or proprietors are subject to VAT.

RULING: Our Ruling

specified period of time in exchange for periodic payment of a stipulated price,

referred to as rent (Blacks Law Dictionary, 6th ed., p. 889). x x x40
Since the activity of showing motion pictures, films or movies by cinema/
theater operators or proprietors is not included in the enumeration, it is
incumbent upon the court to the determine whether such activity falls under
the phrase similar services. The intent of the legislature must therefore be
ascertained.
The legislature never intended operators or proprietors of cinema/theater
houses to be covered by VAT
Under the NIRC of 1939,41 the national government imposed amusement tax
on proprietors, lessees, or operators of theaters, cinematographs, concert halls,
circuses, boxing exhibitions, and other places of amusement, including
cockpits, race tracks, and cabaret.42 In the case of theaters or
cinematographs, the taxes were first deducted, withheld, and paid by the
proprietors, lessees, or operators of such theaters or cinematographs before
the gross receipts were divided between the proprietors, lessees, or operators
of the theaters or cinematographs and the distributors of the cinematographic
films. Section 1143 of the Local Tax Code,44 however, amended this provision
by transferring the power to impose amusement tax45 on admission from
theaters, cinematographs, concert halls, circuses and other places of
amusements exclusively to the local government. Thus, when the NIRC of
197746 was enacted, the national government imposed amusement tax only
on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai
and race tracks.47On January 1, 1988, the VAT Law48 was promulgated. It
amended certain provisions of the NIRC of 1977 by imposing a multi-stage VAT
to replace the tax on original and subsequent sales tax and percentage tax on
certain services. It imposed VAT on sales of services under Section 102 thereof,
which provides:
SECTION102.Value-added tax on sale of services.(a) Rate and base of tax.
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 calls for the
exercise or use of the physical or mental faculties: Provided, That the following
services performed in the Philippines by VAT-registered persons shall be subject
to 0%:
(1)Processing manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported, x x x
xxxx
Gross receipts means the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the
amount charged for materials supplied with the services and deposits or
advance payments actually or constructively received during the taxable
quarter for the service performed or to be performed for another person,
excluding value-added tax.
(b)Determination of the tax.(1) Tax billed as a separate item in the invoice.
If the tax is billed as a separate item in the invoice, the tax shall be based on
the gross receipts, excluding the tax.

(2)Tax not billed separately or is billed erroneously in the invoice.If the tax
is not billed separately or is billed erroneously in the invoice, the tax shall be
determined by multiplying the gross receipts (including the amount intended to
cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended,
however, were exempted from the coverage of VAT.49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 888, which clarified that the power to impose amusement tax on gross receipts
derived from admission tickets was exclusive with the local government units
and that only the gross receipts of amusement places derived from sources
other than from admission tickets were subject to amusement tax under the
NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy
amusement tax on gross receipts arising from admission to places of
amusement has been transferred to the local governments to the exclusion of
the national government.
xxxx
Since the promulgation of the Local Tax Code which took effect on June 28,
1973 none of the amendatory laws which amended the National Internal
Revenue Code, including the value added tax law under Executive Order No.
273, has amended the provisions of Section 11 of the Local Tax Code.
Accordingly, the sole jurisdiction for collection of amusement tax on admission
receipts in places of amusement rests exclusively on the local government, to
the exclusion of the national government. Since the Bureau of Internal Revenue
is an agency of the national government, then it follows that it has no legal
mandate to levy amusement tax on admission receipts in the said places of
amusement.
Considering the foregoing legal background, the provisions under Section 123
of the National Internal Revenue Code as renumbered by Executive Order No.
273 (Sec. 228, old NIRC) pertaining to amusement taxes on places of
amusement shall be implemented in accordance with BIR RULING, dated
December 4, 1973 and BIR RULING NO. 231-86 dated November 5, 1986 to wit:
x x x Accordingly, only the gross receipts of the amusement places derived
from sources other than from admission tickets shall be subject to x x x
amusement tax prescribed under Section 228 of the Tax Code, as amended
(now Section 123, NIRC, as amended by E.O. 273). The tax on gross receipts
derived from admission tickets shall be levied and collected by the city
government pursuant to Section 23 of Presidential Decree No. 231, as amended
x x x or by the provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local
government retained the power to impose amusement tax on proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent
(30%) of the gross receipts from admission fees under Section 140 thereof.50 In
the case of theaters or cinemas, the tax shall first be deducted and withheld by
their proprietors, lessees, or operators and paid to the local government before
the gross receipts are divided between said proprietors, lessees, or operators
and the distributors of the cinematographic films. However, the provision in the
Local Tax Code expressly excluding the national government from collecting tax
from the proprietors, lessees, or operators of theaters, cinematographs, concert
halls, circuses and other places of amusements was no longer included.In 1994,
RA 7716 restructured the VAT system by widening its tax base and enhancing
its administration. Three years later, RA 7716 was amended by RA 8241.

Shortly thereafter, the NIRC of 199751 was signed into law. Several
amendments52 were made to expand the coverage of VAT. However, none
pertain to cinema/theater operators or proprietors. At present, only lessors or
distributors of cinematographic films are subject to VAT. While persons subject
to amusement tax53 under the NIRC of 1997 are exempt from the
coverage of VAT.54
Based on the foregoing, the following facts can be established:
(1)Historically, the activity of showing motion pictures, films or movies by
cinema/theater operators or proprietors has always been considered as a form
of entertainment subject to amusement tax.
(2)Prior to the Local Tax Code, all forms of amusement tax were imposed by
the national government.
(3)When the Local Tax Code was enacted, amusement tax on admission
tickets from theaters, cinematographs, concert halls, circuses and other places
of amusements were transferred to the local government.
(4)Under the NIRC of 1977, the national government imposed amusement tax
only on proprietors, lessees or operators of cabarets, day and night clubs, JaiAlai and race tracks.
(5)The VAT law was enacted to replace the tax on original and subsequent
sales tax and percentage tax on certain services.
(6)When the VAT law was implemented, it exempted persons subject to
amusement tax under the NIRC from the coverage of VAT.
(7)When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of
amusements.
(8)Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT.
(9)Only lessors or distributors of cinematographic films are included in the
coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already
covered by the amusement tax. This holds true even in the case of
cinema/theater operators taxed under the LGC of 1991 precisely because the
VAT law was intended to replace the percentage tax on certain services. The
mere fact that they are taxed by the local government unit and not by the
national government is immaterial. The Local Tax Code, in transferring the
power to tax gross receipts derived by cinema/theater operators or proprietor
from admission tickets to the local government, did not intend to treat
cinema/theater houses as a separate class. No distinction must, therefore, be
made between the places of amusement taxed by the national government and
those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater
houses operators or proprietors, who would be paying an additional 10%55 VAT
on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991,
or a total of 40% tax. Such imposition would result in injustice, as persons taxed
under the NIRC of 1997 would be in a better position than those taxed under
the LGC of 1991. We need not belabor that a literal application of a law must be
rejected if it will operate unjustly or lead to absurd results.56 Thus, we are
convinced that the legislature never intended to include cinema/theater
operators or proprietors in the coverage of VAT.On this point, it is apropos to
quote the case of Roxas v. Court of Tax Appeals,57 to wit:
The power of taxation is sometimes called also the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and

uniformly, lest the tax collector kill the hen that lays the golden egg. And, in
order to maintain the general publics trust and confidence in the Government
this power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against
respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator was then
subject to amusement tax under Section 260 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code of 1939, computed on
the amount paid for admission. With the enactment of the Local Tax Code under
Presidential Decree (PD) No. 231, dated June 28, 1973, the power of imposing
taxes on gross receipts from admission of persons to cinema/theater and other
places of amusement had, thereafter, been transferred to the provincial
government, to the exclusion of the national or municipal government (Sections
11 & 13, Local Tax Code). However, the said provision containing the exclusive
power of the provincial government to impose amusement tax, had also been
repealed and/or deleted by Republic Act (RA) No. 7160, otherwise known as the
Local Government Code of 1991, enacted into law on October 10, 1991.
Accordingly, the enactment of RA No. 7160, thus, eliminating the statutory
prohibition on the national government to impose business tax on gross
receipts from admission of persons to places of amusement, led the way to the
valid imposition of the VAT pursuant to Section 102 (now Section 108) of the old
Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and which was
implemented beginning January 1, 1996.58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets. The removal of the prohibition
under the Local Tax Code did not grant nor restore to the national government
the power to impose amusement tax on cinema/theater operators or
proprietors. Neither did it expand the coverage of VAT. Since the imposition of a
tax is a burden on the taxpayer, it cannot be presumed nor can it be extended
by implication. A law will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously.59 As it is, the power to impose
amusement tax on cinema/theater operators or proprietors remains with the
local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts
of cinema/theater operators or proprietors derived from admission tickets, RMC
No. 28-2001 which imposes VAT on the gross receipts from admission to cinema
houses must be struck down. We cannot overemphasize that RMCs must not
override, supplant, or modify the law, but must remain consistent and in
harmony with, the law they seek to apply and implement.60
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001
complied with the procedural due process for tax issuances as prescribed under
RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their
entitlement to an exemption from the coverage of VAT. The rule that tax
exemptions should be construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied against him.61 The
reason is obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the provision.62 Thus,

unless a statute imposes a tax clearly, expressly and unambiguously, what

applies is the equally well-settled rule that the imposition of a tax cannot be
presumed.63 In fact, in case of doubt, tax laws must be construed strictly
against the government and in favor of the taxpayer.64
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008
Decision of the Court of Tax Appeals En Banc holding that gross receipts
derived by respondents from admission tickets in showing motion pictures,
films or movies are not subject to value-added tax under Section 108 of the
National Internal Revenue Code of 1997, as amended, and its June 24, 2008
Resolution denying the motion for reconsideration are AFFIRMED.

SOUTH AFRICAN AIRWAYS GR 180356 FEB 16, 2010 (SET OFF OK)
Income tax liability of international carriers; off-setting of tax deficiency and
tax refund
FACTS: Petitioner is a foreign corporation duly established under the laws of
South Africa, having its principal office at Johannesburg International Airport. It
has no landing rights in the Philippines, being merely an internal carrier. It is
not registered with the SEC and is not licensed to do business in the Philippines,
but has a general sales agent in the Philippines, Aerotel Ltd. Corp, which sells
passage documents for compensation or commission for petitioners off-line
flights for the carriage of passengers and cargo between ports or points outside
Philippine territory.
In 2000, petitioner paid about Php 1.7 million in taxes as 2.5% of its GPB (Gross
Philippine Billings). The definition of GPB has changed over the years. Under
the 1939 NIRC, 2.5% tax on GPB was imposed on international carriers
existing under foreign laws but engaged in business within the Philippines.
Under the 1977 NIRC, it was imposed on international carriers selling passage
documents in the Philippines provided the cargo/mail is of Philippine origin.
Under the 1986 and 1993 NIRC, it was imposed on gross revenue realized
from uplifts of passengers anywhere in the world andexcess baggage, cargo,
and mail of Philippine origin covered by passage documents sold in the
Philippines.Under the 1997 NIRC, it refers to gross revenue from carriage of
persons, excess baggage, cargo and mail of Philippine origin in a continuous
and uninterrupted flight irrespectiveof where the passage document for such
was sold.
In 2003, petitioner filed for a tax refund with the BIR, claiming that Php 1.7
million was erroneously paid on the ground that it is not liable for tax on its GPB
or for any other income tax. The claim, however, was not answered, prompting
petitioner to file for a review before the CTA.
The CTA denied the petition on the ground that although petitioner was not
liable for 2.5% of GPB, it was liable to pay 32% income tax because it was
engaged in a business in the Philippines. Hence, petitioner appeals before the
SC, arguing that granting that it is liable for the 32% income tax, it is
nevertheless has the right to be refunded of the taxes it wrongly paid for 2.5%
of its GPB or that such amount should be offset from its 32% income tax
liability as a matter of legal compensation.
ISSUES:
1. What tax is petitioner liable for?
2. Can there be off-setting where taxpayer, who has not paid taxes
it is liable for(tax deficiency),has paid taxes it isnot liable
for (tax refund)?

RULING:
1. Petitioner is not liable for the 2.5% tax on GPB because it does not
maintain flights to or from the Philippinesit is merely selling passage
documents for the transfer of such on flights outside Philippine
territory. However, it is liable for the 32% income tax because off-line
air carriers having general sales agents in the Philippines are engaged
in or doing business in the Philippines, and that their income from sales
of passage documents here is income from within the Philippines(CIR
vs British Overseas Airways).
The general rule is that under Sec. 28 (A) (1) of the 1997 NIRC, resident
foreign corporations are liable for 32% tax on all income from sources within
the Philippines. The exception is that under Sec. 28 (A) (3) of the 1997 NIRC,
they are only liable for 2.5% on their GBP if such foreign corporation is an
international carrier maintaining flights to and from the Philippines lifting
persons, excessbaggage, cargo, or mail, originating from the Philippines.
Petitioner does not belong to the latter category; hence the general rule applies
to it.
2. Yes. The general rule is that taxes cannot be subject to compensation
because the government and the taxpayer are not creditors and
debtors of each other. Taxesare not debts to the government. Debts
are due to the government in its corporate capacity, while taxes are
due to the government in its sovereign capacity. There can be no offsetting of taxes against the claims that the taxpayer may have against
the government in its corporate capacity. A person cannot refuse to
pay taxes on the ground that the government owes him an amount
equal to or greater than the tax to be collected. The collection of a tax
cannot await the results of a lawsuit against the government.
However, in CIR vs CTA (GR 106611, 21 July 1994), a tax refund may be off-set
with a tax deficiency to avoid multiplicity of suits and for efficiencys sake,
provided that no doubt is created as the accuracy of the facts in the tax return
since a refund assumes a valid tax return. In this case, there is doubt to the
validity of petitioners tax return as it has been found that it is liable for one tax
but not for another. Hence, the case was remanded for retrial to establish the
correct amount that should have been in petitioners tax return for year 2000.
COCA COLA VS TOLEDO, GR197561, APR 7/14 (SET OFF NOT AUTOM.)
Local Government Code; Local Taxation; Section 252(c) of the Local
Government Code of the Philippines is very clear that [i]n the event that the
protest is finally decided in favor of the taxpayer, the amount or portion of the
tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.Section 252(c) of the Local
Government Code of the Philippines is very clear that [i]n the event that the
protest is finally decided in favor of the taxpayer, the amount or portion of the
tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability. It was not necessary for petitioner to
move for the issuance of the writ of execution because the remedy has already
been provided by law.
Local Taxation; Tax Credits; It could not have been the intention of the law to
burden the taxpayer with going through the process of execution under the

Rules of Civil Procedure before it may be allowed to avail its tax credit as
affirmed by a court judgment.It could not have been the intention of the law
to burden the taxpayer with going through the process of execution under the
Rules of Civil Procedure before it may be allowed to avail its tax credit as
affirmed by a court judgment. If at all, the City of Manila Local Treasury may be
allowed to verify documents and information relative to the grant of the tax
refund or tax credit (i.e., determine the correctness of the petitioners returns,
and the tax amount to be credited), in consonance with the ruling in San Carlos
Milling Co., Inc. v. Commissioner of Internal Revenue, 228 SCRA 135 (1993),
which may be applied by analogy to the case at bar.

On May 12, 2010, the Clerk of Court of this Court issued an Entry of
Judgment8 relative to the aforesaid Resolution and declared the same final and
executory on March 10, 2010.

Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking to reverse and set aside the Orders 1 dated December 22, 2010
and June 21, 2011, respectively, of the Regional Trial Court of Manila (RTCManila) in Civil Case No. 00-97081.

On June 15, 2010, the Branch Clerk of Court, Branch 21 of the RTC Manila
issued a Writ of Execution directing the Sheriff to cause the execution of the
Decision dated September 28, 2001, disposing as follows:
NOW THEREFORE, you are hereby commanded to cause the execution of the
aforesaid judgment, including payment in full of your lawful fees for the service
of this writ.11

The factual and procedural antecedents follow:

This case springs from the Decision2 rendered by the RTC-Manila, dated
September 28, 2001, in the case entitled Coca-Cola Bottlers Philippines, Inc. v.
City of Manila, et al., docketed as Civil Case No. 00-97081, granting petitioners
request for tax refund or credit assessed under Section 21 3 of the Revenue
Code of Manila upon finding that there was double taxation in the imposition of
local business taxes. The dispositive portion of said Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering defendants to either refund or credit the tax assessed under
Section 21 of the Revenue Code of Manila and paid for by plaintiff on
the first quarter of year 2000 in the amount of P3,036,887.33.
The defendants City of Manila, etc. are enjoined from collecting the tax
from plaintiff Coca-Cola Bottlers Phils., Inc. under Section 21 of the
Revenue Code of Manila. The counterclaims [sic] of respondents is
hereby DENIED for lack of merit.
Accordingly, the Injunction bond posted by petitioner is hereby
CANCELLED.
SO ORDERED.4
Aggrieved by the foregoing, respondents herein appealed to the Court of
Appeals via an ordinary appeal. 5 On April 9, 2003, the Court of Appeals issued a
Resolution dismissing respondents appeal on the ground that the same was
improperly brought to the said Court pursuant to Section 2, Rule 50 of the
Revised Rules of Court. Despite respondents motion for reconsideration, the
Court of Appeals affirmed its decision in its Resolution dated February 28,
2005.6
On February 10, 2010, this Court promulgated a Resolution denying the Petition
for Review filed by the respondents, the dispositive portion of which reads:
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 09
April 2003 and 28 February 2005 Resolutions of the Court of Appeals in
CA-G.R. CV No. 74517.
SO ORDERED.7

On June 3, 2010, petitioner filed with the RTC-Manila a Motion for Execution for
the enforcement of the Decision dated September 28, 2001 and the issuance of
the corresponding writ of execution.9 Finding merit therein, on June 11, 2010,
the RTC-Manila issued an Order 10 granting petitioners Motion for Execution and
directed the Branch Clerk of Court to issue the corresponding writ of execution
to satisfy the judgment.

Aggrieved, respondents filed a Motion to Quash Writ of Execution. In response,

petitioner filed its Opposition thereto on December 12, 2010. 12
On December 22, 2010, the RTC-Manila issued an Order 13 granting the Motion
to Quash Writ of Execution, ruling:
Finding the motion to be prejudicial to the defendants, if implemented,
and considering that the projects of the City will be hampered, the
same is hereby GRANTED.
WHEREFORE, premises considered, the Motion to Quash the Writ of
Execution is hereby GRANTED.
SO ORDERED.14
Herein petitioner filed a Motion for Reconsideration, but the same was denied
by the RTC-Manila in its Order dated June 21, 2011, reasoning that both tax
refund and tax credit involve public funds. Thus, pursuant to SC Administrative
Circular No. 10-2000,15 the enforcement or satisfaction of the assailed decision
may still be pursued in accordance with the rules and procedures laid down in
Presidential Decree (P.D.) No. 1445, otherwise known as the Government
Auditing Code of the Philippines.16
Hence, the present Petition for Review on Certiorari raising the following
assignment of errors:
1. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE WRIT OF EXECUTION (FOR SPECIAL JUDGMENT) ISSUED BY
THE BRANCH CLERK OF COURT DOES NOT INVOLVE THE LEVY OR
GARNISHMENT OF FUNDS AND PROPERTY USED OR BEING USED FOR PUBLIC
PURPOSE,ADMINISTRATIVE CIRCULAR NO. 10-2000 HAS THEREFORE NO
RELEVANCE IN THIS CASE.
2. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE JUDGMENT IN THIS CASE REQUIRES EITHER TAX REFUND
(PAYMENT OF SUM OF MONEY) OR TAX CREDIT (ISSUANCE OF TAX CREDIT
CERTIFICATE).
3. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE DEFENDANTS HAVE BEEN ISSUING TAX CREDIT
CERTIFICATES TO OTHER TAXPAYERS FOR ILLEGALLY COLLECTED TAXES EVEN
WITHOUT ANY APPROPRIATE MEASURE.

4. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO

CONSIDER THAT THE REASON CITED IN THE ORDER IN QUASHING THE WRIT OF
EXECUTION IS NOT ONE OF THE GROUNDS LAID DOWN BY LAW. (GUTIERREZ
VS. VALIENTE, 557 SCRA 211)
5. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT ITS ASSAILED ORDER HAS IN EFFECT REVERSED THE
JUDGMENT IN THIS CASE, THUS, DEPRIVING PETITIONER THE FRUITS OF ITS
LABOR BEFORE THE COURTS.17
At the onset, it bears stressing that while petitioner lays down various grounds
for the allowance of the petition, the controversy boils down to the propriety of
the issuance of the writ of execution of the judgment ordering respondents
either to refund or credit the tax assessed under Section 21 18 of the Revenue
Code of Manila in the amount of Php3,036,887.33.
After careful consideration of the facts and laws obtaining in this case, we find
that the issuance of the Writ of Execution was superfluous, given the clear
directive of the RTC-Manila in its Decision dated September 28, 2001. We do
not, however, agree with respondents view that Administrative Circular No. 102000 is applicable to the instant case for reasons discussed hereinbelow.
In its first assigned error, petitioner argues that the writ of execution issued by
the Branch Clerk of Court does not involve the levy or garnishment of funds and
property used or being used for public purpose given that the writ was issued
"For: Special Judgment." Thus, Administrative Circular No. 10-2000 has no
relevance in the instant case.
In its Decision dated September 28,2001, the RTC-Manila directs respondents to
either refund or credit the tax under Section 21 of the Revenue Code of Manila,
which was improperly assessed but nevertheless paid for by petitioner on the
first quarter of year 2000 in the amount of P3,036,887.33. The judgment does
not actually involve a monetary award or a settlement of claim against the
government.
Under the first option, any tax on income that is paid in excess of the amount
due the government may be refunded, provided that a taxpayer properly
applies for the refund.19 On the other hand, the second option works by
applying the refundable amount against the tax liabilities of the petitioner in
the succeeding taxable years.20
Hence, instead of moving for the issuance of a writ of execution relative to the
aforesaid Decision, petitioner should have merely requested for the approval of
the City of Manila in implementing the tax refund or tax credit, whichever is
appropriate. In other words, no writ was necessary to cause the execution
thereof, since the implementation of the tax refund will effectively be a return
of funds by the City of Manila in favor of petitioner while a tax credit will merely
serve as a deduction of petitioners tax liabilities in the future.
In fact, Section 252 (c) of the Local Government Code of the Philippines is very
clear that "[i]n the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be refunded to the
protestant, or applied as tax credit against his existing or future tax liability." It
was not necessary for petitioner to move for the issuance of the writ of
execution because the remedy has already been provided by law.
Thus, under Administrative Order No. 270 prescribing rules and regulations
implementing the Local Government Code, particularly Article 286 thereof, the

tax credit granted a taxpayer shall be applied to future tax obligations of the
same taxpayer for the same business, to wit:
ARTICLE 286. Claim for Refund or Tax Credit. All taxpayers entitled to a
refund or tax credit provided in this Rule shall file with the local treasurer a
claim in writing duly supported by evidence of payment (e.g., official receipts,
tax clearance, and such other proof evidencing overpayment)within two (2)
years from payment of the tax, fee, or charge. No case or proceeding shall be
entertained in any court without this claim in writing, and after the expiration of
two (2) years from the date of payment of such tax, fee, or charge, or from the
date the taxpayer is entitled to a refund or tax credit.
The tax credit granted a taxpayer shall not be refundable in cash but shall only
be applied to future tax obligations of the same taxpayer for the same
business. If a taxpayer has paid in full the tax due for the entire year and he
shall have no other tax obligation payable to the LGU concerned during the
year, his tax credits, if any, shall be applied in full during the first quarter of the
next calendar year on the tax due from him for the same business of said
calendar year.
Any unapplied balance of the tax credit shall be refunded in cash in the event
that he terminates operation of the business involved within the locality. 21
Accordingly, while we find merit in petitioners contention that there are two (2)
ways by which respondents may satisfy the judgment of the RTC-Manila: (1) to
pay the petitioner the amount of Php3,036,887.33 as tax refund; or (2) to issue
a tax credit certificate in the same amount which may be credited by petitioner
from its future tax liabilities due to the respondent City of Manila, 22 the issuance
of the Writ of Execution relative thereto was superfluous, because the judgment
of the RTC-Manila can neither be considered a judgment for a specific sum of
money susceptible of execution by levy or garnishment under Section 9, 23 Rule
39 of the Rules of Court nor a special judgment under Section 11, 24 Rule 39
thereof.
Moreover, given that Presidential Decree No. 1445 and Administrative Circular
No. 10-2000 involve a settlement of a claim against a local government unit,
the same finds no application in the instant case wherein no monetary award is
actually awarded to petitioner but a mere return or restoration of petitioners
money, arising from an excessive payment of tax erroneously or illegally
imposed and received.
It could not have been the intention of the law to burden the taxpayer with
going through the process of execution under the Rules of Civil Procedure
before it may be allowed to avail its tax credit as affirmed by a court judgment.
If at all, the City of Manila Local Treasury may be allowed to verify documents
and information relative to the grant of the tax refund or tax credit (i.e.,
determine the correctness of the petitioner's returns, and the tax amount to be
credited), in consonance with the ruling in San Carlos Milling Co., Inc. v.
Commissioner of Internal Revenue, 25 which may be applied by analogy to the
case at bar, to wit:
It is difficult to see by what process of ratiocination petitioner insists on the
literal interpretation of the word "automatic." Such literal interpretation has
been discussed and precluded by the respondent court in its decision of 23
December1991 where, as aforestated, it ruled that "once a taxpayer opts for

either a refund or the automatic tax credit scheme, and signified his option in
accordance with the regulation, this does not ipso facto confer on him the right
to avail of the same immediately. An investigation, as a matter of procedure, is
necessary to enable the Commissioner to determine the correctness of the
petitioner's returns, and the tax amount to be credited.

What is at issue in the instant petition is merely the propriety of the

enforcement of the writ of execution issued by the RTC-Manila. Clearly, this
Court has already ruled upon the validity of the tax refund or the tax credit due
to the petitioner and has rendered the same final and executory.

Prior approval by the Commissioner of Internal Revenue of the tax credit under
then section 86 (now section 69) of the Tax Code would appear to be the most
reasonable interpretation to be given to said section. An opportunity must be
given the internal revenue branch of the government to investigate and confirm
the veracity of the claims of the taxpayer. The absolute freedom that petitioner
seeks to automatically credit tax payments against tax liabilities for a
succeeding taxable year, can easily give rise to confusion and abuse, depriving
the government of authority and control over the manner by which the
taxpayers credit and offset their tax liabilities, not to mention the resultant loss
of revenue to the government under such a scheme. 26

The lower court, therefore, has not effectively reversed the judgment in favor of
petitioner. The court a quos reason for quashing the Writ of Execution was to
allow the parties to enforce the judgment by complying first with the rules and
procedures of P.D. No. 1445 and Administrative Circular No. 10-2000. 30

In its third assignment of error, petitioner postulates that the RTC Manila
seriously erred when it failed to consider that the respondents have been
issuing tax credit certificates to other taxpayers for illegally collected taxes
even without any appropriate measure.1wphi1

ARIETE GR 164152 21 JAN 2010 (INTERPRETTN OF TAX LAWS)

On the other hand, respondents argue that the same raises a question of fact
which would entail an examination of probative value of documentary evidence
which, in fact, were not introduced in the course of the trial but only as a mere
attachment to the Motion for Reconsideration of petitioner. 27
Petitioners sweeping statement cannot hold water as the factual and legal
milieu of the tax refund cases submitted to the City of Manila, as well as the
circumstances availing in each of those cases, vary, requiring a different action
from the City of Manila. As such, the case of Asian Terminals Inc. as well as the
case of Tupperware Brands Phils., Inc. and Smart Communications, Inc., as cited
by petitioner,28 should not be compared to the instant case because it has not
been proven that the factual and procedural circumstances availing therein are
similar to the instant case.
For its fourth assigned error, petitioner argues that the reason cited in the
Order quashing the Writ of Execution is not one of the grounds laid down by
law.
Respondents aver, on the other hand, that in granting the Motion to Quash, the
RTC-Manila plainly conceded that the Writ of Execution was improvidently
issued as it was prejudicial to the respondents. Respondents also argue that the
rule that government funds are generally exempt from execution is based on
obvious considerations of public policy; thus, the primary functions and
devolved public welfare services rendered by the respondent City of Manila
cannot be interrupted or abandoned by the withdrawal of its meager resources
from their lawful and particular purpose based on the appropriation ordinance. 29
Finding that the issuance of the Writ of Execution was superfluous in the first
place, this Court finds the foregoing issue inapt for discussion. Nevertheless,
this Court disagrees with petitioners fifth contention that the assailed decision
of the RTC-Manila granting the Motion to Quash the Writ of Execution has, in
effect, reversed the judgment in the instant case.

WHEREFORE, premises considered, the petition is GRANTED. Accordingly,

petitioner Coca-Cola Bottlers, Inc. is entitled to a tax refund or tax credit
without need for a writ of execution, provided that petitioner complies with the
requirements set by law for a tax refund or tax credit, whichever is applicable.
SO ORDERED.

Taxation; Statutory Construction; It is well-settled that where the language of

the law is clear and unequivocal, it must be given its literal application and
applied without interpretation; The general rule of requiring adherence to the
letter in construing statutes applies with particular strictness to tax laws and
provisions of a taxing act are not to be extended by implication; Recording of
the information in the Official Registry Book of the Bureau of Internal Revenue
(BIR) is a mandatory requirement before a taxpayer may be excluded from the
coverage of the Voluntary Assessment Program (VAP).It is well-settled that
where the language of the law is clear and unequivocal, it must be given its
literal application and applied without interpretation. The general rule of
requiring adherence to the letter in construing statutes applies with particular
strictness to tax laws and provisions of a taxing act are not to be extended by
implication. A careful reading of the RMOs pertaining to the VAP shows that the
recording of the information in the Official Registry Book of the BIR is a
mandatory requirement before a taxpayer may be excluded from the coverage
of the VAP.
Same; Same; Where a provision of law expressly limits its application to certain
transactions, it cannot be extended to other transactions by interpretation.
When a tax provision speaks unequivocally, it is not the province of a Court to
scan its wisdom or its policy. The more correct course of dealing with a question
of construction is to take the words to mean exactly what they say. Where a
provision of law expressly limits its application to certain transactions, it cannot
be extended to other transactions by interpretation.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
S.B. Britanico Lisaca & Associates Law Office for respondent.
CARPIO,J.:
The Case
The Commissioner of Internal Revenue (petitioner) filed this Petition for
Review1 to reverse the Court of Appeals (CA) Decision2 dated 14 June 2004 in
CA-G.R. SP No. 70693. In the assailed decision, the CA affirmed the Court of Tax

Appeals (CTA) Decision3 and Resolution dated 15 January 2002 and 3 May
2002, respectively. The CTA cancelled the assessments issued against Julieta
Ariete (respondent) for deficiency income taxes of P191,463.04 for the years
1993, 1994, 1995, and 1996.
The Facts
On 21 May 1997, George P. Mercado filed an Affidavit with the Special
Investigation Division, Revenue Region No. 19, Davao City. The affidavit
attested that respondent earned substantial income in 1994, 1995, and 1996
without paying income tax.4The Chief of the Special Investigation Division (SID
Chief) issued Mission Order No. 118-97 dated 23 May 1997, directing a Revenue
Officer to conduct preliminary verification of the denunciation made and submit
a progress report. The SID Chief also sent a request to access the BIR records of
Revenue District No. 112, Tagum, Davao del Norte (RDO), inquiring if the
income tax returns of respondent for the years 1993 to 1996 are available for
examination. The RDO replied that respondent had no records of income tax
returns for the years 1993 to 1996.5On 15 October 1997, the Revenue Officer
submitted a report stating that respondent admitted her non-filing of income
tax returns.6On 2 December 1997, respondent filed her income tax returns for
the years 1993, 1994, 1995, and 1996 under Revenue Memorandum Order
(RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise
known as the Voluntary Assessment Program (VAP).7
On 28 July 1998, the Regional Director issued a Letter of Authority to
investigate respondent for tax purposes covering the years 1993 to 1996.
On 14 October 1998, the Revenue Officer submitted a Memorandum to the SID
Chief recommending that respondent be assessed with deficiency income taxes
for the years 1993 to 1996. On 22 January 1999, four assessment notices were
issued against respondent. The total deficiency income taxes, inclusive of
interests and surcharges amounted to P191,463.04:
1993
P 6,462.1881994
47,187.3991995
24,729.64101996
113,083.8311
P 191,463.04
On 22 February 1999, respondent filed an Assessment Protest with Prayer for
Reinvestigation. On 30 March 1999, the assessment protest was denied.
On 16 April 1999, respondent offered a compromise settlement but the same
was denied.
Respondent filed a petition for review with the CTA assailing the Bureau of
Internal Revenues (BIR) decision denying with finality the request for
reinvestigation and disapproving her availment of the VAP. Respondent also
contested the issuance of the four assessment notices.
On 15 January 2002, the CTA rendered a decision cancelling the deficiency
assessments. Petitioner filed a motion for reconsideration but the CTA denied
the same in a Resolution dated 3 May 2002.
Petitioner appealed the CTAs decision to the CA. In a decision dated 14 June
2004, the CA affirmed the CTAs decision.
Aggrieved by the CAs decision affirming the cancellation of the tax deficiency
assessments, petitioner elevated the case before this Court.
Ruling of the Court of Tax Appeals
The CTA stated that when respondent filed her income tax returns on 2
December 1997, she was not yet under investigation by the Special
Investigation Division. The Letter of Authority to investigate respondent for tax
purposes was issued only on 28 July 1998. Further, respondents case was not
duly recorded in the Official Registry Book of the BIR before she availed of the
VAP.

The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the
requirements before a person may be excluded from the coverage of the VAP
are:
a.The person(s) must be under investigation by the Tax Fraud Division and/or
the regional Special Investigation Division;
b.The investigation must be as a result of a verified information filed by an
informer under Section 281 of the NIRC, as amended; and
c.The investigation must be duly registered in the Official Registry Book of the
Bureau before the date of availment under the VAP.12The CTA ruled that the
conjunctive word and is used; therefore, all of the above requisites must be
present before a person may be excluded from the coverage of the VAP. The
CTA explained that the word and is a conjunction connecting words or
phrases expressing the idea that the latter is to be added or taken along with
the first.13
The CTA also stated that the rationale behind the VAP is to give taxpayers a
final opportunity to come up with a clean slate before they will be dealt with
strictly for not paying their correct taxes. The CTA noted that under the RMOs,
among the benefits that can be availed by the taxpayer-applicant are:
1)A bona fide rectification of filing errors and assessment of tax liabilities
under the VAP shall relieve the taxpayer-applicant from any criminal or civil
liability incident to the misdeclaration of incomes, purchases, deductions, etc.,
and non-filing of a return.
2) The taxpayer who shall avail of the VAP shall be liable only for the
payment of the basic tax due.14The CTA ruled that even if respondent violated
the National Internal Revenue Code (Tax Code), she was given the chance to
rectify her fault and be absolved of criminal and civil liabilities incident to her
non-filing of income tax by virtue of the VAP. The CTA held that respondent is
not disqualified to avail of the VAP. Hence, respondent has no more liabilities
after paying the corresponding taxes due.15The CTA found the four
assessments issued against respondent to be erroneous and ordered that the
same be cancelled.16
Ruling of the Court of Appeals
The CA explained that the persons who may avail of the VAP are those who are
liable to pay any of the above-cited internal revenue taxes for the above
specified period who due to inadvertence or otherwise, has underdeclared his
internal revenue tax liabilities or has not filed the required tax returns. The CA
rationalized that the BIR used a broad language to define the persons qualified
to avail of the VAP because the BIR intended to reach as many taxpayers as
possible subject only to the exclusion of those cases specially enumerated.
The CA ruled that in applying the rules of statutory construction, the exceptions
enumerated in paragraph 317 of RMO No. 59-97, as well as those added in RMO
No. 63-97, should be strictly construed and all doubts should be resolved in
favor of the general provision stated under paragraph 218 rather than the said
exceptions.
The CA affirmed the CTAs findings of facts and ruled that neither the verified
information nor the investigation was recorded in the Official Registry Book of
the BIR. The CA disagreed with petitioners contention that the recording in the
Official Registry Book of the BIR is merely a procedural requirement which can
be dispensed with for the purpose of determining who are excluded from the
coverage of RMO No. 59-97.
The CA explained that it is clear from the wordings of RMO No. 59-97 that the
recording in the Official Registry Book of the BIR is a mandatory requirement
before a taxpayer-applicant under the VAP may be excluded from its coverage

as this requirement was preceded by the word and. The use of the
conjunction and in subparagraph 3.4 of RMO No. 59-97 must be understood
in its usual and common meaning for the purpose of determining who are
disqualified from availing of the benefits under the VAP. This interpretation is
more in faithful compliance with the mandate of the RMOs.
Aggrieved by the CA decision, petitioner elevated the case to this Court.
Issue
Petitioner submits this sole issue for our consideration: whether the CA erred in
holding that the recording in the Official Registry Book of the BIR of the
information filed by the informer under Section 28119 of the Tax Code is a
mandatory requirement before a taxpayer-applicant may be excluded from the
coverage of the VAP.
Ruling of the Court
Petitioner contends that the VAP, being in the nature of a tax amnesty, must be
strictly construed against the taxpayer-applicant such that petitioners failure to
record the information in the Official Registry Book of the BIR does not affect
respondents disqualification from availment of the benefits under the VAP.
Petitioner argues that taxpayers who are under investigation for non-filing of
income tax returns before their availment of the VAP are not covered by the
program and are not entitiled to its benefits. Petitioner alleges that the
underlying reason for the disqualification is that availment of the VAP by such
taxpayer is no longer voluntary. Petitioner asserts that voluntariness is the very
essence of the Voluntary Assessment Program.20
Respondent claims that where the terms of a statute are clear and
unambiguous, no interpretation is called for, and the law is applied as written,
for application is the first duty of the court, and interpretation, only where
literal application is impossible or inadequate.
Verba Legis
It is well-settled that where the language of the law is clear and unequivocal, it
must be given its literal application and applied without interpretation.21 The
general rule of requiring adherence to the letter in construing statutes applies
with particular strictness to tax laws and provisions of a taxing act are not to be
extended by implication.22 A careful reading of the RMOs pertaining to the VAP
shows that the recording of the information in the Official Registry Book of the
BIR is a mandatory requirement before a taxpayer may be excluded from the
coverage of the VAP.On 27 October 1997, the CIR, in implementing the VAP,
issued RMO No. 59-97 to give erring taxpayers a final opportunity to come up
with a clean slate. Any person liable to pay income tax on business and
compensation income, value-added tax and other percentage taxes under
Titles II, IV and V, respectively, of the Tax Code for the taxable years 1993 to
1996, who due to inadvertence or otherwise, has not filed the required tax
return may avail of the benefits under the VAP.23 RMO No. 59-97 also
enumerates the persons or cases that are excluded from the coverage of the
VAP.
3.Persons/Cases not covered
The following shall be excluded from the coverage of the VAP under this Order:
xxx
3.4.Persons under investigation as a result of verified information filed by an
informer under Section 281 of the NIRC, as amended, and duly recorded in the
Official Registry Book of the Bureau before the date of availment under the
VAP; x x x (Boldfacing supplied)

On 30 October 1997, the CIR issued RMO No. 60-97 which supplements RMO
No. 59-97 and amended Item No. 3.4 to read as:
3.Persons/Cases not covered
The following shall be excluded from the coverage of the VAP under this Order:
xxx
3.4Persons under investigation by the Tax Fraud Division and/or the Regional
Special Investigation Divisions as a result of verified information filed by an
informer under Section 281 of the NIRC, as amended, and duly recorded in the
Official Registry Book of the Bureau before the date of availment under VAP;
(Boldfacing supplied)
On 27 November 1997, the CIR issued RMO No. 63-97 and clarified issues
related to the implementation of the VAP. RMO No. 63-97 provides:
3.Persons/cases not covered:
xxx
3.4Persons under investigation by the Tax Fraud Division and/or the Regional
Special Investigation Divisions as a result of verified information filed by an
informer under Section 281 of the NIRC, as amended, and duly recorded in the
Official Registry Book of the Bureau before the date of availment under the
VAP; (Underscoring in the original, boldfacing supplied)
It is evident from these RMOs that the CIR was consistent in using the word
and and has even underscored the word in RMO No. 63-97. This denotes that
in addition to the filing of the verified information, the same should also be duly
recorded in the Official Registry Book of the BIR. The conjunctive word and is
not without legal significance. It means in addition to. The word and,
whether it is used to connect words, phrases or full sentences, must be
accepted as binding together and as relating to one another.24 And in
statutory construction implies conjunction or union.25It is sufficiently clear that
for a person to be excluded from the coverage of the VAP, the verified
information must not only be filed under Section 28126 of the Tax Code, it must
also be duly recorded in the Official Registry Book of the BIR before the date of
availment under the VAP. This interpretation of Item 3.4 of RMO Nos. 59-97, 6097, and 63-97 is further bolstered by the fact that on 12 October 2005, the BIR
issued Revenue Regulations (RR) No. 18-2005 and reiterated the same
provision in the implementation of the Enhanced Voluntary Assessment
Program (EVAP). RR No. 18-2005 reads:
SECTION1.COVERAGE.x x x
Any person, natural or juridical, including estates and trusts, liable to pay any
of the above-cited internal revenue taxes for the above specified period/s who,
due to inadvertence or otherwise, erroneously paid his/its internal revenue tax
liabilities or failed to file tax returns/pay taxes, may avail of the EVAP, except
those falling under any of the following instances:
xxx
b.
Persons under investigation as a result of verified information filed by a
Tax Informer under Section 282 of the NIRC, duly processed and recorded in the
BIR Official Registry Book on or before the effectivity of these regulations.
(Boldfacing supplied)
When a tax provision speaks unequivocally, it is not the province of a Court to
scan its wisdom or its policy.27 The more correct course of dealing with a
question of construction is to take the words to mean exactly what they say.
Where a provision of law expressly limits its application to certain transactions,
it cannot be extended to other transactions by interpretation.28
Findings of Fact

Generally, the findings of fact of the CTA, a court exercising expertise on the
subject of tax, are regarded as final, binding, and conclusive upon this Court,
especially if these are similar to the findings of the Court of Appeals which is
normally the final arbiter of questions of fact.29
In this case, the CA affirmed the CTAs findings of fact which states:
We will start with the question as to whether or not the respondent was
already under investigation for violation of the Tax Code provisions at the time
she applied under VAP on December 2, 1997. The records show that she was
indeed under investigation. Albeit, the Letter of Authority was issued only on 28
July 1998, there is no question that on 23 May 1997, a Mission Order No. 11897 had already been issued by the Chief of Special Investigation Division of the
BIR, Revenue Region No. 19 to Intelligence Officer Eustaquio M. Valdez
authorizing the conduct of monitoring and surveillance activities on the
respondent. This investigation was preceded by the filing of a verified
information by a certain George Mercado alleging respondents failure to pay
her income taxes for the years 1994 to 1996.
xxx
We now proceed to the question as to whether or not the requirement of
recording in the Official Registry Book of the BIR is present in the respondents
case. At this juncture, we affirm CTAs finding that neither the verified
information nor the investigation was recorded in the Official Registry Book of
the BIR. Petitioner claims that this was merely a procedural omission which
does not affect respondents exclusion from the coverage of the VAP.30
(Boldfacing supplied)
Petitioners failure to effect compliance with the requirement of recording the
verified information or investigation in the Official Registry Book of the BIR
means that respondent, even if under investigation, can avail of the benefits of
the VAP. Consequently, respondent is relieved from any criminal or civil liability
incident to the non-filing of a return.
Wherefore, we DENY the petition. We AFFIRM the Court of Appeals Decision
dated 14 June 2004 in CA-G.R. SP No. 70693.
SO ORDERED.
Brion, Del Castillo, Abad and Perez, JJ., concur.
Petition denied, judgment affirmed.
Note.Taxation is the rule and exemption is the exception. (FELS Energy Inc.
vs. Province of Batangas, 516 SCRA 186 [2007])
SAN MIGUEL CORP GR 184428 23 NOV 2011
Taxation; As there is nothing in Section 143 of the Tax Reform Act of
1997 which clothes the Bureau of Internal Revenue (BIR) with the
power or authority to rule that the new specific tax rate should not be
lower than the excise tax that is actually being paid prior to January 1,
2000, such interpretation is clearly an invalid exercise of the power of
the Secretary of Finance to interpret tax laws and to promulgate rules
and regulations necessary for the effective enforcement of the Tax
Reform Act of 1997; Said qualification must, perforce, be struck down
as invalid and of no effect.Section 143 of the Tax Reform Act of 1997 is
clear and unambiguous. It provides for two periods: the first is the 3-year
transition period beginning January 1, 1997, the date when R.A. No. 8240 took
effect, until December 31, 1999; and the second is the period thereafter. During
the 3-year transition period, Section 143 provides that the excise tax from any
brand of fermented liquorshall not be lower than the tax which was due from

each brand on October 1, 1996. After the transitory period, Section 143
provides that the excise tax rate shall be the figures provided under paragraphs
(a), (b) and (c) of Section 143 but increased by 12%, without regard to whether
such rate is lower or higher than the tax rate that is actually being paid prior to
January 1, 2000 and therefore, without regard to whether the revenue
collection starting January 1, 2000 may turn out to be lower than that collected
prior to said date. Revenue Regulations No. 17-99, however, created a new tax
rate when it added in the last paragraph of Section 1 thereof, the qualification
that the tax due after the 12% increase becomes effective shall not be lower
than the tax actually paid prior to January 1, 2000. As there is nothing in
Section 143 of the Tax Reform Act of 1997 which clothes the BIR with the power
or authority to rule that the new specific tax rate should not be lower than the
excise tax that is actually being paid prior to January 1, 2000, such
interpretation is clearly an invalid exercise of the power of the Secretary of
Finance to interpret tax laws and to promulgate rules and regulations necessary
for the effective enforcement of the Tax Reform Act of 1997. Said qualification
must, perforce, be struck down as invalid and of no effect.
Same; Tax burdens are not to be imposed, nor presumed to be
imposed beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government.It
bears reiterating that tax burdens are not to be imposed, nor presumed to be
imposed beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government. In case of
discrepancy between the basic law and a rule or regulation issued to implement
said law, the basic law prevails as said rule or regulation cannot go beyond the
terms and provisions of the basic law. It must be stressed that the objective of
issuing BIR Revenue Regulations is to establish parameters or guidelines within
which our tax laws should be implemented, and not to amend or modify its
substantive meaning and import.

DIAZ VS SEC. OF FINANCE, GR 193007 JULY 19, 2011 (TOLL VS TAX)

FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed
this petition for declaratory relief assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on
the collections of tollway operators. Court treated the case as one
of prohibition. Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the meaning of "sale of services"
that are subject to VAT; that a toll fee is a "user's tax," not a sale of services;
that to impose VAT on toll fees would amount to a tax on public service; and
that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution. The
government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the
imposition of VAT on tollway operations has been the subject as early as 2003
of several BIR rulings and circulars. The government also argues that
petitioners have no right to invoke the non-impairment of contracts clause
since they clearly have no personal interest in existing toll operating
agreements (TOAs) between the government and tollway operators. At any
rate, the non-impairment clause cannot limit the State's sovereign taxing
power which is generally read into contracts.

ISSUE: May toll fees collected by tollway operators be subjected to VAT (Are
tollway operations a franchise and/or a service that is subject to VAT)?
RULING: When a tollway operator takes a toll fee from a motorist, the fee is in
effect for the latter's use of the tollway facilities over which the operator enjoys
private proprietary rights that its contract and the law recognize. In this sense,
the tollway operator is no different from the service providers under Section108
who allow others to use their properties or facilities for a fee. Tollway operators
are franchise grantees and they do not belong to exceptions that Section 119
spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public
concern. Tollway operators are, owing to the nature and object of their
business, "franchise grantees." The construction, operation, and maintenance
of toll facilities on public improvements are activities of public consequence
that necessarily require a special grant of authority from the state. A tax is
imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although
toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be
imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an
attribute of ownership.
Elevated before us via a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, is the Decision [1]of the Court of
Tax Appeals (CTA) En Banc in C.T.A. EB No. 360 on a pure question of law, that
is, whether the last paragraph of Section 1 of Bureau of Internal Revenue
(BIR) Revenue Regulations No. 17-99faithfully complies with the mandate of
Section 143 of the Tax Reform Act of 1997.
The facts are undisputed:
Respondent San Miguel Corporation, a domestic corporation engaged in the
manufacture and sale of fermented liquor, produces as one of its products Red
Horse beer which is sold in 500-ml. and 1-liter bottle variants.
On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of
1997 took effect. It reproduced, as Section 143 thereof, the provisions of
Section 140 of the old National Internal Revenue Code as amended by R.A. No.
8240[2]which became effective on January 1, 1997. Section 143 of the Tax
Reform Act of 1997 reads:
SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an
excise tax on beer, lager beer, ale, porter and other fermented liquors except
tuba, basi, tapuy and similar domestic fermented liquors in accordance with the
following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter
of volume capacity is less than Fourteen pesos and fifty centavos (P14.50), the
tax shall be Six pesos and fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per
liter of volume capacity is Fourteen pesos and fifty centavos (P14.50) up to
Twenty-two pesos (P22.00), the tax shall be Nine pesos and fifteen centavos
(P9.15) per liter;

(c) If the net retail price (excluding the excise tax and the value-added tax) per
liter of volume capacity is more than Twenty-two pesos (P22.00), the tax shall
be Twelve pesos and fifteen centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after
the effectivity of Republic Act No. 8240 shall be taxed under the highest
classification of any variant of that brand.
Fermented liquor which are brewed and sold at micro-breweries or small
establishments such as pubs and restaurants shall be subject to the rate in
paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next
three (3) years from the effectivity of Republic Act No. 8240 shall not
be lower than the tax which was due from each brand on October 1,
1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b)
and (c) hereof shall be increased by twelve percent (12%) on January
1, 2000.

x x x x (Emphasis and underscoring supplied.)

Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue
Regulations No. 17-99 increasing the applicable tax rates on fermented liquor
by 12% as follows:
SECTION
DESCRIPTION
OF PRESENT
NEW
SPE
ARTICLES
SPECIFIC TAX TAX
RATES
RATES(Effect
(Prior to January January 1, 20
1, 2000)
xxxx
143

FERMENTED LIQUORS
(a) Net Retail Price per
liter(excluding
VAT
& Excise)
is
less
than P14.50

P6.15/liter

P6.89/liter

(b) Net Retail Price per

liter (excluding
VAT
& Excise) is P14.50 up
to P22.00

P9.15/liter

P10.25/liter

(c) Net Retail Price per

liter (excluding
VAT
& Excise)
is
more
than P22.00

P12.15/liter

P13.61/liter

xxxx
This increase, however, was qualified by the last paragraph of Section 1
of Revenue Regulations No. 17-99 which reads:

Provided, however, that the new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquors shall not be lower than the excise tax that is actually being paid
prior to January 1, 2000. (Emphasis and underscoring supplied.)
Now, for the period June 1, 2004 to December 31, 2004, respondent was
assessed and paid excise taxes amounting to P2,286,488,861.58[3]for the
323,407,194 liters of Red Horse beer products removed from its plants. Said
amount was computed based on the tax rate of P7.07/liter or the tax rate which
was being applied to its products prior to January 1, 2000, as the last paragraph
of Section 1 of Revenue Regulations No. 17-99 provided that the new specific
tax rate for fermented liquors shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000.[4]Respondent, however, later
contended that the said qualification in the last paragraph of Section 1
of Revenue Regulations No. 17-99 has no basis in the plain wording of Section
143. Respondent argued that the applicable tax rate was only the P 6.89/liter
tax rate stated in Revenue Regulations No. 17-99, and that accordingly, its
excise taxes should have been only P2,228,275,566.66.
On May 22, 2006, respondent filed before the BIR a claim for refund or tax
credit of the amount of P60,778,519.56[5]as erroneously paid excise taxes for
the period of May 22, 2004 to December 31, 2004. Later, said amount was
reduced to P58,213,294.92 because of prescription. As the petitioner
Commissioner of Internal Revenue (CIR) failed to act on the claim, respondent
filed a petition for review with the CTA. [6]
On September 26, 2007,[7]the CTA Second Division granted the petition and
ordered petitioner to refund P58,213,294.92 to respondent or to issue in the
latters favor a Tax Credit Certificate for the said amount for the erroneously
paid excise taxes. The CTA held that Revenue Regulations No. 17-99 modified
or altered the mandate of Section 143 of the Tax Reform Act of 1997. The CTA
Second Division held,
A reading of Section 143 of the [Tax Reform Act] of 1997, as amended, clearly
shows that the law contemplated two periods with applicable excise tax rate for
each one: the first is the three-year transition period beginning January 1, 1997,
the date when RA 8240 took effect, until December 31, [1999]; and the second
is the period thereafter. During the transition period, the excise tax rate
shall not be lower than the tax rate which is due from each brand on
October 1, 1996. After the transitory period, the excise tax rate shall be
the figures provided under paragraphs (a), (b) and (c) of Section 143
of the [Tax Reform Act] of 1997, as amended, but increased by 12%,
regardless of whether such rate is lower or higher than the tax rate
that is actually being paid prior to January 1, 2000.
On the other hand, an analysis of the last paragraph of [Revenue Regulations
No.] 17-99 would reveal that it created a new tax rate or a new requirement
when it provided that the new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000. This is indeed a situation not
intended by Section 143 of the [Tax Reform Act] of 1997, as amended, both in
letter and in spirit. Rather, it is a clear contradiction to the import of the law.
[8]
(Emphasis supplied.)
Petitioner sought reconsideration[9]of the above decision, but the CTA Second
Division denied petitioners motion in a Resolution [10]dated January 17,
2008. Petitioner then filed a Petition for Review[11]with the CTA En Banc.

On August 7, 2008, [12]the CTA En Banc affirmed the Decision and Resolution of
the CTA Second Division. The CTA En Banc held that [c]onsidering that there is
nothing in the law that allows the BIR to extend the three-year transitory
period, and considering further that there is no provision in the law mandating
that the new specific tax rateshould not be lower than the excise tax that is
actually being paid prior to January 1, 2000, the last paragraph of [BIR Revenue
Regulations No.] 17-99 has no basis in law and is inconsistent with the situation
contemplated under the provisions of Section 143 of the [Tax Reform Act of
1997]. It is an unauthorized administrative legislation and, therefore, invalid. [13]
Undaunted, petitioner filed the instant petition for review on certiorari, raising
the sole issue of whether the CTA committed reversible error in ruling that the
provision in the last paragraph of Section 1 of Revenue Regulations No. 17-99 is
an invalid administrative interpretation of Section 143 of the Tax Reform Act of
1997.
Petitioner contends that the last paragraph of Section 1 of Revenue Regulations
No. 17-99 providing that the new specific tax rate for any brand of cigars,
cigarettes packed by machine, distilled spirits, wines and fermented liquors
shall not be lower than the excise tax that is actually being paid prior to January
1, 2000, is a valid administrative interpretation of Section 143 of the Tax
Reform Act of 1997. It carries out the legislative intent behind the enactment of
R.A. No. 8240, which is to increase government revenues through the collection
of higher excise taxes on fermented liquor.
Petitioner further points out that Section 143 of the Tax Reform Act of
1997 provides that for 3 years after the effectivity of R.A. No. 8240, i.e., from
January 1, 1997 to December 31, 1999, the excise tax from any brand of
fermented liquor shall not be lower than the tax due on October 1, 1996. In the
case of respondents Red Horse beer brand, the applicable tax rate was the
applicable tax rate as of October 1, 1996, i.e., P7.07/liter, which was higher
than the rate of P6.15/liter imposed under Section 143 of the Tax Reform Act of
1997. However, the CTA ruled that after the 3-year transition period, the 12%
increase in the excise tax on fermented liquors should be based on the rates
stated in paragraphs (a), (b), and (c) of Section 143. Applying this
interpretation, the rate of excise tax that may be collected on respondents Red
Horse beer brand after the 3-year period would only be P6.89/liter, the figure
arrived at after adding 12% to the rate of P6.15/liter imposed in paragraph (a)
of Section 143. Petitioner argues that said literal interpretation of Section 143
defeats the legislative intent behind the shift from the ad valorem system to
the specific tax system, i.e., to raise more revenues from the collection of taxes
on the so-called sin products like alcohol and cigarettes.
Respondent, for its part, maintains the correctness of the CTAs interpretation
and stresses that as already held by this Court in Commissioner of Internal
Revenue v. Fortune Tobacco Corporation,[14]the last paragraph of Section 1
of Revenue Regulations No. 17-99 finds no support in the clear and plain
wording of Section 143 of the Tax Reform Act of 1997.
We deny the petition for utter lack of merit.
Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It
provides for two periods: the first is the 3-year transition period beginning
January 1, 1997, the date when R.A. No. 8240 took effect, until December 31,
1999; and the second is the period thereafter. During the 3-year transition
period, Section 143 provides that the excise tax from any brand of fermented
liquorshall not be lower than the tax which was due from each brand on
October 1, 1996. After the transitory period, Section 143 provides thatthe
excise tax rate shall be the figures provided under paragraphs (a), (b) and (c) of
Section 143 but increased by 12%, without regard to whether such rate is lower

or higher than the tax rate that is actually being paid prior to January 1, 2000
and therefore, without regard to whether the revenue collection starting
January 1, 2000 may turn out to be lower than that collected prior to said
date. Revenue Regulations No. 17-99, however, created a new tax rate when
it added in the last paragraph of Section 1 thereof, the qualification that the tax
due after the 12% increase becomes effective shall not be lower than the tax
actually paid prior to January 1, 2000. As there is nothing in Section 143 of
the Tax Reform Act of 1997 which clothes the BIR with the power or authority to
rule that the new specific tax rate should not be lower than the excise tax that
is actually being paid prior to January 1, 2000, such interpretation is clearly an
invalid exercise of the power of the Secretary of Finance to interpret tax laws
and to promulgate rules and regulations necessary for the effective
enforcement of the Tax Reform Act of 1997.[15]Said qualification must, perforce,
be struck down as invalid and of no effect.[16]
It bears reiterating that tax burdens are not to be imposed, nor presumed to be
imposed beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government.[17]In case of
discrepancy between the basic law and a rule or regulation issued to implement
said law, the basic law prevails as said rule or regulation cannot go beyond the
terms and provisions of the basic law. [18] It must be stressed that the objective
of issuing BIR Revenue Regulations is to establish parameters or guidelines
within which our tax laws should be implemented, and not to amend or modify
its substantive meaning and import. As held in Commissioner of Internal
Revenue v. Fortune Tobacco Corporation,[19]
x x x 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. x x x As
burdens, taxes should not be unduly exacted nor assumed beyond the plain
meaning of the tax laws.[20]
Hence, while it may be true that the interpretation advocated by petitioner CIR
is in furtherance of its desire to raise revenues for the government, such noble
objective must yield to the clear provisions of the law, particularly since, in this
case, the terms of the said law are clear and leave no room for interpretation.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
dated August 7, 2008 of the Court of Tax Appeals in C.T.A. EB No. 360
is AFFIRMED.
No costs.
ESTATE OF BENIGNO TODA, JR., GR 147188, SEPT14, 2004 (AVOIDANCE
VS EVASION)
Taxation; Tax Avoidance Distinguished from Tax Evasion. Tax avoidance and
tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the taxpayer in good faith
and at arms length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities.
Same; Same; Factors to Determine Tax Evasion.Tax evasion connotes the
integration of three factors: (1) the end to be achieved, i.e., the payment of less

than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being evil, in bad faith, willfull, or deliberate and not
accidental; and (3) a course of action or failure of action which is unlawful.
Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA
290, G.R. No. 147188 September 14, 2004
DAVIDE, JR., C.J.: This Court is called upon to determine in this case whether
the tax planning scheme adopted by a corporation constitutes tax evasion that
would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision[1] of the Court of Appeals of
31 January 2001 in CA-G.R. SP No. 57799 affirming the 3 January 2000
Decision[2] of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328,[3] which
held that the respondent Estate of Benigno P. Toda, Jr. is not liable for the
deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount of
P79,099,999.22 for the year 1989, and ordered the cancellation and setting
aside of the assessment issued by Commissioner of Internal Revenue Liwayway
Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from an
alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of
99.991% of its issued and outstanding capital stock, to sell the Cibeles Building
and the two parcels of land on which the building stands for an amount of not
less than P90 million.[4]
On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced
by Deeds of Absolute Sale notarized on the same day by the same notary
public.[5]
For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million.[6]
On 16 April 1990, CIC filed its corporate annual income tax return[7] for the
year 1989, declaring, among other things, its gain from the sale of real property
in the amount of P75,728.021. After crediting withholding taxes of P254,497.00,
it paid P26,341,207[8] for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa
for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks.[9] Three
and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment
notice[10] and demand letter to the CIC for deficiency income tax for the year
1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment should
be directed against the old CIC, and not against the new CIC, which is owned by
an entirely different set of stockholders; moreover, Toda had undertaken to hold
the buyer of his stockholdings and the CIC free from all tax liabilities for the
fiscal years 1987-1989.[11]
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special
co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of
Assessment[12] dated 9 January 1995 from the Commissioner of Internal
Revenue for deficiency income tax for the year 1989 in the amount of
P79,099,999.22, computed as follows:
Income Tax 1989

Net Income per return

P75,987,725.00
Add: Additional gain on sale of real property taxable under ordinary corporate
income but were substituted with individual capital gains
(P200M 100M)
100,000,000.00
Total Net Taxable Income
P175,987,725.00
per investigation
Tax Due thereof at 35%
P 61,595,703.75
Less: Payment already made
1. Per return
P26,595,704.00
2. Thru Capital Gains
Tax made by R.A.
Altonaga
10,000,000.00
36,595,704.00
Balance of tax due
P 24,999,999.75
Add: 50% Surcharge
12,499,999.88
25% Surcharge
6,249,999.94
Total
P 43,749,999.57
Add: Interest 20% from
4/16/90-4/30/94 (.808)
35,349,999.65
TOTAL AMT. DUE & COLLECTIBLE
P 79,099,999.22
============
The Estate thereafter filed a letter of protest.[13]
In the letter dated 19 October 1995,[14] the Commissioner dismissed the
protest, stating that a fraudulent scheme was deliberately perpetuated by the
CIC wholly owned and controlled by Toda by covering up the additional gain of
P100 million, which resulted in the change in the income structure of the
proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of
35%.
On 15 February 1996, the Estate filed a petition for review[15] with the CTA
alleging that the Commissioner erred in holding the Estate liable for income tax
deficiency; that the inference of fraud of the sale of the properties is
unreasonable and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.
In his Answer[16] and Amended Answer,[17] the Commissioner argued that the
two transactions actually constituted a single sale of the property by CIC to
RMI, and that Altonaga was neither the buyer of the property from CIC nor the
seller of the same property to RMI. The additional gain of P100 million (the
difference between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the rate of only
5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35%
as corporate income tax of CIC. The income tax return filed by CIC for 1989
with intent to evade payment of the tax was thus false or fraudulent. Since
such falsity or fraud was discovered by the BIR only on 8 March 1991, the
assessment issued on 9 January 1995 was well within the prescriptive period
prescribed by Section 223 (a) of the National Internal Revenue Code of 1986,
which provides that tax may be assessed within ten years from the discovery of
the falsity or fraud. With the sale being tainted with fraud, the separate
corporate personality of CIC should be disregarded. Toda, being the registered
owner of the 99.991% shares of stock of CIC and the beneficial owner of the
remaining 0.009% shares registered in the name of the individual directors of
CIC, should be held liable for the deficiency income tax, especially because the
gains realized from the sale were withdrawn by him as cash advances or paid
to him as cash dividends. Since he is already dead, his estate shall answer for
his liability.

In its decision[18] of 3 January 2000, the CTA held that the Commissioner failed
to prove that CIC committed fraud to deprive the government of the taxes due
it. It ruled that even assuming that a pre-conceived scheme was adopted by
CIC, the same constituted mere tax avoidance, and not tax evasion. There
being no proof of fraudulent transaction, the applicable period for the BIR to
assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three
years after the last day prescribed by law for the filing of the return. Thus, the
governments right to assess CIC prescribed on 15 April 1993. The assessment
issued on 9 January 1995 was, therefore, no longer valid. The CTA also ruled
that the mere ownership by Toda of 99.991% of the capital stock of CIC was not
in itself sufficient ground for piercing the separate corporate personality of CIC.
Hence, the CTA declared that the Estate is not liable for deficiency income tax
of P79,099,999.22 and, accordingly, cancelled and set aside the assessment
issued by the Commissioner on 9 January 1995.
In its motion for reconsideration,[19] the Commissioner insisted that the sale of
the property owned by CIC was the result of the connivance between Toda and
Altonaga. She further alleged that the latter was a representative, dummy, and
a close business associate of the former, having held his office in a property
owned by CIC and derived his salary from a foreign corporation (Aerobin, Inc.)
duly owned by Toda for representation services rendered. The CTA denied[20]
the motion for reconsideration, prompting the Commissioner to file a petition
for review[21] with the Court of Appeals.
In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the
decision of the CTA, reasoning that the CTA, being more advantageously
situated and having the necessary expertise in matters of taxation, is better
situated to determine the correctness, propriety, and legality of the income tax
assessments assailed by the Toda Estate.[22]
Unsatisfied with the decision of the Court of Appeals, the Commissioner filed
the present petition invoking the following grounds:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT
COMMITTED NO FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF THE
PROPERTIES OF CIBELES INSURANCE CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE
CORPORATE PERSONALITY OF CIBELES INSURANCE CORPORATION.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE
YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous pleadings and
insists that the sale by CIC of the Cibeles property was in connivance with its
dummy Rafael Altonaga, who was financially incapable of purchasing it. She
further points out that the documents themselves prove the fact of fraud in that
(1) the two sales were done simultaneously on the same date, 30 August 1989;
(2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead
of the alleged sale between CIC and Altonaga, with the former registered in the
Notarial Register of Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I,
Series of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of 1989,
of the same Notary Public; (3) as early as 4 May 1989, CIC received P40 million
from RMI, and not from Altonaga. The said amount was debited by RMI in its
trial balance as of 30 June 1989 as investment in Cibeles Building. The
substantial portion of P40 million was withdrawn by Toda through the
declaration of cash dividends to all its stockholders.

For its part, respondent Estate asserts that the Commissioner failed to present
the income tax return of Altonaga to prove that the latter is financially
incapable of purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following questions are
pertinent:
1.
Is this a case of tax evasion or tax avoidance?
2.
Has the period for assessment of deficiency income tax for the year 1989
prescribed? and
3.
Can respondent Estate be held liable for the deficiency income tax of CIC
for the year 1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.[23]
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being evil, in bad faith,
willfull,or deliberate and not accidental; and (3) a course of action or failure
of action which is unlawful.[24]
All these factors are present in the instant case. It is significant to note that as
early as 4 May 1989, prior to the purported sale of the Cibeles property by CIC
to Altonaga on 30 August 1989, CIC received P40 million from RMI,[25] and not
from Altonaga. That P40 million was debited by RMI and reflected in its trial
balance[26] as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40
million was debited and reflected in RMIs trial balance as other inv. Cibeles
Bldg. This would show that the real buyer of the properties was RMI, and not
the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close
business associate and one of the many trusted corporate executives of Toda.
This information was revealed by Mr. Boy Prieto, the assistant accountant of CIC
and an old timer in the company. [27] But Mr. Prieto did not testify on this
matter, hence, that information remains to be hearsay and is thus inadmissible
in evidence. It was not verified either, since the letter-request for investigation
of Altonaga was unserved,[28] Altonaga having left for the United States of
America in January 1990. Nevertheless, that Altonaga was a mere conduit finds
support in the admission of respondent Estate that the sale to him was part of
the tax planning scheme of CIC. That admission is borne by the records. In its
Memorandum, respondent Estate declared:
Petitioner, however, claims there was a change of structure of the proceeds
of sale. Admitted one hundred percent. But isnt this precisely the definition of
tax planning? Change the structure of the funds and pay a lower tax. Precisely,
Sec. 40 (2) of the Tax Code exists, allowing tax free transfers of property for
stock, changing the structure of the property and the tax to be paid. As long as
it is done legally, changing the structure of a transaction to achieve a lower tax
is not against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely
petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to 5%.
[29] [Underscoring supplied].

The scheme resorted to by CIC in making it appear that there were two sales of
the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to
RMI cannot be considered a legitimate tax planning. Such scheme is tainted
with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another.[30]
Here, it is obvious that the objective of the sale to Altonaga was to reduce the
amount of tax to be paid especially that the transfer from him to RMI would
then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax.
Altonagas sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax ploy, a
sham, and without business purpose and economic substance. Doubtless, the
execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate business
purposes constitutes one of tax evasion.[31]
Generally, a sale or exchange of assets will have an income tax incidence only
when it is consummated.[32] The incidence of taxation depends upon the
substance of a transaction. The tax consequences arising from gains from a
sale of property are not finally to be determined solely by the means employed
to transfer legal title. Rather, the transaction must be viewed as a whole, and
each step from the commencement of negotiations to the consummation of the
sale is relevant. A sale by one person cannot be transformed for tax purposes
into a sale by another by using the latter as a conduit through which to pass
title. To permit the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would seriously impair the
effective administration of the tax policies of Congress.[33]
To allow a taxpayer to deny tax liability on the ground that the sale was made
through another and distinct entity when it is proved that the latter was merely
a conduit is to sanction a circumvention of our tax laws. Hence, the sale to
Altonaga should be disregarded for income tax purposes.[34] The two sale
transactions should be treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC
of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997), which stated
as follows:
Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax
is hereby imposed upon the taxable net income received during each taxable
year from all sources by every corporation organized in, or existing under the
laws of the Philippines, and partnerships, no matter how created or organized
but not including general professional partnerships, in accordance with the
following:
Twenty-five percent upon the amount by which the taxable net income does not
exceed one hundred thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income exceeds
one hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the
NIRC of 1986[35] (now 6% under Section 24 (D) (1) of the Tax Reform Act of

1997) is inapplicable. Hence, the assessment for the deficiency income tax
issued by the BIR must be upheld.
Has the period of assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of
1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and collection of
taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in court
after the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud or omission: Provided,
That in a fraud assessment which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal action for
collection thereof .
Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failure to file a return, the period within which to assess tax
is ten years from discovery of the fraud, falsification or omission, as the case
may be.
It is true that in a query dated 24 August 1989, Altonaga, through his counsel,
asked the Opinion of the BIR on the tax consequence of the two sale
transactions.[36] Thus, the BIR was amply informed of the transactions even
prior to the execution of the necessary documents to effect the transfer.
Subsequently, the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989.
However, these
circumstances do not negate the existence of fraud. As earlier discussed those
two transactions were tainted with fraud. And even assuming arguendo that
there was no fraud, we find that the income tax return filed by CIC for the year
1989 was false. It did not reflect the true or actual amount gained from the
sale of the Cibeles property. Obviously, such was done with intent to evade or
reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in case of
false returns is ten years from the discovery of the falsity. The false return was
filed on 15 April 1990, and the falsity thereof was claimed to have been
discovered only on 8 March 1991.[37] The assessment for the 1989 deficiency
income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the
correct assessment for deficiency income tax was well within the prescriptive
period.
Is respondent Estate liablefor the 1989 deficiencyincome tax of
CibelesInsurance Corporation?
A corporation has a juridical personality distinct and separate from the persons
owning or composing it. Thus, the owners or stockholders of a corporation may
not generally be made to answer for the liabilities of a corporation and vice
versa. There are, however, certain instances in which personal liability may
arise. It has been held in a number of cases that personal liability of a
corporate director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith
or gross negligence in directing its affairs, or (c) conflict of interest, resulting in
damages to the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge
thereof, does not forthwith file with the corporate secretary his written
objection thereto;
3.
He agrees to hold himself personally and solidarily liable with the
corporation; or

4. He is made, by specific provision of law, to personally answer for his

corporate action.[38]
It is worth noting that when the late Toda sold his shares of stock to Le Hun T.
Choa, he knowingly and voluntarily held himself personally liable for all the tax
liabilities of CIC and the buyer for the years 1987, 1988, and 1989. Paragraph
g of the Deed of Sale of Shares of Stocks specifically provides:
g. Except for transactions occurring in the ordinary course of business, Cibeles
has no liabilities or obligations, contingent or otherwise, for taxes, sums of
money or insurance claims other than those reported in its audited financial
statement as of December 31, 1989, attached hereto as Annex B and made a
part hereof. The business of Cibeles has at all times been conducted in full
compliance with all applicable laws, rules and regulations. SELLER undertakes
and agrees to hold the BUYER and Cibeles free from any and all income tax
liabilities of Cibeles for the fiscal years 1987, 1988 and 1989.[39] [Underscoring
Supplied].
When the late Toda undertook and agreed to hold the BUYER and Cibeles free
from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and
1989, he thereby voluntarily held himself personally liable therefor.
Respondent estate cannot, therefore, deny liability for CICs deficiency income
tax for the year 1989 by invoking the separate corporate personality of CIC,
since its obligation arose from Todas contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The
decision of the Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 is
REVERSED and SET ASIDE, and another one is hereby rendered ordering
respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency
income tax of Cibeles Insurance Corporation for the year 1989, plus legal
interest from 1 May 1994 until the amount is fully paid. Costs against
respondent. SO ORDERED.
NURSERY CARE CORP VS ACEVEDO, GR 180651, JULY 30, 2014 (DOUBLE
TAXN)
Taxation; Double Taxation; On the basis of the rulings in City of Manila v. CocaCola Bottlers Philippines, Inc., 595 SCRA 299 (2009) and Swedish Match
Philippines, Inc. v. The Treasurer of the City of Manila, 700 SCRA 428 (2013), the
Court now holds that all the elements of double taxation concurred upon the
City of Manilas assessment on and collection from the petitioners of taxes for
the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.
On the basis of the rulings in City of Manila v. Coca-Cola Bottlers Philippines,
Inc., 595 SCRA 299 (2009) and Swedish Match Philippines, Inc. v. The Treasurer
of the City of Manila, 700 SCRA 428 (2013), the Court now holds that all the
elements of double taxation concurred upon the City of Manilas assessment on
and collection from the petitioners of taxes for the first quarter of 1999
pursuant to Section 21 of the Revenue Code of Manila. Firstly, because Section
21 of the Revenue Code of Manila imposed the tax on a person who sold goods
and services in the course of trade or business based on a certain percentage
of his gross sales or receipts in the preceding calendar year, while Section 15
and Section 17 likewise imposed the tax on a person who sold goods and
services in the course of trade or business but only identified such person with
particularity, namely, the wholesaler, distributor or dealer (Section 15), and the
retailer (Section 17), all the taxes being imposed on the privilege of doing
business in the City of Manila in order to make the taxpayers contribute to the
citys revenues were imposed on the same subject matter and for the same

purpose. Secondly, the taxes were imposed by the same taxing authority (the
City of Manila) and within the same jurisdiction in the same taxing period (i.e.,
per calendar year). Thirdly, the taxes were all in the nature of local business
taxes. Nursery Care Corporation vs. Acevedo, 731 SCRA 280, G.R. No. 180651
July 30, 2014
The issue here concerns double taxation. There is double taxation when the
same taxpayer is taxed twice when he should be taxed only once for the same
purpose by the same taxing authority within the same jurisdiction during the
same taxing period, and the taxes are of the same kind or character. Double
taxation is obnoxious.
The Case
Under review are the resolution promulgated in CA-G.R. SP No. 72191 on June
18, 2007,1 whereby the Court of Appeals (CA) denied petitioners' appeal for
lack of jurisdiction; and the resolution promulgated on November 14,
2007,2 whereby the CA denied their motion for reconsideration for its lack of
merit.
Antecedents
The City of Manila assessed and collected taxes from the individual petitioners
pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers) and
Section 17 (Tax on Retailers) of the Revenue Code of Manila. 3 At the same time,
the City of Manila imposed additional taxes upon the petitioners pursuant to
Section 21 ofthe Revenue Code of Manila, 4 as amended, as a condition for the
renewal of their respective business licenses for the year 1999. Section 21 of
the Revenue Code of Manila stated:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage
Taxes under the NIRC - On any of the following businesses and articles of
commerce subject to the excise, value-added or percentage taxes under the
National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a
tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross
sales or receipts of the preceding calendar year is hereby imposed:
A) On person who sells goods and services in the course of trade or businesses;
x x x PROVIDED, that all registered businesses in the City of Manila already
paying the aforementioned tax shall be exempted from payment thereof.
To comply with the City of Manilas assessmentof taxes under Section 21,
supra, the petitioners paid under protest the following amounts corresponding
to the first quarter of 1999,5 to wit:
(a) Nursery Care Corporation P595,190.25
(b) Shoemart Incorporated P3,283,520.14
(c) Star Appliance Center P236,084.03
(d) H & B, Inc. P1,271,118.74
(e) Supplies Station, Inc. P239,501.25
(f) Hardware Work Shop, Inc. P609,953.24
By letter dated March 1, 1999, the petitioners formally requested the Office of
the City Treasurer for the tax credit or refund of the local business taxes paid
under protest.6 However, then City Treasurer Anthony Acevedo (Acevedo)
denied the request through his letter of March 10, 1999. 7
On April 8, 1999, the petitioners, through their representative, Cecilia R.
Patricio, sought the reconsideration of the denial of their request. 8 Still, the City
Treasurer did not reconsider.9 In the meanwhile, Liberty Toledo succeeded
Acevedo as the City Treasurer of Manila.10
On April 29, 1999, the petitioners filed their respective petitions for certiorariin
the Regional Trial Court (RTC) in Manila. The petitions, docketed as Civil Cases
Nos. 99-93668 to 99-93673,11 were initially raffled to different branches, but

were soon consolidated in Branch 34. 12 After the presiding judge of Branch 34
voluntarily inhibited himself, the consolidated cases were transferred to Branch
23,13 but were again re-raffled to Branch 19 upon the designation of Branch 23
as a special drugs court.14
The parties agreed on and jointly submitted the following issues for the
consideration and resolution of the RTC, namely:
(a) Whether or not the collection of taxes under Section 21 of Ordinance No.
7794, as amended, constitutes double taxation.
(b) Whether or not the failure of the petitioners to avail of the statutorily
provided remedy for their tax protest on the ground of unconstitutionality,
illegality and oppressiveness under Section 187 of the Local Government Code
renders the present action dismissible for non-exhaustion of administrative
remedy.15
Decision of the RTC
On April 26, 2002, the RTC rendered its decision, holding thusly:
The Court perceives of no instance of the constitutionally proscribed double
taxation, in the strict, narrow or obnoxious sense, imposed upon the petitioners
under Section 15 and 17, on the one hand, and under Section 21, on the other,
of the questioned Ordinance. The tax imposed under Section 15 and 17, as
against that imposed under Section 21, are levied against different tax objects
or subject matter. The tax under Section 15 is imposed upon wholesalers,
distributors or dealers, while that under Section 17 is imposedupon retailers. In
short, taxes imposed under Section 15 and 17 is a tax on the business of
wholesalers, distributors, dealers and retailers. On the other hand, the tax
imposed upon herein petitioners under Section 21 is not a tax against the
business of the petitioners (as wholesalers, distributors, dealers or retailers)but
is rather a tax against consumers or end-users of the articles sold by
petitioners. This is plain from a reading of the modifying paragraph of Section
21 which says:
"The tax shall be payable by the person paying for the services rendered and
shall be paid to the person rendering the services who is required to collect and
pay the tax within twenty (20) days after the end of each quarter."
(Underscoring supplied)
In effect, the petitioners only act as the collection or withholding agent of the
City while the ones actually paying the tax are the consumers or end-users of
the articles being sold by petitioners. The taxes imposed under Sec. 21
represent additional amounts added by the business establishment to the basic
prices of its goods and services which are paid by the end-users to the
businesses. It is actually not taxes on the business of petitioners but on the
consumers. Hence, there is no double taxation in the narrow, strict or
obnoxious sense,involved in the imposition of taxes by the City of Manila under
Sections 15, 17 and 21 of the questioned Ordinance. This in effect resolves
infavor of the constitutionality of the assailed sections of Ordinance No. 7807 of
the City of Manila.
Petitioners, likewise, pray the Court to direct respondents to cease and desist
from implementing Section 21 of the questioned Ordinance. That the Court
cannot do, without doing away with the mandatory provisions of Section 187 of
the Local Government Code which distinctly commands that an appeal
questioning the constitutionality or legality of a tax ordinance shall not have
the effectof suspending the effectivity of the ordinance and the accrual and
payment of the tax, fee or charge levied therein. This is so because an
ordinance carries with it the presumption of validity.
xxx

With the foregoing findings, petitioners prayer for the refund of the amounts
paid by them under protest must, likewise, fail.
Wherefore, the petitions are dismissed. Without pronouncement as to costs.
SO ORDERED.16
The petitioners appealed to the CA. 17
Ruling of the CA
On June 18, 2007, the CA deniedthe petitioners appeal, ruling as follows:
The six (6) cases were consolidated on a common question of fact and law, that
is, whether the act ofthe City Treasurer of Manila of assessing and collecting
business taxes under Section 21of Ordinance 7807, on top of other business
taxes alsoassessed and collected under the previous sections of the same
ordinance is a violation of the provisions of Section 143 of the Local
Government Code.
Clearly, the disposition of the present appeal in these consolidated cases does
not necessitate the calibration of the whole evidence as there is no question or
doubt as to the truth or the falsehood of the facts obtaining herein, as both
parties agree thereon. The present case involves a question of law that would
not lend itself to an examination or evaluation by this Court of the probative
value of the evidence presented.
Thus the Court is constrained todismiss the instant petition for lack of
jurisdiction under Section 2,Rule 50 of the 1997 Rules on Civil Procedure which
states:
"Sec. 2. Dismissal of improper appeal to the Court of Appeals. An appeal
under Rule 41 taken from the Regional Trial Court to the Court of Appeals
raising only questions of law shall be dismissed, issues purely of law not being
reviewable by said court. similarly, an appeal by notice of appeal instead of by
petition for review from the appellate judgment of a Regional Trial Court shall
be dismissed.
An appeal erroneously taken tothe Court of Appeals shall not be transferred to
the appropriate court but shall be dismissed outright.
WHEREFORE, the foregoing considered, the appeal is DISMISSED.
SO ORDERED.18
The petitioners moved for reconsideration, but the CA denied their motion
through the resolution promulgated on November 14, 2007. 19
Issues
The petitioners now appeal, raising the following grounds, to wit:
A.
THE COURT OF APPEALS, IN DISMISSING THE APPEAL OF THE PETITIONERS AND
DENYING THEIR MOTION FOR RECONSIDERATION, ERRED INRULING THAT THE
ISSUE INVOLVED IS A PURELY LEGAL QUESTION.
B.
THE COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF BRANCH
19 OF THE REGIONAL TRIAL COURT OF MANILA DATED 26 APRIL 2002 DENYING
PETITIONERS PRAYER FOR REFUND OF THE AMOUNTS PAID BY THEM UNDER
PROTEST AND DISMISSING THE PETITION FOR CERTIORARI FILED BY THE
PETITIONERS.
C.
THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ACT OF THE CITY
TREASURER OF MANILA IN IMPOSING, ASSESSING AND COLLECTING THE
ADDITIONAL BUSINESS TAX UNDER SECTION 21 OFORDINANCE NO. 7794, AS
AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS THE REVENUE CODE OF
THE CITY OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION AND VIOLATIVE
OF THE LOCAL GOVERNMENT CODE OF 1991.20

The main issues for resolution are, therefore, (1) whether or not the CA properly
denied due course to the appeal for raising pure questions of law; and (2)
whether or not the petitioners were entitled to the tax credit or tax refund for
the taxes paid under Section 21, supra.
Ruling
The appeal is meritorious.
1.
The
CA
did
not
err
in
dismissing
the
appeal;
but
the
rules
should
be
liberally
applied
for the sake of justice and equity
The Rules of Courtprovides three modes of appeal from the decisions and final
orders of the RTC, namely: (1) ordinary appeal or appeal by writ of error under
Rule 41, where the decisionsand final orders were rendered in civil or criminal
actions by the RTC in the exercise of original jurisdiction; (2) petition for review
under Rule 42, where the decisions and final orders were rendered by the RTC
in the exerciseof appellate jurisdiction; and (3) petition for review on
certiorarito the Supreme Court under Rule 45. 21 The first mode of appeal is
taken to the CA on questions of fact, or mixed questions of fact and law. The
second mode of appeal is brought to the CA on questions of fact, of law, or
mixed questions of fact and law. 22 The third mode of appeal is elevated to the
Supreme Court only on questions of law.23
The distinction between a question oflaw and a question of fact is well
established. On the one hand, a question of law ariseswhen there is doubt as to
what the law is on a certain state of facts; on the other, there is a question of
fact when the doubt arises asto the truth or falsity of the alleged
facts.24 According to Leoncio v. De Vera:25
x x x For a question to beone of law, the same must not involve an examination
of the probative value ofthe evidence presented by the litigants or any of them.
The resolution of the issue must restsolely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact. Thus, the test of whether
a question isone of law or offact is not the appellation given to such question by
the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in
which case, it is a question oflaw; otherwise it is a question of fact. 26
The nature of the issues to be raised on appeal can be gleaned from the
appellants notice of appeal filed in the trial court, and from the appellants
brief submitted to the appellate court. 27 In this case, the petitioners filed a
notice of appeal in which they contended that the April 26, 2002 decision and
the order of July 17, 2002 issued by the RTC denying their consolidated motion
for reconsideration were contrary to the facts and law obtaining in the
consolidated cases.28 In their consolidated memorandum filed in the CA, they
essentially assailed the RTCs ruling that the taxes imposed on and collected
from the petitioners under Section 21 of the Revenue Code of Manila
constituted double taxation in the strict, narrow or obnoxious sense. Considered
together, therefore, the notice of appeal and consolidated memorandum
evidently did notraise issues that required the reevaluation of evidence or the
relevance of surrounding circumstances.
The CA rightly concluded that the petitioners thereby raised only a question of
law. The dismissal of their appeal was proper, strictly speaking, because
Section 2, Rule 50 of the Rules of Court provides that an appeal from the RTC to
the CA raising only questions of law shall be dismissed;
and that an appeal erroneously taken to the CA shall be outrightly dismissed. 29
2.

Collection
of
taxes
pursuant
to
Section
21
of
the
Revenue Code of Manila constituted double taxation
The foregoing notwithstanding, the Court, given the circumstances obtaining
herein and in light of jurisprudence promulgated subsequent to the filing of the
petition, deems it fitting and proper to adopt a liberal approach in order to
render a justand speedy disposition of the substantive issue at hand. Hence, we
resolve, bearing inmind the following pronouncement in Go v. Chaves: 30
Our rules of procedure are designed to facilitate the orderly disposition of cases
and permit the prompt disposition of unmeritorious cases which clog the court
dockets and do little more than waste the courts time. These technical and
procedural rules, however, are intended to ensure, rather than suppress,
substantial justice. A deviation from their rigid enforcement may thus be
allowed, as petitioners should be given the fullest opportunity to establish the
merits of their case, rather than lose their property on mere technicalities. We
held in Ong Lim Sing, Jr. v. FEB Leasing and Finance Corporation that:
Courts have the prerogative to relax procedural rules of even the most
mandatory character, mindful of the duty to reconcile both the need to speedily
put an end to litigation and the parties' right to due process.In numerous cases,
this Court has allowed liberal construction of the rules when to do so would
serve the demands of substantial justice and equity.
The petitioners point out that although Section 21 of the Revenue Code of
Manila was not itself unconstitutional or invalid, its enforcement against the
petitioners constituted double taxation because the local business taxes under
Section 15 and Section 17 of the Revenue Code of Manila were already being
paid by them.31 They contend that the proviso in Section 21 exempted all
registered businesses in the City of Manila from paying the tax imposed under
Section 21;32 and that the exemption was more in accord with Section 143 of
the Local Government Code,33the law that vested in the municipal and city
governments the power to impose business taxes.
The respondents counter, however, that double taxation did not occur from the
imposition and collection of the tax pursuant to Section 21 of the Revenue Code
of Manila;34 that the taxes imposed pursuant to Section 21 were in the concept
of indirect taxes upon the consumers of the goods and services sold by a
business establishment;35 and that the petitioners did not exhaust their
administrative remedies by first appealing to the Secretary of Justice to
challenge the constitutionalityor legality of the tax ordinance. 36
In resolving the issue of double taxation involving Section 21 of the Revenue
Code of Manila, the Court is mindful of the ruling in City of Manila v. Coca-Cola
Bottlers Philippines, Inc.,37 which has been reiterated in Swedish Match
Philippines, Inc. v. The Treasurer of the City of Manila. 38 In the latter, the Court
has held:
x x x [T]he issue of double taxation is not novel, as it has already been settled
by this Court in The City of Manila v. Coca-Cola Bottlers Philippines, Inc.,in this
wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax
Ordinance No. 7794, to their own detriment.1wphi1 Said exempting proviso
was precisely included in said section so as to avoid double taxation.
Double taxation means taxingthe same property twice when it should be taxed
only once; that is, "taxing the same person twice by the same jurisdictionfor
the same thing." It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct duplicate taxation," the two
taxes must be imposed on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction, during the same taxing
period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and 21
of Tax Ordinance No. 7794, since these are being imposed: (1) on the same
subject matter the privilege of doing business in the City of Manila; (2) for the
same purpose to make persons conducting business within the City of Manila
contribute tocity revenues; (3) by the same taxing authority petitioner Cityof
Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction
of the City of Manila; (5) for the same taxing periods per calendar year; and
(6) of the same kind or character a local business tax imposed on gross sales
or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections
14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143
of the LGC, the very source of the power of municipalities and cities to impose
a local business tax, and to which any local business tax imposed by petitioner
City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers,
etc.of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said municipality or city may no longer
subject the same manufacturers, etc.to a business tax under Section 143(h) of
the same Code. Section 143(h) may be imposed only on businesses that are
subject to excise tax, VAT, or percentagetax under the NIRC, and that are "not
otherwise specified in preceding paragraphs." In the same way, businesses
such as respondents, already subject to a local business tax under Section 14
of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can
no longer be made liable for local business tax under Section 21 of the same
Tax Ordinance [which is based on Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner should not have been subjected to
taxes under Section 21 of the ManilaRevenue Code for the fourth quarter of
2001, considering thatit had already been paying local business tax under
Section 14 of the same ordinance.
xxxx
Accordingly, respondents assessment under both Sections 14 and 21 had no
basis. Petitioner is indeed liable to pay business taxes to the City of Manila;
nevertheless, considering that the former has already paid these taxes under
Section 14 of the Manila Revenue Code, it is exempt from the same payments
under Section 21 of the same code. Hence, payments made under Section 21
must be refunded in favor of petitioner.
It is undisputed thatpetitioner paid business taxes based on Sections 14 and 21
for the fourth quarter of 2001 in the total amount of P470,932.21. Therefore, it
is entitled to a refund of P164,552.04 corresponding to the payment under
Section 21 of the Manila Revenue Code.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish
Match Philippines, Inc., the Court now holds that all the elements of double
taxation concurred upon the Cityof Manilas assessment on and collection from
the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of
the Revenue Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a
person who sold goods and services in the course of trade or business based on
a certain percentage ofhis gross sales or receipts in the preceding calendar
year, while Section 15 and Section 17 likewise imposed the tax on a person
who sold goods and services in the course of trade or business but only
identified such person with particularity, namely, the wholesaler, distributor or
dealer (Section 15), and the retailer (Section 17), all the taxes being imposed
on the privilege of doing business in the City of Manila in order to make the

taxpayers contributeto the citys revenues were imposed on the same subject
matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of
Manila) and within the same jurisdiction in the same taxing period (i.e., per
calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match
Philippines, Inc. involved Section 21 vis--vis Section 14 (Tax on Manufacturers,
Assemblers and Other Processors)39 of the Revenue Code of Manila, the legal
principlesenunciated therein should similarly apply because Section 15 (Tax on
Wholesalers, Distributors, or Dealers)and Section 17 (Tax on Retailers) of the
Revenue Code of Manila imposed the same nature of tax as that imposed under
Section 14, i.e., local business tax, albeit on a different subject matter or group
of taxpayers.
In fine, the imposition of the tax under Section 21 of the Revenue Code of
Manila constituted double taxation, and the taxes collected pursuant thereto
must be refunded.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES
and SETS ASIDE the resolutions promulgated on June 18, 2007 and November
14, 2007 in CA-G.R. SP No. 72191; and DIRECTS the City of Manila to refund the
payments made by the petitioners of the taxes assessed and collected for the
first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.
No pronouncement on costs of suit.
SO ORDERED.
LA SUERTE CIGAR VS CA, GR125346, 11 NOV 14 (NO DOUBLE TAXN)
These cases involve the taxability of stemmed leaf tobacco imported and
locally purchased by cigarette manufacturers for use as raw material in the
manufacture of their cigarettes. Under the National Internal Revenue Code of
1997 (1997 NIRC), before it was amended on December 19, 2012 through
Republic Act No. 103511 (Sin Tax Law), stemmed leaf tobacco is subject to an
excise tax of P0.75 for each kilogram thereof. 2 The 1997 NIRC further provides
that stemmed leaf tobacco - "leaf tobacco which has had the stem or midrib
removed"3 - "may be sold in bulk as raw material by one manufacturer directly
to another without payment of the tax, under such conditions as may be
prescribed in the rules and regulations prescribed by the Secretary of Finance." 4
This is a consolidation of six petitions for review of several decisions of the
Court of Appeals, involving three cigarette manufacturers and the
Commissioner of Internal Revenue. G.R. No. 125346 is anal 5 from the Court of
Appeals (Sixth Division) that rever LEONEN, LEONEN, sed 6 the Court of Tax
Appeals' decision7 and held petitioner La Suerte Cigar & Cigarette Factory (La
Suerte) liable for deficiency specific tax on its purchase of imported and locally
produced stemmed leaf tobacco and sale of stemmed leaf tobacco to
Associated Anglo-American Tobacco Corporation (AATC) during the period from
January 1, 1986 to June 30, 1989. GR. Nos. 136328-29 is an appeal 8 by the
Commissioner of Internal Revenue (Commissioner) from the decision 9 of the
Court of Appeals that affirmed the Court of Tax Appeals' rulings 10 that Fortune
Tobacco Corporation (Fortune) was not obliged to pay the excise tax on its
importations of stemmed leaf tobacco for the periods from January 1, 1986 to
June 30, 1989 and July 1, 1989 to November 30, 1990. In G.R. No. 148605,
Sterling Tobacco Corporation (Sterling) appeals 11 the decision12 of the Court of
Appeals that reversed the Court of Tax Appeals decision 13 and held it liable to

pay deficiency excise taxes on its importation and local purchases of stemmed
leaf tobacco from November 1986 to June 24, 1989. G.R. No. 144942is an
appeal14 from the Court of Appeals decision15 that affirmed the Court of Tax
Appeals decision16 and ordered the refund of specific taxes paid by La Suerte
on its importation of stemmed leaf tobacco in April 1995. In G.R. No. 158197,
La Suerte sought to appeal 17 the decision18 of the Court of Appeals holding it
liable for deficiency specific tax on its local and imported purchases of
stemmed leaf tobacco and those it sold for the period from June 21, 1989 to
November 20, 1990. Finally, in G.R. No. 165499, La Suerte again sought to
appeal by certiorari19 the decision20 of the Court of Appeals reversing the Court
of Tax Appeals and holding it liable for deficiency specific tax on its importation
of stemmed leaf tobacco in March 1995.
Factual background
Overview of cigarette manufacturing
The primary component of cigarettes is tobacco, a processed product derived
from the leaves of the plants in the genus Nicotiana. 21 Most cigarettes contain a
mixture or blend of several types of tobacco from a variety of sources.
The tobacco types grown in the Philippines are: Virginia (or fluecured), 22 which
accounts for 59.35% of tobacco production, Burley (or bright aircured),23 which makes up 22.21%, and the Native (or dark air-cured), 24 which
makes up the remaining 18.44%. 25 "[T]he native type is normally categorized
into three: cigar filler type, wrapper type and chewing type, or . . . Batek
tobacco."26 Virginia and Burley, considered as the aromatic type, are intended
for cigarette manufacturing.
Growing and harvesting
"Tobacco seeds undergo a process of germination, which takes about 7 to 10
days, depending on the tobacco varieties. . . . The tobacco seedlings are then
sown in cold frames or hotbedsto prevent attacks from insects, and then
transplanted into the fields"27 after 45 to 65 days.28 Harvesting begins 55 to 60
days after transplanting.29 A farmer carries out either priming(leaf by leaf) or
stalk harvesting (by the whole plant).30
Curing
"After harvest, tobacco is stored for curing, which allows for the slow oxidation
and degradation of carotenoids. This allows for the leaves to take on properties
that are usually attributed to the smoothness of the smoke." 31
"Curing methods vary with the type of tobacco grown. The tobacco barn design
varies accordingly."32 There are two main ways of curing tobacco in the
Philippine setting:
1) Air-curing (for Burley and Native tobacco) "is carried out by hanging the
tobacco in well-ventilated barns, where the tobacco is allowed to dry over a
period of 4 to 8 weeks. Air-cured tobacco is generally low in sugar content,
which gives the tobacco smoke a light, smooth, semi-sweet flavor. These
tobacco leaves usually have a high nicotine content[;]" 33 and
2) Flue-curing (for Virginia tobacco) process "starts by the sticking of tobacco
leaves, which are then hung from tier-poles in curing barns. The procedure will
generally take about a week. Fluecured tobacco generally produces cigarette
tobacco, which usually has a high content of sugar, with medium to high levels
of nicotine."34
Once cured, the leaves are sorted into grades based on size, color, and quality,
and packed in standard bales. 35 The bales are then moved to accredited trading
centers where they are purchased by leaf buyers such as wholesale tobacco
dealers and exporters or cigarette manufacturing companies. 36
Redrying and aging

After purchase, leaf tobacco is re-dried and then added with moisture to make
the tobacco pliable enough to remove its large stems. 37 The leaves are stripped
or de-stemmed, eitherby hand or machine, cleaned and compressed into boxes
or porous wooden vats called hogsheads, and aged. 38 Thereafter, the leaves are
either exported or used for the manufacture of cigarettes, cigars, and other
tobacco products.
Primary processing39
In the cigarette factory, the tobacco leaves undergo a conditioning process
where "high temperatures and humidity restore moisture to suitable levels for
cutting and blending tobacco and completing the cigarette-making process." 40
"[T]obaccos are precisely cut and blended according to . . . formulas, or recipes,
to produce tobaccos for various brands of cigarettes. These brand recipes
include ingredients and flavors that are added to the tobacco to give each
brand its unique characteristics."41
Cigarette making and packing42
"The blended tobacco often referred to as "filler" or "cut-filler" . . . is
delivered by a pneumatic feed system to cigarette making machines . . . within
the factory."43 The machine disperses the shredded tobacco over a continuous
roll of cigarette paper and cuts the paper to the desired length. The completed
cigarettes are subsequently packed, sealed, and placed in cartons.
Cigarette manufacturers
La Suerte Cigar & Cigarette Factory (La Suerte), 44 Fortune Tobacco Corporation
(Fortune),45 and Sterling Tobacco Corporation (Sterling)46 are domestic
corporations engaged in the production and manufacture of cigars and
cigarettes. These companies import leaf tobacco from foreign sources and
purchase locally produced leaf tobacco to be used in the manufacture of cigars
and cigarettes.47
The transactions of these cigarette manufacturers pertinent to these
consolidated cases are the following:
1. La Suertes local purchases, importations, and sale of stemmed leaf tobacco
from January 1, 1986 to June 30, 1989 (G.R. No. 125346), and from June 1989
to November 1990 (G.R. No. 158197), and importations in March 1995 (G.R. No.
165499) and April 1995 (G.R. No. 144942); 2. Fortunes importation of tobacco
strips from January 1, 1986 to June 30, 1989, and from July 1, 1989 to
November 30, 1990 (G.R. Nos. 13632829); and
3. Sterlings importations and local purchases of stemmed leaf tobacco from
November 1986 to June 24, 1989 (G.R. No. 148605).
History of applicable tax provisions
The first tax code came into existence in 1939 with the enactment of
Commonwealth Act No. 46648 (1939 Code). Section 136 of the 1939 Code
imposed specific (excise) taxes on manufactured products of tobacco, but
excluded cigars and cigarettes, which were subject to tax under a different
section.49 Section 136 provided thus:
SECTION 136. Specific Tax on Products of Tobacco. On manufactured products
of tobacco, except cigars, cigarettes, and tobacco specially prepared for
chewing so as to be unsuitable for consumption in any other manner, but
including all other tobacco twisted by hand or reduced into a condition to be
consumed in any manner other than by the ordinary mode of drying and
curing; and on all tobacco prepared or partially prepared for sale or
consumption, even if prepared without the use of any machine or instrument
and without being pressed or sweetened; and on all fine-cut shorts and refuse,
scraps, clippings, cuttings, and sweepings of tobacco, there shall be collected
on each kilogram, sixty centavos.

On tobacco specially prepared for chewing so as to be unsuitable for use in any

other manner, on each kilogram, forty-eight centavos. (Emphasis supplied)
Section 132 of the 1939 Code, however, by way of exception, provided that
"stemmed leaf tobacco . . . may be sold in bulk as raw material by one
manufacturer directly to another, under such conditions as may be prescribed
in the regulations of the Department of Finance, without the prepayment of the
tax." Section 132 stated:
SECTION 132. Removal of Tobacco Products Without Prepayment of Tax.
Products of tobacco entirely unfit for chewing or smoking may be removed free
of tax for agricultural or industrial use, under such conditionsas may be
prescribed in the regulations of the Department of Finance; and stemmed leaf
tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps,
cuttings, clippings and sweepings of tobacco may be sold in bulk as raw
material byone manufacturer directly to another, under such conditions as may
be prescribed in the regulations of the Department of Finance, without the
prepayment of the tax.
"Stemmed leaf tobacco," as herein used means leaf tobacco which has had the
stem or midrib removed. The term does not include broken leaf tobacco.
(Emphasis supplied)
On September 29, 1954, upon the recommendation of then Acting Collector of
Internal Revenue J. Antonio Araneta, the Department of Finance promulgated
Revenue Regulations No. V-39 (RR No. V-39), or "The Tobacco Products
Regulations," relative to "the enforcement of the provisions of Title IV of the
[1939 Tax Code] in so far as they affect the manufacture or importation of, and
the collection and payment of the specific tax on, manufactured tobacco or
products of tobacco."50 Section 20(a) of RR No. V-39, which lays the rules for tax
exemption on tobacco products, states:
SECTION 20. Exemption from tax of tobacco products intended for agricultural
or industrial purposes. (a) Sale of stemmed leaf tobacco, etc., by one factory
to another. Subject to the limitations herein established, products of tobacco
entirely unfit for chewing or smoking may be removed free of tax for
agricultural or industrial use;and stemmed leaf tobacco, finecut shorts, the
refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and
sweepings of tobacco may be sold in bulk as raw materials by one
manufacturer directly to another without the prepayment of specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco,
scraps, cuttings, clippings, and sweeping of leaf tobacco or partially
manufactured tobacco or other refuse of tobacco may be transferred from one
factory to another under an official L-7 in voice on which shall be entered the
exact weight of the tobacco at the time of its removal, and entry shall be made
in the L-7 register in the place provided on the page of removals.
Corresponding debit entry will be made in the L-7 register book of the factory
receiving the tobacco under heading "Refuse, etc., received from other
factory," showing the date of receipt, assessment and invoice numbers, name
and address of the consignor, form in which received, and the weight of the
tobacco. This paragraph should not, however, be construed to permit the
transfer of materials unsuitable for the manufacture of tobacco products from
one factory to another. (Emphasis supplied)
Sections 10 and 11 of RR No. V-39 enumerate and describe the record books to
be kept and used by manufacturers of tobacco products, viz:
SECTION 10. (a) Register, auxiliary, and stamps requisition books for
manufacturers. The Collector of Internal Revenue shall from time to time
supply provincial revenue agents or the Chief of the Tobacco Tax Section with
the necessary number of manufacturers official register books and official

auxiliary register booksas may be required in each locality by manufacturers of

tobacco products. Whenever any manufacturer shall have qualified himself as
such by executing a proper bond, registering his factory, and paying the
privilege tax and shall have complied with all the requirements ofengaging in
such business contained in the National Internal Revenue Code and in these
regulations, the internal revenue agent within whose district the factory is
located shall deliver to said manufacturer the necessary official register books
and auxiliary register books. These books consist of the following:
B.I.R. No. 31.09Official RegisterBook, A-3 for manufacturers of chewing and
smoking tobacco. B.I.R. No. 31.10Manufactured tobacco (Transcript sheet of
above).
B.I.R. No. 31.18Official Register Book, A-4, for manufacturers of cigar.
B.I.R. No. 31.19(Transcriptsheet of the above).
B.I.R. No. 31.27Official Register Book, A-5, for Manufacturers of cigarettes.
B.I.R. No. 31.28(Transcript sheet of above).
B.I.R. No. 31.01Official Register Book, L-7, record of raw materials for
manufacturers of any class of tobacco products.
B.I.R. No. 31.02(Transcript sheet of above)[.]
B.I.R. No. 31.46Auxiliary Register Book, L-7-1/2, bale book, for manufacturers
of any class of tobacco products.
B.I.R. No. 31.47(Transcript sheet of above).
B.I.R. No. 31.12Stamp requisition book, for manufacturers of manufactured
tobacco.
B.I.R. No. 31.21Stamp requisition book, for manufacturers of cigars.
B.I.R. No. 31.30Stamp requisition book, for manufacturers of cigarettes.
B.I.R. No. 31.05L-7 Official Invoice Book for, use in connection with L-7
register book.
B.I.R. No. 31.05L-7-1/2 OfficialInvoice Book, for use in connection with L-7-1/2
bale book.
(b) General nature of official register and auxiliary register books. The L-7
official register book isthe record of all raw materials used in the manufacture
of tobacco products of all description in the factory.It is the primary record of
the internal operations of the factory. It shows the raw materials used in the
manufacture and the articles actually manufactured or produced. The Schedule
A register books are the record of the articles actually manufactured or
produced, and transferred from the credit side of the official register book, L-7.
They show the amount of taxes paid and the name of the person to whom the
finished products is consigned or sold when leaving the factory. The bale
book[,] L-7-1/2, is an auxiliary to the L-7 official register book.
All official register books and other official records herein required of
manufacturers shall be kept in the factory premises, or in the factory
warehouse, in the case of bale books, and open to inspection by any internal
revenue officer at all times of the day or night.
....
SECTION 11. Entries to be made in the official register and auxiliary register
books; monthly transcripts. (a) Official bale book (L-7-1/2). All leaf tobacco
received in any factory or factory warehouse shall be debited, and any removal
of tobacco from the factory shall be credited in the official bale book; except
cuttings, clippings, sweepings, and other partially manufactured tobacco, which
shall be credited in the L-7 register book.
The Collector of Internal Revenue may in his discretion waive the requirements
of keeping an official bale book by small factories.
(b) The Official Register Book (L-7). One L-7 books shall suffice for each
manufacturer of tobacco products, regardless of the classes of tobacco

manufactured by him.All loose leaf tobacco received in the factory proper and
all bales of leaf tobacco which are opened in the factory for use in the
manufacture of tobacco products shall be entered in the L-7 official register
book under the heading "Received from Dealers" at the net weights. In the
column headed "Name["] and "Address" shall be shown the words "Transferred
from tobacco factory warehouse". All leaf tobacco received into a factory must
be entered in the official bale book pertaining to the factory and bales of leaf
tobacco shall not be taken up in the L-7 register book until said bales are
transferred for use and credited in the official bale book. While leaf tobacco
must be taken in the official bale book, this is done for statistical purposes only.
As soon asit enters the factory for use in manufacture it should be taken up in
the L-7 register book and credited in the official bale book.
All removals of waste of tobacco, whether transferred to other factories,
removed for agricultural orindustrial purposes, or destroyed on the premises or
elsewhere, shall be entered in the official register book, L-7, under the heading
"Raw Materials Removed", showing all information required therein. (Emphasis
supplied)
Section 2 of RR No. V-39 broadly defined "manufactured products of tobacco"
and "manufacturer of tobacco products" as follows:
Section 2. Definition of terms. When used in there [sic] regulations, the
following terms shall begiven the interpretations indicated in their respective
definitions given below, except where the context indicates otherwise:
(a) "Manufactured products of tobacco" shall include cigars, cigarettes, smoking
tobacco, chewing, snuff, and all other forms of manufactured and partially
manufactured tobacco, as defined in section 194 (M) 51 of the National Internal
Revenue Code.
(b) "Manufacturer of tobacco products" shall include all persons engaged in the
manufacture of any of the forms of tobacco mentioned in the next preceding
paragraph.
In 1967, the Secretary of Finance promulgated Revenue Regulations No. 17-67
(RR No. 17-67), as amended, 52 or the "Tobacco Revenue Regulations on Leaf,
Scrap, Other Partially Manufactured Tobacco and Other Tobacco Products;
Grading, Classification, Inspection, Shipments, Exportation, Importation and the
Manufacturers thereof under the provisions of Act No. 2613, as amended."
Section 2(i) of RR No. 17-67 defined a "manufacturer of tobacco" and included
in the definition one who prepares partially manufactured tobacco. Section
2(m) defined "partially manufactured tobacco" as including stemmed leaf
tobacco. Thus, Sections 2(i) and (m) read:
(i) "Manufacturer of tobacco" Includes every person whose business it is to
manufacture tobacco o[r] snuff or who employs others to manufacture tobacco
or snuff, whether such manufacture be by cutting, pressing (not baling),
grinding, or rubbing (grating) any raw or leaf tobacco, or otherwise preparing
raw or leaf tobacco, or manufactured or partially manufactured tobacco and
snuff, or putting up for consumption scraps, refuse, or stems of tobacco
resulting from any process of handling tobacco stems, scraps, clippings, or
waste by sifting, twisting, screening or by any other process.
....
(m) "Partially manufactured tobacco" Includes:
(1) "Stemmed leaf" handstripped tobacco, clean, good, partially broken leaf
only, free from mold and dust.
(2) "Long-filler" handstripped tobacco of good, long pieces of broken leaf
usableas filler for cigars without further preparation, and free from mold, dust
stems and cigar cuttings.

(3) "Short-filler" handstripped or machine-stripped tobacco, clean, good,

short pieces of broken leaf, which will not pass through a screen of two inches
(2") mesh.
(4) "Cigar-cuttings" clean cuttings or clippings from cigars, unsized with any
other form of tobacco.
(5) "Machine-scrap tobacco" machine-threshed, clean, good tobacco, not
included in any of the above terms, usable in the manufacture of tobacco
products.
(6) "Stems" midribs of leaftobacco removed from the whole leaf or broken
leaf either by hand or machine.
(7) "Waste tobacco" denatured tobacco; powder or dust, refuse, unfit for
human consumption; discarded materials in the manufacture of tobacco
products, which may include stems.
Section 3 of RR No. 17-67 classifiedentities that dealt with tobacco according to
the type of permit that the Bureau of Internal Revenue issued to each entity.
Under this classification, wholesale leaf tobacco dealers were considered L-3
permittees. Those (referring to wholesale leaf tobacco dealers) that reprocess
partially manufactured tobacco for export, for themselves, and/or for other L-6
or L-7 permittees were considered L-6 permittees. Manufacturers of tobacco
products such as cigarette manufacturers were considered L-7 permittees.
Section 3 of RR No. 17-67 reads:
(a) L-3 Wholesale leaf tobacco dealer.
(b) L-3F Wholesale leaf tobacco dealer. Issued only in favor of Farmer's
Cooperative Marketing Association (FaCoMas) duly organized in accordance
with law. [This function relative to tobacco trading was transferred to the
Philippine Virginia Tobacco Administration (PVTA) under Section 15 of Republic
Act No. 2265].
(c) L-3R Wholesale leaf tobacco dealers. Issued only in favor of persons or
entities having fully equipped Redrying Plants.
(d) L-3-1/4 Buyers for wholesale leaf tobacco dealers.
(e) L-4 Wholesale leaf tobacco dealers. Issued only in favor of persons or
entities having flue-curing barns, who may purchase or receive green Virginia
leaf tobacco from bona fide tobacco planters only, or handle green leaf of their
own production, which tobacco shall be sold or transferred only to holders of L3 and L-3R permits after flue-curing the tobacco.
(f) L-5 Tobacco planters selling to consumers part or the whole of their
tobacco production. (g) L-6 Wholesale leaf tobacco dealers who, exclusively
for export, except as otherwise provided for in these regulations, perform the
following functions:
(1) Handstripped and/or threshwhole leaf tobacco for themselves or for other L6 or L-7 permittees;
(2) Re-process partially manufactured tobacco for themselves, or for other L-6
or L-7 permittees; (3) Sell their partially manufactured tobacco to other L-6
permittees.
(h) L-7 Manufacturers of tobacco products. [L-7 1/2 designates an auxiliary
registered book (bale books), for manufacturers of tobacco products.]
(i) B-14 Wholesale leaf tobaccodealers (Privilege tax receipt)
(j) B-14 (a) Retail leaf tobacco dealers (Privilege tax receipt)
La Suerte contends that on December 12, 1972, then Internal Revenue
Commissioner Misael P. Vera issued a ruling which declared that:
. . . . The subsequent sale or transfer by the L-6/L-3R permittee for export or to
an L-7-1/2 for use in the manufacture of cigars or cigarettes may also be
allowed without the prepayment of the specific tax.53

Almost 40 years from the enactment of the 1939 Tax Code, Presidential Decree
No. 1158-A, otherwise known as the "National Internal Revenue Code of 1977,"
was promulgated on June 3, 1977, to consolidate and integrate the various tax
laws which have so far amended or repealed the provisions found in the 1939
Tax Code. Section 132 was renumbered as Section 144, and Section 136 as
Section 148. Sections 144 and 148, read:
SEC. 144. Removal of tobacco products without prepayment of tax.Products
of tobacco entirely unfit for chewing or smoking may be removed free of tax for
agricultural or industrial use, under such conditions as may be prescribed in the
regulations of the Department of Finance, and stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cuts chewing tobacco, re-refuse, scraps, cuttings,
clippings, stems or midribs, and sweepings of tobacco may be sold in bulk as
raw material by one manufacturer directly to another, under such conditions as
may be prescribed in the regulations of the Department of Finance, without the
prepayment of the tax. "Stemmed leaf tobacco", as herein used means leaf
tobacco which has had the stem or midrib removed. The term does not include
broken leaf tobacco.
....
SEC. 148. Specific tax on products of tobacco.On manufactured products of
tobacco, except cigars, cigarettes, and tobacco specially prepared for chewing
so as to be unsuitable for consumption in any other manner, but including all
other tobacco twisted by hand or reduced into a condition to be consumed in
any manner other than by the ordinary mode of drying and curing; and on all
tobacco prepared orpartially prepared for sale or consumption, even if prepared
without the use of any machine or instrument and without being pressed or
sweetened; and on all fine-cut shorts and refuse, scraps, clippings,cuttings,
stems, and sweepings of tobacco, there shall be collected on each kilogram,
seventy-five centavos: Provided, however, That fine-cut shorts and refuse,
scraps, clippings, cuttings, stems and sweepings of tobacco resulting from the
handling, or stripping of whole leaf tobacco may be transferred, disposed of, or
otherwise sold, without prepayment ofthe specific tax herein provided for under
such conditions as may be prescribed in the regulations promulgated by the
Secretary of Finance upon recommendation of the Commissioner if the same
are to be exported or to be used in the manufacture of other tobacco products
on which the specific tax will eventually be paid on the finished product.
On tobacco specially prepared for chewing so as to be unsuitable for use in any
other manner, on each kilogram, sixty centavos.
Sections 144 and 148 were subsequently renumbered as Sections 120 and 125
respectively under Presidential Decree No. 1994, 54 which took effect on January
1, 1986 (1986 Tax Code); then as Sections 137 and 141 under Executive Order
No. 273;55 and finally as Sections 140 and 144 under Republic Act No. 8424 or
the "Tax Reform Act of 1997." However, the provisions remained basically
unchanged.
The business transactions of La Suerte, Fortune, and Sterling that the
Commissioner found to be taxable for specific tax took place during the
effectivity of the 1986 Tax Code, as amended by Executive Order No. 273. The
pertinent provisions are Sections 137 and 141, thus:
SEC. 137. Removal of tobacco products without prepayment of tax. Products
of tobacco entirely unfit for chewing or smoking may be removed free of tax for
agricultural or industrial use, under such conditions as may be prescribed in the
regulations of the Ministry of Finance. Stemmed leaf tobacco, fine-cut shorts,
the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or
midribs, and sweepings of tobacco may be soldin bulk as raw material by one

manufacturer directly to another, without payment of the tax under such

conditions as may be prescribed in the regulations of the Ministry of Finance.
Stemmed leaf tobacco,' as herein used, means leaf tobacco which has had the
stem or midrib removed. The term does not include broken leaf tobacco.
....
SEC. 141. Tobacco Products. There shall be collected a tax of seventy-five
centavos on each kilogram of the following products of tobacco:
(a) tobacco twisted by hand or reduced into a condition to be consumed in any
manner other than the ordinary mode of drying and curing;
(b) tobacco prepared or partially prepared with or without the use of any
machine or instruments or without being pressed or sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings
of tobacco. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco resulting from the handling or stripping of whole leaf
tobacco may be transferred, disposed of, or otherwise sold, without
prepayment of the specific tax herein provided for under such conditions as
may be prescribed in the regulations promulgated by the Ministry of Finance
upon recommendation of the Commissioner, if the same are to be exported or
to be used in the manufacture of other tobacco products on which the excise
tax will eventuallybe paid on the finished product.
On tobacco specially prepared for chewing so as to be unsuitable for use in any
other manner, on each kilogram, sixty centavos.
Parenthetically, the present provisionsexplicitly state the following:
Stemmed leaf tobacco, tobacco prepared or partially prepared with or without
the use of any machine or instrument or without being pressed or sweetened,
fine-cut shorts and refuse, scraps, clippings, cuttings, stems, midribs, and
sweepings of tobacco resulting from the handling or stripping of whole leaf
tobacco shall be transferred, disposed of, or otherwise sold, without any
prepayment of the excisetax . . . if the same are to be exported or to be used in
the manufacture of cigars, cigarettes, or other tobacco products on which the
excise tax will eventually be paid on the finished product, under such
conditions as may be prescribed in the rules and regulations promulgated by
the Secretary of Finance, upon recommendation of the Commissioner. 56
BIR assessments
G.R. No. 125346
Sometime in June, 1989, a team of examiners from the Bureau of Internal
Revenue, led by Crisanto G. Luna, Revenue Officer III of the Field Operation
Division of the Excise Tax Service, conducted an examination of the books of La
Suerte by virtue of a letter of authority issued by then Commissioner Jose U.
Ong.
On January 3, 1990, La Suerte received a letter from then Commissioner Jose U.
Ong demanding the payment of 34,934,827.67 as deficiency excise tax on La
Suertes entire importation and local purchase of stemmed leaf tobacco for the
period covering January 1, 1986 to June 30, 1989.
On January 12, 1990, La Suerte . . . protest[ed] the excise tax deficiency
assessment . . . stressing that the BIR assessment was based solely on Section
141(b) of the Tax Code without, however, applying Section 137 thereof, the
more specific provision, which expressly allows the sale of stemmed leaf
tobacco as raw material by one manufacturer directly to another without
payment of the excise tax. However, in a letter, dated August 31, 1990,
Commissioner Jose U. Ong denied La Suertes protest, insisting that stemmed
leaf tobacco is subject to excise tax "unless there is an express grant of
exemption from [the] payment of tax."

In a letter dated October 17, 1990, Commissioner Ong reiterated his demand
for the payment of the alleged deficiency excise taxes due from La Suerte, to
wit:
"Please be informed that in an investigation conducted by this Office, it was
ascertainedthat you incurred a deficiency specific tax on your importation and
local purchase of stemmed leaf tobacco covering the period from January 1,
1986 to June 30, 1989 in the total amount of 34,904,247.00 computed as
follows:
STEMMEDLEAF TOBACCO
Imported

13,918,465 kls. x 0.75

P10,438,848.00

Local

32,620,532 kls. x 0.75

24,465,399.00

Total Amount Due (Basic Tax)- - - - - - - - - - - -

P34,904,247.00

. . . ." (page 99, Rollo)

On December 6, 1990, La Suerte filed with the Court of Tax Appeals a Petition
for Review seeking for the annulment of the assessments. . .
. . . On July 13, 1995, the Tax Court rendered [its] Decision, the dispositive
portion of which reads[:]
"WHEREFORE, in all the foregoing, the assessment of alleged deficiency specific
tax in the amount of P34,904,247.00 issued by the Respondent is hereby
CANCELLED for lack of merit.
SO ORDERED."57
The Commissioner appealed the Court of Tax Appeals decision before the Court
of Appeals. On December 29, 1995, the Court of Appeals Sixth Division ruled
against La Suerteand found that RR No. V-39 limits the tax exemption on
transfers of stemmed leaf tobacco to transfers between two L-7
permittees.58 The Court of Appeals ruled as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Decision appealed from is hereby
REVERSED and SET ASIDE. Respondent is ordered to pay the petitioner
Commissioner of Internal Revenue the amount of P34,904,247.00 as deficiency
specific tax on its importations and local purchases of stemmed leaf tobacco
and its sale of stemmed leaf tobacco to Associated Anglo-American Tobacco
Corporation covering the period from January 1, 1986 to June 30, 1989, plus
25% surcharge for late payment and 20% interest per annum from October 17,
1990 until fully paid pursuant to sections 248 and 249 of the Tax Code.
SO ORDERED.59
La Suerte filed a motion for reconsideration, which was denied by the Court of
Appeals in its June 7, 1996 resolution.60
On August 2, 1996, La Suerte filed the instant petition for review, 61 praying for
the reversal of the Court of Appeals decision and cancellation of the
assessment by the Commissioner. La Suerte raises the following grounds in
support of its prayer:
A. THE COURT OF APPEALS ERRED WHEN IT CONSIDERED SECTION 20 (A) OF
RR NO. V-39, SINCE THE COMMISSIONER RAISED IT FOR THE FIRST TIMEIN THE
COURT OF APPEALS
B. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SECTION 20(A) OF RR
NO. V-39 RESTRICTS THE APPLICATION OF SECTION 137 OF THE TAX CODE,
SINCE LANGUAGE IN SEC. 137 IS UNQUALIFIED, WHILE SEC. 20(A) CONTAINS
NO RESTRICTIVE LANGUAGE

C. THE COURT OF APPEALS ERRED WHEN IT IGNORED SEC. 43 OF RR NO. 17-67

AS WELL AS OPINIONS OF BIR OFFICIALS WHICH CONFIRMED THE EXEMPTION
OFSTEMMED LEAF TOBACCO FROM PREPAYMENT OF SPECIFIC TAX
D. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SEC. 43 OF RR NO. 1767 DID NOT REPEAL SECTIONS 35 AND 20(A) OF RR NO. V-39, SINCE THEIR
PROVISIONS ARE REPUGNANT TO EACH OTHER
E. THE COURT OF APPEALS ERRED WHEN IT HELD THAT RR NO. V-39 IMPOSES
SPECIFIC TAXES ON STEMMED LEAF TOBACCO, SINCE IT MAKES NO MENTION AT
ALL OF TAXES ON STEMMED LEAF TOBACCO
F. THE COURT OF APPEALS ERRED WHEN IT HELD RR NO. V-39 APPLIED TO L-6
PERMITTEES OR MANUFACTURERS OF STEMMED LEAF TOBACCO, SINCE L-6
CLASSIFICATION WAS NON-EXISTENT AT THE TIME
G. THE COURT OF APPEALS ERRED WHEN IT INTERPRETED SECTION 20(A) OF
RR NO. V-39 IN SUCH A WAY AS TO RESULT IN ADMINISTRATIVE LEGISLATION,
SINCE THE INTERPRETATION SANCTIONED THE RESTRICTION OF AN
UNQUALIFIED PROVISION OF LAW BY A MERE REGULATION
H. THE COURT OF APPEALS ERRED WHEN IT GAVE NO WEIGHT TO THE
DECEMBER 12, 1972 BIR RULING AND OPINIONS OF OTHER BIR OFFICIALS
WHICH CONFIRMED THE EXEMPTION OF STEMMED LEAF TOBACCO FROM
PREPAYMENT OF SPECIFIC TAX
I. THE COURT OF APPEALS ERRED WHEN IT HELD [THAT] NONAPPLICATION OF
[THE] DECEMBER 12 RULING DID NOT IMPINGE ON PRINCIPLE OF NONRETROACTIVITY OF RULINGS BECAUSE THE ASSESSMENT DID NOT CITE THE
RULING, SINCE CITATION OF A RULING INAN ASSESSMENT [IS] NOT NECESSARY
FOR PRINCIPLE TO APPLY
J. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE ADMINISTRATIVE
PRACTICE OF BIR FOR OVER HALF A CENTURY OF NOT SUBJECTINGSTEMMED
LEAF TOBACCO TO SPECIFIC TAX
K. THE COURT OF APPEALS ERRED WHEN IT HELD THAT SUBJECTING STEMMED
LEAF TOBACCO TO SPECIFIC TAX IS NOT PROHIBITED FORM OF DOUBLE
TAXATION, SINCE A TAX ON BOTH STEMMED LEAF TOBACCO AND CIGARETTES
INTO WHICH IT IS MANUFACTURED IS DOUBLE TAXATION
L. THE COURT OF APPEALS ERRED WHEN IT HELD LA SUERTE LIABLE FOR
SPECIFIC TAX EVENIF NO EFFORT WAS FIRST MADE TO COLLECT THE TAX FROM
THE MANUFACTURER OF STEMMED LEAF TOBACCO, SINCE TAX CODE ALLOWS
THIS ONLY IF SPECIAL ALLOWANCE IS GRANTED, WHICH IS NOT THE CASE
M. THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE
REENACTMENT OF THE 1939 CODE AS THE 1977 CODE AND 1986 TAX CODES
ADOPTED THE INTERPRETATION IN THE DECEMBER 1972 BIR RULING
N. THE COURT OF APPEALS ERRED WHEN IT APPLIED THE RULES OF
CONSTRUCTION ON EXEMPTION FROM TAXES, SINCE NO TAX EXEMPTION WAS
INVOLVED BUT MERELY AN EXEMPTION FROM PREPAYMENT OF TAX. 62
G.R. No. 13632829
In the letter dated November 24,1989, the Commissioner demanded from
Fortune the payment of deficiency excise tax in the amount of P28,938,446.25
for its importation of tobacco strips from January 1, 1986 to June 30, 1989.
Fortune requested for reconsideration, which was denied by the Commissioner
on August 31, 1990. Undaunted, Fortune appealed to the Court of Tax Appeals
through a petition for review, which was docketed as CTA Case No. 4587. 63
In the decision dated November 23, 1994, the Court of Tax Appeals ruled in
favor of Fortune and set aside the Commissioners assessment
of P28,938,446.25 as deficiency excise tax. Meanwhile, on March 20, 1991,
Fortune received another letter from the Bureau of Internal Revenue,
demanding payment of 1,989,821.86 as deficiency specific tax on its

importation of stemmed leaf tobacco from July 1, 1989 to November 30,

1990.64 Fortune filed its protest and requested the Commissioner to cancel and
withdraw the assessment.65 On April 18, 1991, the Commissioner denied with
finality Fortunes request. 66 Fortune appealed to the Court of Tax Appeals, and
the case was docketed as CTA Case No. 4616.67
In the decision dated October 6, 1994, the Court of Tax Appeals ruled in favor of
Fortune and set aside the Commissioners assessment of P1,989,821.26 as
deficiency excisetax on stemmed leaf tobacco.
The Commissioner filed separate petitions before the Court of Appeals,
challenging the decisions rendered by the Court of Tax Appeals in CTA Case
Nos. 4587 and 4616. These petitions were consolidated on November 28,
1996.68
In the decision dated January 30, 1998, the Court of Appeals Seventeenth
Division dismissed the consolidated petitions filed by the Commissioner and
affirmedthe assailed decisions of the Court of Tax Appeals. It also denied the
Commissioners motion for reconsideration.
Hence, the Commissioner filed the present petition 69 on January 8, 1999. The
Commissioner claims that the Court of Appeals erred (1) "in holding that
stemmed leaf tobacco is not subject to the specific tax imposed under Section
141 of the Tax Code[;]" 70 (2) "in not holding that under Section 137 of the Tax
Code, stemmed leaf tobacco is exempt from specific tax when sold in bulk as
raw material by one manufacturer directly to another under such conditions as
may be prescribed in the regulations of the Department of Finance[;]" 71 and (3)
"in holding that there is double taxation in the prohibited sense when specific
tax is imposed on stemmed leaf tobacco and again on the finished product of
which stemmed leaf tobacco is a raw material."72
G.R. No. 144942
In April 1995, "[La Suerte] imported stemmed leaf tobacco from various sellers
abroad."73 The Commissioner "assessed specific taxes on the stemmed leaf
tobacco in the amount of 175,909.50, which [La Suerte] paid under
protest."74 "Consequently, [La Suerte] filed a claim for refund with [the
Commissioner], [who] failed to act on the same." 75 Undeterred, La Suerte
appealed to the Court of Tax Appeals, which in its March 9, 1999 decision, ruled
in its favor. The Commissioner appealed to the Court of Appeals Third Division,
which on August 31, 2000, rendered its decision in CA-G.R. SP. No. 51902,
affirming the decision of the Court of Tax Appeals.
The Commissioner then filed the instant petition for review 76 asking this court
to overturn the Court of Appeals decision. It avers that the Court of Appeals
erred in holding that Section 137 of the Tax Code applied "without any
conditions as to the domicile of the manufacturers and that [the Commissioner]
cannot indirectly restrict its application to local manufacturers." 77
The Third Division of this court initially denied 78 the petition due to an
insufficient or defective verification and because "the petition was filed by
revenue lawyers and not by the Solicitor General."79
The Commissioner filed a motion for clarification 80 seeking to clarify whether
the Bureau of Internal Revenuelegal officers can file petitions for review
pursuant to Section 220 of the Tax Code without the intervention of the Office
of the Solicitor General.
The motion was referred to the En Banc 81 on August 7, 2001, which issued the
resolution on July 4, 2002, holding that "Section 220 of the Tax Reform Act must
not be understood asoverturning the long established procedure before this
Court in requiring the Solicitor General to represent the interest of the Republic.
This Court continues to maintain that it is the Solicitor General who has the

primary responsibility to appear for the government in appellate

proceedings."82 In the same resolution, this court also declared the following:
The present controversy ruminate upon the singular issue of whether or not
Revenue Regulation 1767 [sic] issued by petitioner, in relation to Section 137 of
the InternalRevenue Code in the imposition of a tax on stemmed-leaf tobacco,
deviated from the tax code. This question basically inquires then into whether
or not the revenue regulation has exceeded, on constitutional grounds, the
allowable limits of legislative delegation.
Aware that the dismissal of the petition could have lasting effect on
government tax revenues, the lifeblood of the state, the Court heeds the plea
of petitioner for a chance to prosecute its case. 83 (Emphasis and underscoring
supplied)
This court resolved to reinstate 84 and give due course85 to the Commissioners
petition. G.R. No. 148605
"On January 12, 1990, [Sterling] received a pre-assessment notice for alleged
deficiency excise tax on itsimportation and local purchase of stemmed-leaf
tobacco for P5,187,432.00 covering the period from November 1986 to January
1989."86 Sterling filed its protest letter87 dated January 19, 1990. The
Commissioner, through its letters88 dated August 31, 1990 and October 17,
1990, denied the protest with finality.
Sterling filed before the Court of Tax Appeals a petition for review 89 dated
January 3, 1991, seeking the cancellation of the deficiency assessment and
praying that the Commissioner be ordered to desist from collecting the
assessed excise tax. On July 13, 1995,the Court of Tax Appeals rendered its
decision ordering the cancellation of the assessment for deficiency excise tax.
The Commissioner then appealed90 to the Court of Appeals. On March 7, 2001,
the latter, through its Ninth Division, rendered a decision reversing the Court of
Tax Appeals ruling, thus:
WHEREFORE, premises considered, the Decision of the Court of Tax Appeals in
C.T.A. Case No. 4532 is hereby REVERSED and SET ASIDE, and the respondent
is ORDERED to pay to the public petitioner the amount of P5,187,432.00 as
deficiency specific tax on its imported and locally purchased stemmed leaf
tobacco from November 1986 to June 24, 1989, plus 25% surcharge
on P5,187,432.00, and 20% interest per annum on the total amount due from
December 07, 1990 until full payment, pursuant to Sections 248-49 of the Tax
Code.
SO ORDERED.91
Sterling filed a motion for reconsideration, 92 which was denied by the Court of
Appeals in its June 19, 2001 resolution.
Hence, on August 13, 2001, Sterling filed the instant petition for review. 93
Sterling argues that the Court of Appeals erred in holding that (1) then Section
141 of the Tax Code subjects stemmed leaf tobacco to excise tax; (2) Section
137 of the Tax Code did notexempt stemmed leaf tobacco from prepayment of
excise tax; (3) Section 20(A) of RR No. V-39 restricts the application of Section
137 of the Tax Code since its language was unqualified, while Section 20(A)
contained no restrictive language; (4) RR No. V-39 imposed specific taxes on
stemmed leaf tobacco since its language made no mention of taxes on
stemmed leaf tobacco; (5) the reason behind limiting exemptions only to
transfers fromone L-7 to another L-7 is because sale has previously been
subjected tospecific tax; and (6) the exemption from specific tax did not apply
to imported stemmed leaf tobacco. 94
Sterling further argues that the Court of Appeals erred in not holding that (1)
the Commissioners interpretation of Section 141 of the Tax Code and Section
20(A) of RR No. V-39 amounts to an amendment of Sections 141 and 137 of the

Tax Code by a mere administrative regulation; (2) a December 12, 1972 Bureau
of Internal Revenue ruling and opinions of other Bureau of Internal Revenue
officials confirmed the exemption of stemmed leaf tobacco from prepayment of
specific tax; (3) the administrative practice of the Bureau of Internal Revenue
for over half a century of not subjecting stemmed leaf tobacco to excise tax
proves that no excise taxes were ever intended to be imposed; (4) imposition of
excise tax on stemmed leaf tobacco would result in the prohibited form of
double taxation; and (5) the re-enactment of the relevant provisions in the
1977 and 1986 Tax Codes adopted the interpretation in the December 1972
Bureau of Internal Revenue ruling. 95 Sterling also contends that the "Court of
Appeals erred in applying the rules of construction on exemption from taxes,
since no tax exemption was involved, but merely an exemption from
prepayment of excise tax."96
G.R. No. 158197
On January 10, 1991, the Commissioner sent a pre-assessment notice to La
Suerte demanding payment of 11,757,275.25 as deficiency specific tax on its
local purchases and importations and on the sale of stemmed leaf tobacco
during the period from September 14, 1989 to November 20, 1990. 97 On
February 8, 1991, La Suerte received the formal assessment letter of the
Commissioner.98
La Suerte filed its protest on March 8, 1991. 99 On May 14, 1991, La Suerte
received the Commissioners decision "denying the protest with finality." 100
"On June 13, 1991, the Court of Tax Appeals promulgated a Decision finding
for . . . La Suerte and disposing [as follows:]" 101
WHEREFORE, in view of the foregoing, We find the petition for review
meritorious and the same is hereby GRANTED. Respondents decision dated
April 29, 1991 is hereby set aside and the formal assessment for the deficiency
specific tax in the sum of P11,575,275.25 subject of the respondents letter,
dated January 30, 1991, is deemed cancelled.
No pronouncement as to costs of suit.
SO ORDERED.102
The Commissioner filed a motion for reconsideration that was denied by the
Court of Tax Appeals in its April 5, 1995 resolution. 103
The Commissioner appealed to the Court of Appeals. 104 In its decision dated July
18, 2002, the Court of Appeals reversed the decision of the Court of Tax
Appeals. It cited Commissioner of Internal Revenue v. La Campaa Fabrica de
Tabacos, Inc.105 as basis for its ruling. La Suerte filed a motion for
reconsideration, but it was denied by the Court of Appeals in the
resolution106 dated May 9, 2003.
La Suerte prays for the reversal of the Court of Appeals decision and resolution
in its petition for review,107 wherein it raises the following arguments:
I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT SECTION
20(A) OF REV. REGS. NO. V-39 LIMITED THE CLASS OF MANUFACTURERS WHOSE
SALES OF STEMMED LEAF TOBACCO WERE EXEMPT FROM PRE-PAYMENT OF
SPECIFIC TAX.
II. EVEN IF SEC. 3 OF RR NO. 17-67 HAD BEEN WAS [sic] INTENDED TO LIMIT
MANUFACTURERS EXEMPT FROM PREPAYMENT OF SPECIFIC TAX, THIS WOULD
AMOUNT TO UNLAWFUL DELEGATION OF LEGISLATIVE POWER.
III. RR NO. 17-67 WAS NEITHER ISSUED TO AMEND RR NO. V-39 NOR TO AMEND
THE TAX CODE, BUT SOLELY TO IMPLEMENT ACT NO. 2613, AS AMENDED,
WHICH WAS ENACTED IN 1916 AND HAD ABSOLUTELY NOTHING TO DO WITH
TAXES.
IV. SECTION 2(H) OF RR NO. 17-67 EXCEEDED THE CONSTITUTIONAL LIMITS ON
THE DELEGATION OF LEGISLATIVE POWER.

V. SECTION 3(M) OF RR NO. 17-67 AS INTERPRETED BY COMMISSIONER

EXCEEDED ALLOWABLE LIMITS ON DELEGATION OF LEGISLATIVE POWER.
VI. THE HONORABLE COURT OFAPPEALS ERRED IN APPLYING SECTION 20(A) OF
RR NO. V-39 TO LA SUERTES IMPORTS OF STEMMED LEAF TOBACCO, FOR THE
APPLICABLE PROVISION IS CHAPTER V OF RR NO. V-39.
VII. THE COMMISSIONERS PRESENT INTERPRETATION OF SECTIONS 2(M)(1)
AND 3(H)OF RR NO. 17-67, WAS NOT THE INTERPRETATION GIVEN TO THOSE
SECTIONS BY ITS FRAMERS, AS SHOWN BY THE LONG ADMINISTRATIVE
PRACTICE AFTER THE ISSUANCE OF RR NO. 17-67 AND THE BIR RULING DATED
DECEMBER 12, 1972, WHICH CONFIRMED THE TAX-FREE TRANSFER OF
STEMMED- LEAF TOBACCO.108
G.R. No. 165499
On various dates in March 1995, the Commissioner of Internal Revenue . . .
collected from La Suerte the aggregate amount of THREE HUNDRED TWENTYFIVE THOUSAND FOUR HUNDRED TEN PESOS (P325,410.00) for specific taxes
on La Suertes bulk purchases of stemmed-leaf tobacco from foreign tobacco
manufacturers. La Suerte paid the said amount under protest.
....
On September 27, 1996 and October 2, 1996, La Suerte instituted with the
Commissioner of Internal Revenue . . . and with Revenue District No. 52, a claim
for refund of specific taxes said to have been erroneously paid on its
importations of stemmed-leaf tobacco for the period of November 1994 up to
May 1995, including the amount of Three Hundred Twenty Five Thousand Four
Hundred Ten Pesos (P325,410.00). . . .
Inasmuch as its claim for refund was not acted upon by petitioner and in order
to toll the running of the two-year reglementary period within which to file a
judicial claim for such refund as provided under Section 229 of the 1997
National Internal Revenue Code, as amended, La Suerte filed on February 8,
1997 a petition for review with the CTA. 109
On September 23, 1998, the Court of Tax Appeals rendered judgment granting
the petition for review and ordering the Commissioner to refund the amount
of P325,410.00 to La Suerte.110 The Commissioner filed a motion for
reconsideration, but this was denied by the Court of Tax Appeals on December
15, 1998.111
On appeal, the Court of Appeals Fourth Division reversed 112 the Court of Tax
Appeals ruling. It also denied113 La Suertes motion for reconsideration. Hence,
this petition was filed,114 reiterating the same arguments already presented in
the other cases.
This court ordered the consolidation of G.R. Nos. 13632829 and
125346.115 Thereafter, this court consolidated G.R. Nos. 165499, 144942, and
148605.116 Finally, this court approved the consolidation of G.R. Nos. 125346,
13632829, 144942, 148605, 158197, and 165499.117
Issues
I. Whether stemmed leaf tobacco is subject to excise (specific) tax under
Section 141 of the 1986 Tax Code;
II. Whether Section 137 of the 1986 Tax Code exempting from the payment of
specific tax the sale of stemmed leaf tobacco by one manufacturer to another
is not subject to any qualification and, therefore, exempts an L-7 manufacturer
from paying said tax on its purchase of stemmed leaf tobacco from other
manufacturers who are not classified as L-7 permittees;
III. Whether stemmed leaf tobacco imported by La Suerte, Fortune, and Sterling
is exempt from specific tax under Section 137 of the 1986 Tax Code;
IV. Whether Section 20(a) of RR No. V-39, in relation to RR No. 17-67, which
limits the exemption from payment of specific tax on stemmed leaf tobacco to

sales transactions between manufacturers classified as L-7 permittees is a valid

exercise by the Department of Finance ofits rule-making power under Section
338118of the 1939 Tax Code;
V. Whether the possessor or owner of stemmed leaf tobacco may be held liable
for the payment of specific tax if such tobacco product is removed from the
place of production without payment of said tax;
VI. Whether the August 31, 1990 ruling of then Bureau of Internal Revenue
Commissioner Jose U. Ong denying La Suertes request for exemption from
specific tax on its local purchase and importation of stemmed leaf tobacco
violates the principle on non-retroactivity of administrative ruling for allegedly
contradicting the previous position taken by the Bureau of Internal Revenue
that such a transaction is not subject to specific tax as expressed in the
December 12, 1972 ruling of then Bureau of Internal Revenue Commissioner
Misael P. Vera; and
VII. Whether the imposition of excise tax on stemmed leaf tobacco under
Section 141 of the 1986 Tax Code constitutes double taxation.
Arguments of the cigarette manufacturers
The cigarette manufacturers claim that since Section 137 of the 1986 Tax Code
and Section 20(a) of RR No. V-39 do not distinguish "as to the type of
manufacturer that may sell stemmed-leaf tobacco without the prepayment of
specific tax[,] [t]he logical conclusion is that any kind of tobacco manufacturer
is entitled to this treatment." 119 The authority of the Secretary of Finance to
prescribe the "conditions" refers only to procedural matters and should not
curtail or modifythe substantive right granted by the law. 120 The cigarette
manufacturers add thatthe reference to an L-7 invoice and L-7 register book in
the second paragraph of Section 20(a) cannot limit the application of the tax
exemption provision only to transfers between L-7 permittees because (1) it
does not so provide;121 and (2) under the terms of RR No. V-39, L-7 referred to
manufacturers of any class of tobacco products, including manufacturers of
stemmed leaf tobacco.122
They further argue that, going by the theory of the Commissioner, RR No. 17-67
would have unduly restricted the meaning of "manufacturers" by limiting it to a
few manufacturers suchas manufacturers of cigars and cigarettes. 123Allegedly,
RR No. 17-67 cannotchange the original meaning of L-7 in Section 20(A) of RR
No. V-39 without exceeding constitutional limits of delegated legislative
power.124 La Suerte further points out that RR No. 17-67 was not even issued for
the purpose of implementing the Tax Code but for the sole purpose of
implementing Act No. 2613; and Section 3 of RR No. 17-67 restricts the new
designations only for administrative purposes.125
Moreover, the cigarette manufacturers contend "that Section 132 does not
operate as a tax exemption" because "prepayment means payment of
obligation in advance or before it is due." 126 Consequently, the rules of
construction on tax exemption do not apply. 127 According to them, "the absence
of tax prepayment for the saleof stemmed leaf tobacco impliedly indicates the
underlying policy of the law: that stemmed leaf tobacco shall not be taxed
twice, first, as stemmed leaf tobacco and, second, as a component of the
finished products of which it forms an integral part." 128
Fortune, for its part, claims that stemmed leaf tobacco is not subject to excise
tax. It argues that stemmed leaf tobacco cannot be considered prepared or
partially prepared tobaccobecause it does not fall within the definition of a
"processed tobacco" under Section 1-b of Republic Act No. 698, as
amended.129 Furthermore, it adds that Section 141 should be strictly construed
against the taxing power.130 "There being no explicit reference to stemmed leaf

tobacco in Section 141, it cannot be claimed or construed to be subject to

specific tax."131
According to Fortune, "a plain reading of Section 141 readily reveals that the
intention was to impose excise taxes on products oftobacco that are not to be
used as raw materials in the manufacture of other tobacco products." 132"Section
2(m)(1) unduly expanded the meaning of prepared or partially prepared
tobacco to includea raw material like stemmed leaf tobacco; hence, ultra
viresand invalid."133
As regards the taxability of their importations, Sterling argues that since locally
manufactured stemmed leaf tobaccos are not subject to specific tax, it follows
that imported stemmed leaf tobaccos are also not subject to specific tax. 134 On
the other hand, La Suerteclaims that Section 20(A) of RR No. V-39 does not
apply to its imports because the applicable provision is Section 128(b) of the
1986 Tax Code, which states that "imported articles shall be subject to the
same tax and the same rates and basis of excise taxes applicable to locally
manufactured articles," and Chapter V of RR No. V-39 (Payment of specific
taxes on imported cigars, cigarettes, smoking and chewing tobacco). 135
Finally, La Suerte and Sterling136 argues that the Court of Appeals erred: (1) in
ignoring Section 43 of RR No. 17-67, December 12, 1972 Bureau of Internal
Revenue ruling and other Bureau of Internal Revenue opinions confirming the
exemption of stemmed leaf tobacco from prepayment of specific tax; 137 (2) in
disregarding the Bureau of Internal Revenues practice for over half a century of
not subjecting stemmed leaf tobacco to specific tax; 138 (3) in failing to consider
that the re-enactment of the 1939 Tax Code as the 1977 and 1986 Tax Codes
impliedly adopted the interpretation in the December 12, 1972 ruling; and 4) in
holding that nonapplication of the December 12, 1972 ruling did not impinge on
the principle of non-retroactivity of rulings. 139 Moreover, it argues that the Tax
Code does not authorize collection of specific tax from buyers without a prior
attempt to collect tax from manufacturers. 140
Respondents arguments
Respondent counters that "under Section 141(b), partially prepared or
manufactured tobacco is subject to specific tax." 141 The definition of "partially
manufactured tobacco" in Section 2(m) of RR No. 17-67 includes stemmed leaf
tobacco; hence, stemmed leaf tobacco is subject to specific tax. 142 "Imported
stemmed leaf tobacco isalso subject to specific tax under Section 141(b) in
relation to Section 128 of the 1977 Tax Code." 143 Fortunes reliance on the
definition of "processed tobacco" in Section 1-b of Republic Act No. 698 144 as
amended by Republic Act No. 1194 is allegedly misplaced because the
definition therein of processed tobacco merely clarified the type of tobacco
product that may not be imported into the country. 145 Respondent posits that
"there is no double taxation in the prohibited sense even if specific tax is also
imposed on the finished product of which stemmed leaf tobacco is a raw
material."146 Congress clearly intended it "considering that stemmed leaf
tobacco, as partially prepared or manufactured tobacco, is subjected to specific
tax under Section 141(b), while cigars and cigarettes, of which stemmed leaf
tobacco is a raw material, are also subjected to specific tax under Section
142."147 It adds that there is no constitutional prohibition against double
taxation.148
"Foreign manufacturers of tobacco products not engaged in trade or business in
the Philippines cannot be classified as L-7, L-6, or L-3R since they are beyond
the pale of Philippine laws and regulations." 149 "Since the transfer of stemmed
leaf tobacco from one factory to another must be under an official L-7 invoice
and entered in the L-7 registers of both transferor and transferee, it is obvious
that the factories contemplated are those located or operating in the

Philippines and operated only by L-7 permittees." 150 The transaction

contemplated under Section 137 is sale and not importation because the law
uses the word "sold."151 The law uses "importation" or "imported" whenever the
transaction involves bringing in articles from foreign countries. 152
Respondent argues that "the issuance of RR Nos. V-39 and 17-67 is a valid
exercise by the Department of Finance of its rule-making power" under Sections
132 and 338 of the 1939 Tax Code. 153 It explains that "the reason for the
exemption from specific tax of the sale of stemmed leaf tobacco as raw
material by one L-7 directly to another L-7 is that the stemmed leaf tobacco is
supposed to have been already subjected to specific tax when an L-7
purchased the same from an L-6." 154 "Section 20(A) of RR No. V-39 adheres to
the standards set forth in Section 245 because it provides the conditions for a
tax-free removal of stemmed leaf tobacco under Section 137 without negating
the imposition of specific tax under Section 141(b)." 155 "To construe Section 137
in the restrictive manner suggested by La Suerte will practically defeat the
revenue-generating provision of Section 141(b)." 156
It further argues that the August 31, 1990 ruling of then Bureau of Internal
Revenue Commissioner Jose U. Ong denying La Suertes request for exemption
from specific tax on its local purchase and importation of stemmed leaf tobacco
does not violate the principle on non-retroactivity of administrative ruling. It
alleges that an erroneous ruling, like the December 12, 1972 ruling, does not
give rise to a vested right that can be invoked by La Suerte. 157
Finally, respondent contends that under Section 127, if domestic products are
removed from the place ofproduction without payment of the excise taxes due
thereon, it is not required that the tax be collected first from the manufacturer
or producer before the possessor thereof shall be liable. 158
Courts ruling
Nature of excise tax
Excise tax is a tax on the production, sale, or consumption of a specific
commodity in a country. Section 110 of the 1986 Tax Code explicitly provides
that the "excise taxes on domestic products shall be paid by the manufacturer
or producer before[the] removal [of those products] from the place of
production." "It does not matter to what use the article[s] subject to tax is put;
the excise taxes are still due, even though the articles are removed merely for
storage in someother place and are not actually sold or consumed." 159 The
excise tax based on weight, volume capacity or any other physical unit of
measurement is referred to as "specific tax." If based on selling price or other
specified value, itis referred to as "ad valorem" tax.
Section
141
subjects
partially
prepared
tobacco,
such
as
stemmed
leaf
tobacco,
to
excise tax
Section 141 of the 1986 Tax Code provides:
SEC. 141. Tobacco Products. There shall be collected a tax of seventy-five
centavos on each kilogram of the following products of tobacco:
(a) tobacco twisted by hand or reduced into a condition to be consumed in any
manner other than the ordinary mode of drying and curing;
(b) tobacco prepared orpartially prepared with or without the use of any
machine or instruments or without being pressed or sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings
of tobacco. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco resulting from the handling or stripping of whole leaf
tobacco may be transferred, disposed of, or otherwise sold, without
prepayment of the specific tax herein provided for under such conditions as

may be prescribed in the regulations promulgated by the Ministry of Finance

upon recommendation of the Commissioner, if the same are tobe exported or
to be used in the manufacture of other tobacco products on which the excise
tax will eventually be paid on the finished product.
On tobacco specially prepared for chewing so as to be unsuitable for use in any
other manner, on each kilogram, sixty centavos. (Emphasis supplied)
It is evident that when tobacco is harvested and processed either by hand or by
machine, all itsproducts become subject to specific tax. Section 141 reveals the
legislative policy to tax all forms of manufactured tobacco in contrast to raw
tobacco leaves including tobacco refuse or all other tobacco which has been
cut, split, twisted, or pressed and is capable of being smoked without further
industrial processing.
Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a
partially prepared tobacco. The removal of the stem or midrib from the leaf
tobacco makes the resulting stemmed leaf tobacco a prepared or partially
prepared tobacco. The following is La Suertes own illustration of how the
stemmed leaf tobacco comes about: In the process of removing the stems, the
whole leaf tobacco breaks into pieces; after the stems or midribs are removed,
the tobacco is threshed (cut by machine into fine narrow strips) and then
undergoes a process of redrying, 160 undoubtedly showing that stemmed leaf
tobacco is a partially prepared tobacco. Since the Tax Code contained no
definition of "partially prepared tobacco," then the term should be construed in
its general, ordinary, and comprehensive sense. 161
RR No. 17-67, as amended, supplements the law by delineating what products
of tobacco are "prepared or manufactured" and "partially prepared or partially
manufactured." Section 2(m) states:
(m) "Partially manufactured tobacco" Includes:
(1) "Stemmed leaf" handstripped tobacco, clean, good, partially broken leaf
only, free from mold and dust.
(2) "Long-filler" handstripped tobacco of good, long pieces of broken leaf
usableas filler for cigars without further preparation, and free from mold, dust
stems and cigar cuttings.
(3) "Short-filler" handstripped or machine-stripped tobacco, clean, good,
short pieces of broken leaf, which will not pass through a screen of two inches
(2") mesh.
(4) "Cigar-cuttings" clean cuttings or clippings from cigars, unsized with any
other form of tobacco.
(5) "Machine-scrap tobacco" machine-threshed, clean, good tobacco, not
included in any of the above terms, usable in the manufacture of tobacco
products.
(6) "Stems" midribs of leaftobacco removed from the whole leaf or broken
leaf either by hand or machine.
(7) "Waste tobacco" denatured tobacco; powder or dust, refuse, unfit for
human consumption;
discarded materials in the manufacture of tobacco products, which may include
stems.
Insisting on the inapplicability of RR No. 17-67, La Suerte points to the different
definitions given to stemmed leaf tobacco by Section 2(m)(1) of RR No. 17-67
and Section 137. It argues that while RR No. 17-67 defines stemmed leaf
tobacco as handstripped tobacco of clean, good, partially broken leaf only, free
from mold and dust,Section 137 defines it as leaf tobacco which has had the
stemor midrib removed.The term does not include broken leaf tobacco. We are
not convinced.

Different definitions of the term "stemmed leaf" are unavoidable, especially

considering that Section 2(m)(1) is an implementing regulation of Act No. 2613,
which was enacted in 1916 for purposes of improving the qualityof Philippine
tobacco products, while Section 137 defines the tobacco product only for the
purpose of exempting it from the specific tax. Whichever definition is adopted,
there is no doubt that stemmed leaf tobacco is a partially prepared tobacco.
The onus of proving that stemmed leaf tobacco is not subject to the specific tax
lies with the cigarette manufacturers. Taxation is the rule, exemption is the
exception.162 Accordingly, statutes granting tax exemptions must be construed
instrictissimi jurisagainst the taxpayer and liberally in favor of the taxing
authority. The cigarette manufacturers must justify their claim by a clear and
categorical provision in the law. Otherwise, they are liable for the specific tax
on stemmed leaf tobacco found in their possession pursuant to Section
127163 of the 1986 Tax Code, as amended.
Stemmed
leaf
tobacco
transferred
in
bulk
between
cigarette
manufacturers
are
exempt
from
excise
tax
under
Section
137
of
the
1986
Tax
Code
in
conjunction
with
RR
No. V-39 and RR No. 17-67
In the instant case, an exemption on the taxability of stemmed leaf tobacco is
found in Section 137, which provides the following:
SEC. 137. Removal of tobacco products without prepayment of tax. Products
of tobacco entirely unfit for chewing or smoking may be removed free of tax for
agricultural or industrial use, under such conditions as may be prescribed in the
regulations of the Ministry of Finance. Stemmed leaf tobacco,fine-cut shorts,
the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or
midribs, and sweepings of tobacco may be sold in bulk as raw material by one
manufacturer directly to another, without payment of the tax under such
conditions as may be prescribed in the regulations of the Ministry of Finance.
Stemmed leaf tobacco,' as herein used, means leaf tobacco which has had the
stem or midrib removed. The term does not include broken leaf tobacco.
(Emphasis and underscoring supplied) Section 137 authorizes a tax exemption
subject to the following: (1) that the stemmed leaf tobacco is sold in bulk as
raw material by one manufacturerdirectly to another; and (2) that the sale or
transfer has complied with the conditions prescribed by the Department of
Finance.
That the title of Section 137 uses the term "without prepayment" while the
body itself uses "without payment" is of no moment. Both terms simply mean
that stemmed leaf tobacco may be removed from the factory or place of
production without prior payment of the specific tax.
This court has held in Commissioner of Internal Revenue v. La Campaa Fabrica
de Tabacos, Inc.,164 reiterated in Compania General de Tabacos de Filipinas v.
Court of Appeals165 and Commissioner of Internal Revenue v. La Suerte Cigar
and Cigarette Factory, Inc.166 that the exemption from specific tax of the sale of
stemmed leaf tobacco is qualified by and is subject to "such conditions as may
be prescribed in the regulations of the Department of Finance." These
conditions were provided for in RR Nos. V-39 and 17-67. Thus, Section 137 must
be read and interpreted in accordance with these regulations.
Section 20(a) of RR No. V-39 provides the rules for tax exemption on tobacco
products: SECTION 20. Exemption from tax of tobacco products intended for
agricultural or industrial purposes. (a) Sale of stemmed leaf tobacco, etc., by
one factory to another. Subject to the limitations herein established, products

of tobacco entirely unfit for chewing or smoking may be removed free of tax for
agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the
refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and
sweepings of tobacco may be sold in bulk as raw materials by one
manufacturer directly to another without the prepayment of the specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco,
scraps, cuttings, clippings, and sweeping of leaf tobacco or partially
manufactured tobaccoor other refuse of tobacco may be transferred from one
factory to another under an official L-7 invoiceon which shall be entered the
exact weightof the tobacco at the time of its removal, and entry shall be made
in the L-7 register in the place provided on the page of removals.
Corresponding debit entry will be made in the L-7 register book of the factory
receiving the tobacco under heading "Refuse, etc., received from other
factory," showing the date of receipt, assessment and invoice numbers, name
and address of the consignor, form in which received, and the net weight of the
tobacco. This paragraph should not, however, be construed to permit the
transfer of materials unsuitable for the manufacture of tobacco products from
one factory to another. (Emphasis supplied)
The conditions under which stemmed leaf tobacco may be transferred from one
factory to another without prepayment of specific tax are as follows:
(a) The transfer shall be under an official L-7 invoice on which shall be entered
the exact weight of the tobacco at the time of its removal;
(b) Entry shall be made in the L-7 register in the place provided on the page for
removals; and
(c) Corresponding debit entry shall bemade in the L-7 register book of the
factory receiving the tobacco under the heading, "Refuse, etc.,received from
the other factory," showing the date of receipt, assessment and invoice
numbers, name and address of the consignor, formin which received, and the
weight of the tobacco.
Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of
Internal Revenue with an L-7 permit refer to "manufacturers of tobacco
products." Hence, the transferor and transferee of the stemmed leaf tobacco
must be an L-7 tobacco manufacturer.
La Campaaexplained that the reason behind the tax exemption of stemmed
leaf tobacco transferred between two L-7 manufacturers is that the same had
already been previouslytaxed when acquired by the L-7 manufacturer from
dealers of tobacco, thus:
[T]he exemption from specific tax of the sale of stemmed leaf tobacco as raw
material by one L-7 directly to another L-7 is because such stemmed leaf
tobacco has been subjected to specific tax when an L-7 manufacturer
purchased the same from wholesale leaf tobacco dealers designated under
Section 3, Chapter I, Revenue Regulations No. 17-67 (supra) as L-3, L-3F, L-3R,
L-4, or L-6, the latter being also a stripper of leaf tobacco. These are the
sources of stemmed leaf tobacco to be used as raw materials by an L-7
manufacturer which does not produce stemmed leaf tobacco. When an L-7
manufacturer sells the stemmed leaf tobacco purchased from the foregoing
suppliersto another L-7 manufacturer as raw material, such sale is not subject
to specific tax under Section 137 (now Section 140), as implemented by
Section 20(a) of Revenue Regulations No. V-39.167
There is no new product when stemmed leaf tobacco is transferred between
two L-7 permit holders. Thus, there can be no excise tax that will attach. The
regulation, therefore, is reasonable and does not create a new statutory right.

RR
Nos.
V-39
and
17-67
did
not
exceed
the
allowable
limits of legislative delegation
The cigarette manufacturers contend that the authority of the Department of
Finance to prescribe conditions is merely procedural. Its rule-making power is
only for the effective enforcement of the law, which implicitly rules out
substantive modifications. The Secretary of Finance cannot, by mere regulation,
limit the classes of manufacturers that may be entitled to the tax exemption.
Otherwise, Section 137 (Section 132 in the 1939 Tax Code) would be invalid as
an undue delegation of legislative power without the required standards or
parameters.
The power of taxation is inherently legislative and may be imposed or revoked
only by the legislature. 168 Moreover, this plenary power of taxation cannot be
delegated by Congress to any other branch of government or private persons,
unless its delegation is authorized by the Constitution itself. 169 Hence, the
discretion to ascertain the following (a) basis, amount, or rate of tax; (b)
person or property that is subject to tax; (c) exemptions and exclusions from
tax; and (d) manner of collecting the tax may not be delegated away by
Congress.
However, it is well-settled that the power to fill in the details and manner as to
the enforcement and administration of a law may be delegated to various
specialized administrative agencies like the Secretary of Finance in this case. 170
This court in Maceda v. Macaraig, Jr. 171 explained the rationale behind the
permissible delegation of legislative powers to specialized agencies like the
Secretary of Finance:
The latest in our jurisprudence indicates that delegation of legislative power
has become the rule and its non-delegation the exception. The reason is the
increasing complexity of modern life and many technical fields of governmental
functions as in matters pertaining to tax exemptions. This is coupled by the
growing inability of the legislature to cope directly with the many problems
demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization even in legislation has
become necessary. To many of the problems attendant upon present day
undertakings, the legislature may not have the competence, let alone the
interest and the time, to provide the required directand efficacious, not to say
specific solutions.172
Thus, rules and regulations implementing the law are designed to fill in the
details or to make explicit whatis general, which otherwise cannot all be
incorporated in the provision of the law. 173 Such rules and regulations, when
promulgated in pursuance of the procedure or authority conferred upon the
administrative agency by law, 174"deserve to be given weight and respect by the
courts in view of the rule-making authority given to those who formulate them
and their specific expertise in their respective fields." 175 To be valid, a revenue
regulation mustbe within the scope of statutory authority or standard granted
by the legislature. Specifically, the regulation must (1) be germane to the
object and purpose of the law;176 (2) not contradict, but conform to, the
standards the law prescribes;177 and (3) be issued for the sole purpose of
carrying into effect the general provisions of our tax laws. 178
Section 338 authorizes the Secretary of Finance to promulgate all needful rules
and regulations for the effective enforcement of the provisions of the 1939 Tax
Code.
The specific authority of the Department of Finance to issue regulations relating
to the taxation of tobacco products is found in Section 4 179 (Specific provisions

to be contained in regulations); Section 125 180 (Payment of specific tax on

imported articles to customs officers prior to release from the customhouse);
Section 132 (Removal of tobacco products without prepayment of tax); Section
149181 (Extent of supervision over establishments producing taxable output);
Section 150182 (Records to be kept by manufacturers; Assessment based
thereon); and Section 152183(Labels and form of packages) of the 1939 Tax
Code.
RR No. V-39 was promulgated to enforce the provisions of Title IV (Specific
Taxes) of the 1939 Tax Code relating to the manufacture and importation of,
and payment of specific tax on, manufactured tobacco or products of tobacco.
By an explicit provision in Section 132, the lawmakers defer to the Department
of Finance to provide the details upon which the removal of stemmed leaf
tobacco may be exempt from the specific tax in view of its supposed expertise
in the tobacco trade. Section 20(a) of RR No. V-39 adhered to the standards
because it provided the conditions the proper documentation and recording
of raw materials transferred from one factory to another for a tax-free
removal of stemmed leaf tobacco, without negating the imposition of specific
tax under Section 137. The "effective enforcement of the provisions of [the Tax
Code]" in Section 338 provides a sufficient standard for the Secretary of
Finance in determining the conditionsfor the tax-free removal of stemmed leaf
tobacco. Section 4 further provides a limitation on the contents of revenue
regulations to be issued by the Secretary of Finance.
On the other hand, RR No. 17-67 was promulgated "[i]n accordance with the
provisions of Section 79 (B) of the Administrative Code, as amended by Act No.
2803."184 Among the specific administrative powers conferred upon a
department head under the Administrative Code is that of promulgating rules
and regulations, not contrary to law, "necessary to regulate the proper working
and harmonious and efficient administration of each and all of the offices and
dependencies of his Department, and for the strict enforcement and proper
execution ofthe laws relative to matters under the jurisdiction of said
Department."185 Under the 1939 Tax Code, the Secretary of Finance is
authorized to prescribe regulations affecting the business of persons dealing in
articles subject to specific tax, including the mode in which the processes of
production of tobacco and tobacco products should be conducted and the
records to be kept by manufacturers. Clearly then, the provisions of RR No. 1767 classifying and regulating the business of persons dealing in tobacco and
tobacco products are within the rulemaking authority of the Secretary of
Finance.
RR
No.
17-67
did
not
create
a
new classification
The contention of the cigarette manufacturers that RR No. 17-67 unduly
restricted the meaning of manufacturers of tobacco products by limiting it to a
few manufacturers suchas manufacturers of cigars and cigarettes is misleading.
The definitions in RR No. 17-67 of"manufacturer of tobacco" and "manufacturer
of cigars and/or cigarettes" are in conformity with, as in fact they are verbatim
adoptions of, the definitions under Section 194(m) and (n) of the 1939 Tax
Code.
The cigarette companies further argue that RR No. 17-67 unduly restricted the
meaning of L-7 in Section 20(a) of RR No. V-39 because when RR No. V-39 was
issued, there was no distinction at all between L-7, L-3, L-6 permittees, and L-7
referred to manufacturers of any class of tobacco products including stemmed
leaf tobacco.
This argument is similarly misplaced.

A reading of the entire RR No. V-39 shows that the regulation pertains
particularly to activities ofmanufacturers of smoking and chewing tobacco,
cigars and cigarettes.186 This was rightly so because the regulation was issued
to enforce the tax law provisions in relation to the manufacture and importation
of tobacco products. Clearly apparent in Section 10(a) is that when a
manufacturer of chewing and smoking tobacco, cigars, or cigarettes has been
qualified to conduct his or her business as such, he or she is issued by the
internal revenue agent the corresponding register books and auxiliary register
books pertaining to his business as well as the official register book, L-7, to be
used as record of the raw materials for his or her product. It is, therefore,
logical toconclude that the L-7 invoice and L-7 register book under Section
20(a) refers to those invoice and books used by manufacturers of chewing and
smoking tobacco, cigars or cigarettes.
RR No. 17-67 clarified RR No. V-39 by explicitly designating the manufacturers
of tobacco products as L-7 permittees (Section 2), in contrast to wholesale leaf
tobacco dealers and those that process partially manufactured tobacco such as
stemmed leaf tobacco. RR No. 17-67 did not create a new and restrictive
classification but only expressed in clear and categorical terms the distinctions
between "manufacturers" and "dealers" of tobacco that were already implicit in
RR No. V-39.
Indeed, there is no repugnancy between RR No. 17-67 and RR No. V-39, on the
one hand, and the Tax Code, on the other. It is safer to presume that the term
"manufacturer" used in Section 137 on tax exempt removals referred to an
entity that is engaged in the business of, and was licensed by the Bureau of
Internal Revenue as a, manufacturer of tobacco products. It does not include an
entity engaged in business as a dealer in tobacco that, incidentally or in
furtherance of its business as a dealer, strip or thresh whole leaf tobacco or
reprocess partially manufactured tobacco. 187
Such construction is consistent with the rule that tax exemptions, deemed to be
in derogation of the states sovereign right of taxation, are strictly applied and
may be granted only under clear and unmistakable terms of the law and not
merely upon a vague implication or inference. 188
RR
No.
V-39
must
be
applied
and
read
together
with
RR
No. 17-67
The cigarette manufacturers argument is misplaced, stating that RR No. 17-67
could not modify RR No. V-39 because it was promulgated to enforce Act No.
2613, as amended (entitled "An Act to Improve the Methods of Production and
the Quality ofTobacco in the Philippines and to Develop the Export Trade
Therein"), which allegedly had nothing whatsoever to do with the Tax Code or
with the imposition of taxes.
"The Tobacco Inspection Service,instituted under Act No. 2613, was made part
of the Bureau of Internal Revenue and Bureau of Customs administration for . . .
internal revenue purposes."189 The Collector of Internal Revenue was charged to
enforce Act No. 2613, otherwise known as the Tobacco Inspection Law, with a
view to promoting the Philippine tobacco trade and thereby increase the
revenues of the government. This can be inferred from a reading of the
following provisions of Act No. 2613:
SEC. 6. The Collector of InternalRevenue shall have the power and it shall be his
duty:
(a) To establish general and local rules respecting the classification, marking,
and packing of tobacco for domestic sale or factory use and for exportation so
far as may be necessary to secure leaf tobacco of good quality and to secure its
handling under sanitary conditions, and to the end that leaf tobacco be not

mixed, packed, and marked and of the same quality when it is not of the same
class and origin.
(b) To establish from time to time adequate rules defining the standard and the
type of leaf and manufactured tobacco which shall be exported, as well also as
the manner in which standard tobacco, shall be packed. Before establishing the
rules above specified, the Collector of Internal Revenue shall give due notice of
the proposed rules or amendments to those interested and shall give them an
opportunity to present their objections to such rules or amendments.
(c) To require, whenever it shall be deemed expedient the inspection of and
affixture of inspection labels to tobacco removed from the province of itsorigin
to another province before such removal, or to tobacco for domestic sale or
factory use.190
SEC. 7. No leaf tobacco or manufactured tobacco shall be exported until it shall
have been inspected by the Collector of Internal Revenue or his duly authorized
representative and found to be standard for export.Collector of customs shall
not permit the exportation of tobacco from the Philippines unless the shipment
be in conformity with the requirements set forth in this Act. The prohibition
contained in this section shall not apply to waste and refuse tobacco
accumulated in the manufacturing process when it is invoiced and marked as
such waste and refuse.191(Emphasis supplied)
....
SEC. 9. The Collector of Internal Revenue may appoint inspectors of tobacco for
the purpose of making the inspections herein required, and may also detail any
officer or employee of the Bureau to perform such duty. Said inspectors or
employees shall likewise be charged with the dutyof grading leaf tobacco and
shall perform such other duties as may be required of them in the promotion of
the Philippine tobacco industry. The Collector of Internal Revenue shall likewise
appoint, with the approval of the Secretary of Finance, agents in the United
States for the purpose of promoting the export trade in tobacco with the United
States, whose duty it shall be to inspect shipments of tobacco upon or after
their arrival in that country when so required, to assist manufacturers of,
exporters of, and dealers in tobacco in disseminating information regarding
Philippine tobacco and, at the request of the parties, to act as arbitrators
between the exporter in the Philippine Islands and the importer in the United
States whenever a dispute arises between them as to the quality, sizes,
classes, or shapes shipped or received. When acting asarbitrator as aforesaid,
the agent shall proceed in accordance with the law governing arbitration and
award inthe locality where the dispute arises. All agents, inspectors, and
employees acting under and by virtue of this Act shall be subject to all penal
provisions applicable to internal-revenue officers generally. 192 (Emphasis
supplied)
....
SEC. 12. The inspection fees collectedby virtue of the provisions of this Act shall
constitute a special fund to be known a the Tobacco Inspection Fund, which
shall be expended by the Collector of Internal Revenue, with the approval of the
Secretary of Finance, upon allotment by a Board consisting of the
Commissioner of Internal Revenue, the Director of Plant Industry, the Director
of the Bureau of Commerce and Industry, two manufacturers designated by the
Manila Tobacco Association, and two persons representing the interests of the
tobacco producers and growers, appointed by the President of the Philippine
Islands[.]
These funds may be expended for any of the following purposes:
(a) The payment of the expenses incident to the enforcement of this Act
including the salaries of the inspectors and agents.

(b) The payment of expenses incident to the reconditioning and returning to the
Philippine Islands of damaged tobacco and the reimbursement of the value of
the United States internal-revenue stamps lost thereby.
(c) The advertising of Philippine tobacco products in the United States and in
foreign countries. (d) The establishment of tobaccowarehouses in the Philippine
Islands and in the United States at such points as the trade conditions may
demand.
(e) The payment of bounties to encourage the production of leaf tobacco of
high quality.
(f) The promotion and defense of the Philippine tobacco interests in the United
States and in foreign countries.
(g) The establishment, operation, and maintenance of tobacco experimental
farms for the purpose of studying and testing the best methods for the
improvement of the leaves:Provided, however, That thirty per centum of the
total annual income of the tobacco inspection fund shall be expended for the
establishment, operation, and maintenance of said tobacco experimental farms
and for the investigation and discovery of efficacious ways and means for the
extermination and control of the pests and diseases of tobacco: Provided,
further, That in the establishment of experimental farms, preference shall be
given to municipalities offering the necessary suitable land for the
establishment of an experimental farm.
(h) The sending of special agentsand commissions to study the markets of the
United States and foreign countries with regard to the Philippine cigars and
their propaganda in said markets.
(i) The organization of exhibits of cigars and other Philippine tobacco products
in the United States and in foreign countries. 193
SEC. 13. The Collector Internal Revenue shall be the executive officer charged
with the enforcement of the provisions of this Act and of the regulations issued
in accordance therewith, but it shall be the duty of the Director of Agriculture,
with the approval of the Secretary of Public Instruction, to execute and enforce
the provisions hereof referring to the cultivation of tobacco. (Emphasis
supplied)
The cigarette manufacturers, thus, erroneously concluded that Act No. 2613
does not involve taxation.
Parenthetically, Section 8 of Act No. 2613 pertained to the imposition of
tobacco inspection fees, which are National Internal Revenue taxes, these being
one of the miscellaneous taxes provided for under the Tax Code. Said Section 8
was in fact repealed by Section 369(b) of the 1939 Tax Code, and the provision
regarding inspection feesare found in Section 302 of the 1939 Tax Code.
Since the two revenue regulations, RR Nos. V-34 and 17-67, are in pari materia,
i.e., they both pertain specifically to the regulation of tobacco trade, they
should be read and applied together. Statutes are in pari materia when they
relate to the same person or thing or to the same class of persons or things, or
object, or cover the same specific or particular subject matter.
It is axiomatic in statutory construction that a statute must be interpreted, not
only to be consistent with itself, but also to harmonize with other laws on the
same subject matter, as to form a complete, coherent and intelligible system.
The rule is expressed in the maxim, "interpretare et concordare legibus est
optimus interpretandi,"or every statute must be so construed and harmonized
with other statutes as to form a uniform system of jurisprudence. 194(Citation
omitted)
The foregoing rules on statutory construction can be applied by analogy to
administrative issuances suchas RR No. V-39 and RR No. 17-67, especially since
both are issued by the same administrative agency.

Importation
of
stemmed
leaf
tobacco
not
included
in
the
exemption under Section 137
The transaction contemplated in Section 137 does not include importation of
stemmed leaf tobacco for the reason that the law uses the word "sold" to
describe the transaction of transferring the raw materials from one
manufacturer to another.
The Tax Code treats an importerand a manufacturer differently. Section 123
clearly distinguishes between goods manufactured or produced in the
Philippines and things imported. The law uses the proper term "importation" or
"imported" whenever the transaction involves bringing in articles from foreign
countries as provided under Section 125 (cf. Section 124). Whenever the Tax
Code refers to importers and manufacturers, they are separately mentioned as
two distinct persons or entities (Sections 156 and 160). Under Chapter II,
whenever the law uses the word manufacturer, it only means local
manufacturer or producer of domestic products (Sections 150, 151, and 152 of
the 1939 Tax Code).
Moreover, foreign manufacturers oftobacco products not engaged in trade or
business in the Philippines cannot be designated as L-7 since these are beyond
the pale of Philippine law and regulations. The factories contemplated are those
located oroperating only in the Philippines. Contrary to La Suertes claim,
Chapter V, Section 61 of RR No. V-39195 is not applicable to justify the tax
exemption of its importation of stemmed leaf tobacco because from the title of
Chapter V, the provision particularly refers to specific taxes on imported cigars,
cigarettes, smoking and chewing tobacco.
No estoppel against government
The cigarette manufacturers contend that for a long time prior to the
transactions herein involved, the Collector of Internal Revenue had never
subjected their purchases and importations of stemmed leaf tobacco to excise
taxes. This prolonged practice allegedly represents the official and authoritative
interpretation of the law by the Bureau of Internal Revenue which must be
respected.
We are not persuaded.
In Philippine Long Distance Telephone Co. v. Collector of Internal
Revenue,196 this court has held that this principle is not absolute, and an
erroneous implementation by an officerbased on a misapprehension of law may
be corrected when the true construction is ascertained. Thus:
The appellant argues that the Collector of Internal Revenue, previous to the
transactions hereininvolved, had never collected the franchise tax on items of
the same nature as those herein in question and this is strong evidence that
such transactions are not subject to tax on the principle that a prolonged
practice on the part of an executive or administrative officer in charge of
executing a certain statute is an authoritative construction of great weight. This
contention may be granted, but the principle is not absolute and may be
overcome by strong reasons to the contrary. If through a misapprehension of
law an officer has erroneously executed it for a long time, the error may be
corrected when the true construction is ascertained. Such we deem to be the
situation in the present case. Incidentally, the doctrine of estoppel does not
apply here.197 (Emphasis supplied)
This court reiterated this rule in Abello v. Commissioner of Internal
Revenue198 where it rejected petitioners claim that the prolonged practice
(since 1939 up to 1988) of the Bureau of Internal Revenue in not subjecting
political contributions to donors tax was an authoritative interpretation of the
statute, entitled to great weight and the highest respect:

This Court holds that the BIR isnot precluded from making a new interpretation
of the law, especially when the old interpretation was flawed. It is a wellentrenched rule that[:]
. . . erroneous application and enforcement of the law by public officers do not
block subsequent correct application of the statute, and that the Government is
never estopped by mistake or error on the part of its agents. 199 (Emphasis
supplied, citations omitted)
Prolonged practice of the Bureau of Internal Revenue in not collecting the
specific tax on stemmed leaf tobacco cannot validate what is otherwise an
erroneous application and enforcement of the law. The government is never
estopped from collecting legitimate taxes because of the error committed by its
agents.200
In La Suerte Cigar and Cigarette Factory v. Court of Tax Appeals, 201 this court
upheld the validity of a revenue memorandum circular issued by the
Commissioner of Internal Revenue to correct an error in a previous circular that
resulted in the non-collection of tobacco inspection fees for a long time and
declared that estoppel cannot work against the government:
. . . the assailed Revenue Memorandum Circular was issued to rectify the error
in General Circular No. V-27 and to interpret the phrase "tobacco for domestic
sale or factory use" with the view of arresting huge losses of tobacco inspection
fees which were not collected and imposed since the said Circular (No. V-27)
took effect. Furthermore, the questioned Revenue Memorandum Circular was
also issued to apprise those concerned of the construction and interpretation
which should be accorded to Act No. 2613, as amended, and which respondent
is duty bound to enforce. It is an opinion on how the law should be construed
and there was no attempt whatsoever to enlarge or restrict the meaning of the
law.
The basis for the issuance of said Memorandum Circular was so stated in
Resolution No. 2-67 of the Tobacco Board, wherein petitioners as members of
the Manila Tobacco Association, Inc. were duly represented, the pertinent
portions of which read:
". . . .
WHEREAS, this original recommendation of Mr. Hernandez was perfectly in
accordance with existing law, more particularly Sec. 1 of Republic Act No. 31
which took effect since September 25, 1946, but perhaps thru oversight by the
former Commissioners and officers of the Tobacco Inspection Service the
propriety and legality of effecting the inspection of tobacco products for local
salesand imported leaf tobacco for factory use might have overlooked resulting
in huge losses of tobacco inspection fees. . ." (Italics supplied)
....
Tobacco Inspection fees are undoubtedly National Internal Revenue taxes, they
being one of the miscellaneous taxes provided for under the Tax Code. Section
228 (formerly Section 302) of Chapter VII of the Code specificallyprovides for
the collection and manner of payment of the said inspection fees. It is within
the power and duty of the Commissioner to collect the same, even without
inspection, should tobacco products be removed clandestinely or surreptitiously
from the establishment of the wholesaler, manufacturer or redrying plant and
from the customs custody in case of imported leaf tobacco. Errors, omissions or
flaws committed by BIR inspectors and representatives while in the
performance of their duties cannot beset up as estoppel nor estop the
Government from collecting a tax legally due. Tobacco inspection fees are
levied and collected for purposes of regulation and control and also as a source
of revenue since fifty percentum (50%) of said fees shall accrue to the Tobacco
Inspection Fee Fund created by Sec. 12 of Act No. 2613, as amended and the

other fifty percentum, to the Cultural Center of the Philippines. (Sec. 88,
Chapter VII, NIRC)202 (Emphasis in this paragraph supplied, citation omitted)
Furthermore, the December 12, 1972 ruling of Commissioner Misael P. Vera
runs counter to Section 20(a)of RR No. V-39 in relation to RR No. 17-67, which
provides that only transfers of stemmed leaf tobacco between L-7 permittees
are exempt. An implementing regulation cannot be superseded by a ruling
which is a mere interpretation of the law. While opinions and rulings of officials
of the government called upon to execute or implement administrative laws
command much respect and weight, courts are not bound to accept the same if
they override, instead of remain consistent and in harmony with, the law they
seek to apply and implement.203
Double taxation
The contention that the cigarette manufacturers are doubly taxed because they
are paying the specific tax on the raw material and on the finished product in
which the raw material was a part is also devoid of merit.
For double taxation in the objectionable or prohibited sense to exist, "the same
property must be taxed twice, when it should be taxed but once." 204 "[B]oth
taxes must be imposed on the same property or subject- matter, for the same
purpose, by the same. . . taxing authority, within the same jurisdiction or taxing
district, during the same taxing period, and they must be the same kind or
character of tax."205
At all events, there is no constitutional prohibition against double taxation in
the Philippines.206 This court has explained in Pepsi-Cola Bottling Company of
the Philippines, Inc. v. Municipality of Tanauan, Leyte: 207
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation.1wphi1 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, since We
have not adopted as part thereof the injunction against double taxation found
in the Constitution of the United States and some states of the Union. 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.208 (Emphasis supplied, citations omitted)
"It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that
taxes must be uniform."209
Excise taxes are essentially taxes on property 210 because they are levied on
certain specified goods or articles manufactured or produced in the Philippines
for domestic saleor consumption or for any other disposition, and on goods
imported. In this case, there is no double taxation in the prohibited sense
because the specific tax is imposed by explicit provisions of the Tax Code on
two different articles or products: (1) on the stemmed leaf tobacco; and (2) on
cigar or cigarette.211
WHEREFORE, this court:
1. DENIESthe petition for review filed by La Suerte Cigar & Cigarette Factory in
G.R. No. 125346 and AFFIRMSthe questioned decision and resolution of the
Court of Appeals in CA-G.R. SP. No. 38107;
2. GRANTS the petition for review filed by the Commissioner of Internal
Revenue in G.R. Nos. 13632829 and REVERSES and SETS ASIDE the
challenged decision and resolution of the Court of Appeals in CA-G.R. SP. Nos.

38219 and 40313. Fortune Tobacco Corporation is ORDERED to pay the

following taxes:
a. P28,938,446.25 as deficiency excise tax for the period covering January 1,
1986to June 30, 1989, plus 20% interest per annum from November 24,1989
until fully paid; and
b. P1,989,821.26 as deficiency excise tax for the period covering July 1, 1989 to
November 30, 1990, plus 20% interest per annum from March 1,1991 until fully
paid.
3. GRANTS the petition for review filed by the Commissioner of Internal
Revenue in G.R. No. 144942 and REVERSES and SETS ASIDE the challenged
decision of the Court of Appeals in CA-G.R. SP. No. 51902. La Suerte Cigar &
Cigarette Factorys claim for refund of the amount of P175,909.50 is DENIED.
4. DENIES the petition for review filed by Sterling Tobacco Corporation in G.R.
No. 148605 and AFFIRMS the questioned decision and resolution of the Court of
Appeals in CA-G.R. SP. No. 38159;
5. DENIES the petition for review filed by La Suerte Cigar & Cigarette Factory in
G.R. No. 158197 and AFFIRMS the questioned decision and resolution of the
Court of Appeals in CA-G.R. SP. No. 37124; and
6. DENIES the petition for review filed by La Suerte Cigar & Cigarette Factory in
G.R. No. 165499 and AFFIRMS the questioned decision and resolution of the
Court of Appeals in
CA-G.R. SP. No. 50241.
SMART VS MALVAR, GR 204429, FEB 18, 2014 (REGULATORY PURPOSE)
Taxation; Court of Tax Appeals; Jurisdiction; Section 7, paragraph (a), subparagraph (3) of Republic Act (R.A.) No. 9282 vests the Court of Tax Appeals
with the exclusive appellate jurisdiction over decisions, orders or resolutions of
the Regional Trial Courts in local tax cases originally decided or resolved by
them in the exercise of their original or appellate jurisdiction.Jurisdiction is
conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282,
created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3) of
the law vests the CTA with the exclusive appellate jurisdiction over decisions,
orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate
jurisdiction.
Same; Local Taxation; Local Government Units; Section 142 of the Local
Government Code grants municipalities the power to levy taxes, fees, and
charges not otherwise levied by provinces.Section 5, Article X of the 1987
Constitution provides that [e]ach local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government. Consistent with this
constitutional mandate, the LGC grants the taxing powers to each local
government unit. Specifically, Section 142 of the LGC grants municipalities the
power to levy taxes, fees, and charges not otherwise levied by provinces.
Section 143 of the LGC provides for the scale of taxes on business that may be
imposed by municipalities while Section 147 of the same law provides for the
fees and charges that may be imposed by municipalities on business and
occupation.
Same; Same; As clearly stated in its whereas clauses, the primary purpose of
Ordinance No. 18 is to regulate the placing, stringing, attaching, installing,

repair and construction of all gas mains, electric, telegraph and telephone
wires, conduits, meters and other apparatus listed therein, which included
Smarts telecommunications tower.As clearly stated in its whereas clauses,
the primary purpose of Ordinance No. 18 is to regulate the placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph
and telephone wires, conduits, meters and other apparatus listed therein,
which included Smarts telecommunications tower. Clearly, the purpose of the
assailed Ordinance is to regulate the enumerated activities particularly related
to the construction and maintenance of various structures. The fees in
Ordinance No. 18 are not impositions on the building or structure itself; rather,
they are impositions on the activity subject of government regulation, such as
the installation and construction of the structures.
679
Same; Same; Since the main purpose of Ordinance No. 18 is to regulate certain
construction activities of the identified special projects, which included cell
sites or telecommunications towers, the fees imposed in Ordinance No. 18 are
primarily regulatory in nature, and not primarily revenue-raising; Thus, the fees
imposed in Ordinance No. 18 are not taxes.Since the main purpose of
Ordinance No. 18 is to regulate certain construction activities of the identified
special projects, which included cell sites or telecommunications towers, the
fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not
primarily revenue-raising. While the fees may contribute to the revenues of the
Municipality, this effect is merely incidental. Thus, the fees imposed in
Ordinance No. 18 are not taxes.
Constitutional Law; Statutes; To justify the nullification of the law or its
implementation, there must be a clear and unequivocal, not a doubtful, breach
of the Constitution.Settled is the rule that every law, in this case an
ordinance, is presumed valid. To strike down a law as unconstitutional, Smart
has the burden to prove a clear and unequivocal breach of the Constitution,
which Smart miserably failed to do. In Lawyers Against Monopoly and Poverty
(LAMP) v. Secretary of Budget and Management, 670 SCRA 373 (2012), the
Court held, thus: To justify the nullification of the law or its implementation,
there must be a clear and unequivocal, not a doubtful, breach of the
Constitution. In case of doubt in the sufficiency of proof establishing
unconstitutionality, the Court must sustain legislation because to invalidate [a
law] based on x x x baseless supposition is an affront to the wisdom not only of
the legislature that passed it but also of the executive which approved it. This
presumption of constitutionality can be overcome only by the clearest showing
that there was indeed an infraction of the Constitution, and only when such a
conclusion is reached by the required majority may the Court pronounce, in the
discharge of the duty it cannot escape, that the challenged act must be struck
down. Smart Communications, Inc. vs. Municipality of Malvar, Batangas, 716
SCRA 677, G.R. No. 204429 February 18, 2014
The Case
This petition for review1 challenges the 26 June 2012 Decision 2 and 13
November 2012 Resolution3 of the Court of Tax Appeals (CTA) En Banc. The
CTA En Banc affirmed the 17 December 2010 Decision 4and 7 April 2011
Resolution5 of the CTA First Division, which in turn affirmed the 2 December
20086Decision and 21 May 2009 Order7 of the Regional Trial Court of Tanauan
City, Batangas, Branch 6. The trial court declared void the assessment imposed
by respondent Municipality of Malvar, Batangas against petitioner Smart
Communications, Inc. for its telecommunications tower for 2001 to July 2003

and directed respondent to assess petitioner only for the period starting 1
October 2003.
The Facts
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation
engaged in the business of providing telecommunications services to the
general public while respondent Municipality of Malvar, Batangas (Municipality)
is a local government unit created by law.
In the course of its business, Smart constructed a telecommunications tower
within the territorial jurisdiction of the Municipality. The construction of the
tower was for the purpose of receiving and transmitting cellular
communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003,
entitled An Ordinance Regulating the Establishment of Special Projects.
On 24 August 2004, Smart received from the Permit and Licensing Division of
the Office of the Mayor of the Municipality an assessment letter with a schedule
of payment for the total amount of P389,950.00 for Smarts
telecommunications tower. The letter reads as follows:
This is to formally submit to your good office your schedule of payments in the
Municipal Treasury of the Local Government Unit of Malvar, province of
Batangas which corresponds to the tower of your company built in the premises
of the municipality, to wit:
PHP
TOTAL PROJECT
11,000,000.
COST:
00
For the Year
20012003
50% of 1% of
Php55,000.0
the
total
0
project cost
Add:
45%
24,750.00
surcharge
Php79,750.0
0
Multiply by 3
yrs.
(2001,
2002, 2003)

Php239,250.
00

For the year

2004
1% of the total Php110,000.
project cost
00
37% surcharge 40,700.00
Php150,700.
00
Php389,950.
00
Hoping that you will give this matter your preferential attention. 8
Due to the alleged arrears in the payment of the assessment, the Municipality
also caused the posting of a closure notice on the telecommunications tower.
TOTAL

On 9 September 2004, Smart filed a protest, claiming lack of due process in the
issuance of the assessment and closure notice. In the same protest, Smart
challenged the validity of Ordinance No. 18 on which the assessment was
based.
In a letter dated 28 September 2004, the Municipality denied Smarts protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City,
Batangas, Branch 6, an Appeal/Petition assailing the validity of Ordinance No.
18. The case was docketed as SP Civil Case No. 04111920.
On 2 December 2008, the trial court rendered a Decision partly granting
Smarts Appeal/Petition. The trial court confined its resolution of the case to the
validity of the assessment, and did not rule on the legality of Ordinance No. 18.
The trial court held that the assessment covering the period from 2001 to July
2003 was void since Ordinance No. 18 was approved only on 30 July 2003.
However, the trial court declared valid the assessment starting 1 October 2003,
citing Article 4 of the Civil Code of the Philippines, 9 in relation to the provisions
of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local
Government Code of 1991 (LGC).10 The dispositive portion of the trial courts
Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The
assessment dated August 24, 2004 against petitioner is hereby declared null
and void insofar as the assessment made from year 2001 to July 2003 and
respondent is hereby prohibited from assessing and collecting, from petitioner,
fees during the said period and the Municipal Government of Malvar, Batangas
is directed to assess Smart Communications, Inc. only for the period starting
October 1, 2003.
No costs.
SO ORDERED.11
The trial court denied the motion for reconsideration in its Order of 21 May
2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division,
docketed as CTA AC No. 58.
On 17 December 2010, the CTA First Division denied the petition for review. The
dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit.
Accordingly, the assailed Decision dated December 2, 2008 and the Order
dated May 21, 2009 of Branch 6 of the Regional Trial Court of Tanauan City,
Batangas in SP. Civil Case No. 04111920 entitled Smart Communications,
Inc. vs. Municipality of Malvar, Batangas are AFFIRMED.
SO ORDERED.12
On 7 April 2011, the CTA First Division issued a Resolution denying the motion
for reconsideration.
Smart filed a petition for review with the CTA En Banc, which affirmed the CTA
First Divisions decision and resolution. The dispositive portion of the CTA En
Bancs 26 June 2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby
DISMISSED for lack of merit.
Accordingly, the assailed Decision dated December 17, 2010 and Resolution
dated April 7, 2011 are hereby AFFIRMED.
SO ORDERED.13
The CTA En Banc denied the motion for reconsideration.
Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction.
The CTA En Bancdeclared that it is a court of special jurisdiction and as such, it

can take cognizance only of such matters as are clearly within its jurisdiction.
Citing Section 7(a), paragraph 3, of Republic Act No. 9282, the CTA En
Banc held that the CTA has exclusive appellate jurisdiction to review on appeal,
decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally resolved by them in the exercise of their original or appellate
jurisdiction. However, the same provision does not confer on the CTA
jurisdiction to resolve cases where the constitutionality of a law or rule is
challenged.
The Issues
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the CTA En
Banc should have exercised its jurisdiction and declared the Ordinance as
illegal.
2. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the doctrine of
exhaustion of administrative remedies does not apply in [this case].
3. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the respondent has
no authority to impose the socalled fees on the basis of the void ordinance. 14
The Ruling of the Court
The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of
jurisdiction. Smart maintains that the CTA has jurisdiction over the present case
considering the unique factual circumstances involved.
The CTA refuses to take cognizance of this case since it challenges the
constitutionality of Ordinance No. 18, which is outside the province of the CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic
Act No. 9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub
paragraph (3)15 of the law vests the CTA with the exclusive appellate jurisdiction
over decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction.
The question now is whether the trial court resolved a local tax case in order to fall
within the ambit of the CTAs appellate jurisdiction This question, in turn, depends
ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.
Smart argues that the fees in Ordinance No. 18 are actually taxes since they are
not regulatory, but revenueraising. Citing Philippine Airlines, Inc. v. Edu,16 Smart
contends that the designation of fees in Ordinance No. 18 is not controlling.
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that [e]ach local government
unit shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government.
Consistent with this constitutional mandate, the LGC grants the taxing powers to
each local government unit. Specifically, Section 142 of the LGC grants
municipalities the power to levy taxes, fees, and charges not otherwise levied by
provinces. Section 143 of the LGC provides for the scale of taxes on business that
may be imposed by municipalities17 while Section 14718 of the same law provides for
the fees and charges that may be imposed by municipalities on business and
occupation.

The LGC defines the term charges as referring to pecuniary liability, as rents or
fees against persons or property, while the term fee means a charge fixed by law
or ordinance for the regulation or inspection of a business or activity. 19
In this case, the Municipality issued Ordinance No. 18, which is entitled An
Ordinance Regulatingthe Establishment of Special Projects, to regulate the
placing, stringing, attaching, installing, repair and construction of all gas mains,
electric, telegraph and telephone wires, conduits, meters and other apparatus, and
provide for the correction, condemnation or removal of the same when found to be
dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]. 20 It
was also envisioned to address the foreseen environmental depredation to be
brought about by these special projects to the Municipality. 21 Pursuant to these
objectives, the Municipality imposed fees on various structures, which included
telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is
to regulate the placing, stringing, attaching, installing, repair and construction of all
gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus listed therein, which included Smarts telecommunications tower.
Clearly, the purpose of the assailed Ordinance is to regulate the enumerated
activities particularly related to the construction and maintenance of various
structures. The fees in Ordinance No. 18 are not impositions on the building or
structure itself; rather, they are impositions on the activity subject of government
regulation, such as the installation and construction of the structures. 22
Since the main purpose of Ordinance No. 18 is to regulate certain construction
activities of the identified special projects, which included cell sites or
telecommunications towers, the fees imposed in Ordinance No. 18 are primarily
regulatory in nature, and not primarily revenueraising. While the fees may
contribute to the revenues of the Municipality, this effect is merely incidental. Thus,
the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City,23 the Court declared that if
the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that incidentally revenue is also obtained does not make the imposition a tax.
In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the
purpose and effect of the imposition determine whether it is a tax or a fee, and that
the lack of any standards for such imposition gives the presumption that the same is
a tax.
We accordingly say that the designation given by the municipal authorities does not
decide whether the imposition is properly a license tax or a license fee. The
determining factors are the purpose and effect of the imposition as may be apparent
from the provisions of the ordinance. Thus, [w]hen no police inspection,
supervision, or regulation is provided, nor any standard set for the applicant to
establish, or that he agrees to attain or maintain, but any and all persons engaged in
the business designated, without qualification or hindrance, may come, and a
license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the
unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised.
Contrary to Smarts contention, Ordinance No. 18 expressly provides for the
standards which Smart must satisfy prior to the issuance of the specified permits,
clearly indicating that the fees are regulatory in nature. These requirements are as
follows:
SECTION 5. Requirements and Procedures in Securing Preliminary Development
Permit.
The following documents shall be submitted to the SB Secretary in triplicate:
a)
zoning
clearance
b)
Vicinity
Map
c)
Site
Plan

d)
Evidence
of
ownership
e) Certificate true copy of NTC Provisional Authority in case of Cellsites, telephone or
telegraph line, ERB in case of gasoline station, power plant, and other concerned
national
agencies
f) Conversion order from DAR is located within agricultural zone.
g)
Radiation
Protection
Evaluation.
h) Written consent from subdivision association or the residence of the area
concerned if the special projects is located within the residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit Upon the expiration of 180
days and the proponents of special projects shall apply for final [development
permit] and they are require[d] to submit the following:
a) evaluation from the committee where the Vice Mayor refers the special project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes,
and Smart is questioning the constitutionality of the ordinance, the CTA correctly
dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the
LGC,25 which outlines the procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, rendering unnecessary the resolution of the issue on non
exhaustion of administrative remedies.
On whether the imposition of the fees in Ordinance No. 18 is ultra vires
Smart argues that the Municipality exceeded its power to impose taxes and fees as
provided in Book II, Title One, Chapter 2, Article II of the LGC. Smart maintains that
the mayors permit fees in Ordinance No. 18 (equivalent to 1% of the project cost)
are not among those expressly enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition
does not appear in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the
LGC, the Municipality is empowered to impose taxes, fees and charges, not
specifically enumerated in the LGC or taxed under the Tax Code or other applicable
law. Section 186 of the LGC, granting local government units wide latitude in
imposing fees, expressly provides:
Section 186. Power To Levy Other Taxes, Fees or Charges. Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the
National Internal Revenue Code, as amended, or other applicable laws: Provided,
That the taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not be enacted without any prior
public hearing conducted for the purpose.
Smart further argues that the Municipality is encroaching on the regulatory powers
of the National Telecommunications Commission (NTC). Smart cites Section 5(g) of
Republic Act No. 7925 which provides that the National Telecommunications
Commission (NTC), in the exercise of its regulatory powers, shall impose such fees
and charges as may be necessary to cover reasonable costs and expenses for the
regulation and supervision of the operations of telecommunications entities. Thus,
Smart alleges that the regulation of telecommunications entities and all aspects of
its operations is specifically lodged by law on the NTC.
To repeat, Ordinance No. 18 aims to regulate the placing, stringing, attaching,
installing, repair and construction of all gas mains, electric, telegraph and telephone
wires, conduits, meters and other apparatus within the Municipality. The fees are
not imposed to regulate the administrative, technical, financial, or marketing
operations of telecommunications entities, such as Smarts; rather, to regulate the
installation and maintenance of physical structures Smarts cell sites or
telecommunications tower. The regulation of the installation and maintenance of
such physical structures is an exercise of the police power of the Municipality.
Clearly, the Municipality does not encroach on NTCs regulatory powers.

The Court likewise rejects Smarts contention that the power to fix the fees for the
issuance of development permits and locational clearances is exercised by the
Housing and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB
itself recognizes the local government units power to collect fees related to land use
and development. Significantly, the HLURB issued locational guidelines governing
telecommunications infrastructure. Guideline No. VI relates to the collection of
locational clearance fees either by the HLURB or the concerned local government
unit, to wit:
VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions shall
collect the locational clearance fee based on the revised schedule of fees under the
special use project as per Resolution No. 622, series of 1998 or by the concerned
LGUs subject to EO 72.26
On whether Ordinance No. 18 is valid and constitutional
Smart contends that Ordinance No. 18 violates Sections 130(b)(3) 27 and 186 of the
LGC since the fees are unjust, excessive, oppressive and confiscatory. Aside from
this bare allegation, Smart did not present any evidence substantiating its claims.
In Victorias Milling Co., Inc. v. Municipality of Victorias,28 the Court rejected the
argument that the fees imposed by respondent therein are excessive for lack of
evidence supporting such claim, to wit:
An ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is
that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition.

Plaintiff, has however not sufficiently proven that, taking these factors together, the
license taxes are unreasonable. The presumption of validity subsists. For, plaintiff
has limited itself to insisting that the amounts levied exceed the cost of regulation
and the municipality has adequate funds for the alleged purposes as evidenced by
the municipalitys cash surplus for the fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of
unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any
argument or evidence to support its plea. Nowhere in the body of the Petition was
this issue specifically raised and discussed. Significantly, Smart failed to cite any
constitutional provision allegedly violated by respondent when it issued Ordinance
No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To
strike down a law as unconstitutional, Smart has the burden to prove a clear and
unequivocal breach of the Constitution, which Smart miserably failed to do.
In Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and
Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a clear and
unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the
sufficiency of proof establishing unconstitutionality, the Court must sustain
legislation because to invalidate [a law] based on x x x baseless supposition is an
affront to the wisdom not only of the legislature that passed it but also of the
executive which approved it. This presumption of constitutionality can be overcome
only by the clearest showing that there was indeed an infraction of the Constitution,
and only when such a conclusion is reached by the required majority may the Court
pronounce, in the discharge of the duty it cannot escape, that the challenged act
must be struck down.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.