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Chavez v Ongpin

GR No 76778, June 6, 1990

Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall be a
provincial or city general revision of real property assessments. The general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987, the
1984 assessments shall be the basis of real property taxes. Francisco Chavez, a taxpayer and landowner,
questioned the constitutionality of EO 74. He alleges that it will bring unreasonable increase in real property

Is EO 73 constitutional?

Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago,
in disregard of the increases in the value of real properties that have occurred since then is not in consonance
with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenue
must be adequate to meet government expenditures and their variations.

Roxas v CTA (1968)

Roxas v CTA
GR No L-25043, April 26, 1968

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y Compania, inherited
from their grandparents several properties which included farmlands. The tenants expressed their desire to
purchase the farmland. The tenants, however, did not have enough funds, so the Roxases agreed to a
purchase by installment. Subsequently, the CIR demanded from the brothers the payment of deficiency
income taxes resulting from the sale, 100% of the profits derived therefrom was taxed. The brothers
protested the assessment but the same was denied. On appeal, the Court of Tax Appeals sustained the
assessment. Hence, this petition.

Is Roxas liable?

No. It should be borne in mind that the sale of the farmlands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and pursuant to the
policy of our Government to allocate lands to the landless.

In order to maintain the general publics trust and confidence in the Government this power must be used
justly and not treacherously. It does not conform with the sense of justice for the Government to persuade
the taxpayer to lend it a helping hand and later on penalize him for duly answering the urgent call.

In fine, Roxas cannot be considered a real estate dealer and is not liable for 100% of the sale. Pursuant to
Section 34 of the Tax Code, the lands sold to the farmers are capital assets and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.

Tio vs Videogram Regulatory Commission (G.R. No. 75697)

Posted: July 25, 2011 in Case Digests

Facts: The case is a petition filed by petitioner on behalf of videogram operators adversely affected by
Presidential Decree No. 1987, An Act Creating the Videogram Regulatory Board with broad powers to
regulate and supervise the videogram industry.

A month after the promulgation of the said Presidential Decree, the amended the National Internal Revenue
Code provided that:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax.

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the
case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion
picture or audiovisual program.

Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty
percent (50%) shall accrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission.

The rationale behind the tax provision is to curb the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of movie houses and theaters. Such unregulated circulation have caused a
sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection
of sales, contractors specific, amusement and other taxes, thereby resulting in substantial losses estimated
at P450 Million annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and these earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year.

The unregulated activities of videogram establishments have also affected the viability of the movie industry.

(1) Whether or not tax imposed by the DECREE is a valid exercise of police power.

(2) Whether or nor the DECREE is constitutional.

Held: Taxation has been made the implement of the states police power. The levy of the 30% tax is for a
public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly
because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation
of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry,
the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No.
1987 as unconstitutional and void. While the underlying objective of the DECREE is to protect the moribund
movie industry, there is no question that public welfare is at bottom of its enactment, considering the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about
by the availability of unclassified and unreviewed video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not
to mention the fact that the activities of video establishments are virtually untaxed since mere payment of
Mayors permit and municipal license fees are required to engage in business.

WHEREFORE, the instant Petition is hereby dismissed. No costs.

Taxation Case

Commissioner of Internal Revenue vs. Central Luzon Drug CorporationGR No. 159647, April 15, 2005Facts:

Respondent is a domestic corporation engaged in the retailing of medicines and otherpharmaceutical

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 declaringtherein 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

toobtain affirmative response from petitioner, respondent elevated its claim to the CTA viaPetition for
Review. CTA dismissed the same but on MR, CTA reversed its earlier rulingand ordered petitioner to issue a
Tax Credit Certificate in favor of respondent citing CAGR 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
butthat 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 apayment 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,
butrather a just compensation for the taking of private property for public use.

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


Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege ofobtaining a 20% discount on
their purchase of medicine from any private establishmentin the country. The latter may then claim the cost
of the discount as a

tax credit

. Suchcredit 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 taxliability. 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 taxdeduction which is
subtraction from income for tax purposes, or an amount that isallowed 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 taxliability
before the tax credit can be applied. Without that liability, any tax Taxation Case credit application will be
useless. There will be no reason for deducting the latter whenthere is, to begin with, no existing obligation to
the government. However, as will bepresented shortly, the existence of a tax credit or itsgrant by law is not
the same as the availment or use of such credit. While the grant is mandatory, the availment or useis not.If
a net loss is reported by, and no other taxes are currently due from, a businessestablishment, there will
obviously be no tax liability against which any tax credit can beapplied. For the establishment to choose the
immediate availment of a tax credit will bepremature and impracticable. Nevertheless, the irrefutable fact
remains that, under RA7432, Congress has granted without conditions a tax
credit benefit to all coveredestablishments. However, for the losing establishment to immediately apply
such credit,where no tax is due, will be an improvident usance

In addition, while a tax liability is essential to the availment or use of any tax credit , priortax 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 repletewith provisions granting or allowing tax credits , even
though no taxes have beenpreviously paid.Petition is denied


GR No. 166494, June 29, 2007


Petitioners, belonging to domestic corporations and proprietors operating drugstores in the Philippines,
are praying for preliminary injunction assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No.
9257, otherwise known as the Expanded Senior Citizens Act of 2003. On February 26, 2004, R.A. No. 9257,
amending R.A. No. 7432, was signed into law by President Gloria Macapagal-Arroyo and it became effective
on March 21, 2004. Section 4(a) of the Act states:

SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in
hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in
all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services
for the death of senior citizens;

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the
net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is granted. Provided, further, That
the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended.

The DSWD, on May 8, 2004, approved and adopted the Implementing Rules and Regulations of RA No.
9275, Rule VI, Article 8 which contains the proviso that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the BIR and approved by the DOF. With the new law, the
Drug Stores Association of the Philippines wanted a clarification of the meaning of tax deduction. The DOF
clarified that under a tax deduction scheme, the tax deduction on discounts was subtracted from Net Sales
together with other deductions which are considered as operating expenses before the Tax Due was
computed based on the Net Taxable Income. On the other hand, under a tax credit scheme, the amount of
discounts which is the tax credit item, was deducted directly from the tax due amount.

The DOH issued an Administrative Order that the twenty percent discount shall include both prescription
and non-prescription medicines, whether branded or generic. It stated that such discount would be provided
in the purchase of medicines from all establishments supplying medicines for the exclusive use of the senior

Drug store owners assail the law with the contention that granting the discount would result to loss of
profit and capital especially that such law failed to provide a scheme to justly compensate the discount.

ISSUE: WON Section 4(a) of the Expanded Senior Citizens Act is unconstitutional or not violative of Article 3
Section 9 of the Constitution which provides that private property shall not be taken for public use without
just compensation and the equal protection clause of Article 3 Section 1.


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.

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

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.

MMDA vs Bel Air Village Association

Date: March 27, 2000

Petitioner: Metropolitan Manila Development Authority

Respondent: Bel Air Village Association Inc

Ponente: Puno

Facts: MMDA is a government agency tasked with the delivery of basic services in Metro Manila. Bel-Air
Village Association, Inc. is a non-stock, non-profit corporation whose members are homeowners in Bel-Air
Village, a private subdivision in Makati City. BAVA is the registered owner of Neptune Street, a road inside
Bel-Air Village.

On December 30, 1995, respondent received from petitioner, through its Chairman, a notice dated
December 22, 1995 requesting respondent to open Neptune Street to public vehicular traffic starting January
2, 1996. BAVA was apprised that the perimeter wall separating the subdivision from the adjacent Kalayaan
Avenue would be demolished.

On January 2, 1996, BAVA instituted against petitioner before the RTC a civil case for injunction.
Respondent prayed for the issuance of a TRO and preliminary injunction enjoining the opening of Neptune
Street and prohibiting the demolition of the perimeter wall. The trial court issued a temporary restraining
order the following day. After due hearing, the trial court denied the issuance of preliminary injunction.
On appeal, the CA rendered a Decision on the merits of the case finding that the MMDA has no authority
to order the opening of Neptune Street, a private subdivision road and cause the demolition of its perimeter
walls. It held that the authority is lodged in the City Council of Makati by ordinance.

Issue: WON the MMDA has authority to open Neptune Road to the public

Held: No

Ratio: MMDA claims that it has the authority to open Neptune Street to public traffic because it is
an agent of the state endowed with police power in the delivery of basic services in Metro Manila. One of
these basic services is traffic management which involves the regulation of the use of thoroughfares to insure
the safety, convenience and welfare of the general public. It is alleged that the police power of MMDA was
affirmed by this Court in the consolidated cases of Sangalang v. IAC. From the premise that it has police
power, it is now urged that there is no need for the City of Makati to enact an ordinance opening Neptune
street to the public.

Police power is an inherent attribute of sovereignty. It has been defined as the power vested by the
Constitution in the legislature 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 for the subjects of the same. The power is
plenary and its scope is vast and pervasive, reaching and justifying measures for public health, public safety,
public morals, and the general welfare.

It bears stressing that police power is lodged primarily in the National Legislature. It cannot be exercised by
any group or body of individuals not possessing legislative power. The National Legislature, however, may
delegate this power to the President and administrative boards as well as the lawmaking bodies of municipal
corporations or local government units. Once delegated, the agents can exercise only such legislative powers
as are conferred on them by the national lawmaking body.

Metropolitan or Metro Manila is a body composed of several local government units - i.e., twelve (12)
cities and five (5) municipalities, namely, the cities of Caloocan, Manila, Mandaluyong, Makati, Pasay, Pasig,
Quezon, Muntinlupa, Las Pinas, Marikina, Paranaque and Valenzuela, and the municipalities of Malabon, ,
Navotas, , Pateros, San Juan and Taguig. With the passage of RA 7924 in 1995, Metropolitan Manila was
declared as a "special development and administrative region" and the Administration of "metro-wide" basic
services affecting the region placed under "a development authority" referred to as the MMDA.

The implementation of the MMDAs plans, programs and projects is undertaken by the local government
units, national government agencies, accredited peoples organizations, non-governmental organizations,
and the private sector as well as by the MMDA itself. For this purpose, the MMDA has the power to enter
into contracts, memoranda of agreement and other cooperative arrangements with these bodies for the
delivery of the required services within Metro Manila.

Clearly, the scope of the MMDAs function is limited to the delivery of the seven (7) basic services. One of
these is transport and traffic management which includes the formulation and monitoring of policies,
standards and projects to rationalize the existing transport operations, infrastructure requirements, the use
of thoroughfares and promotion of the safe movement of persons and goods. It also covers the mass
transport system and the institution of a system of road regulation, the administration of all traffic
enforcement operations, traffic engineering services and traffic education programs, including the institution
of a single ticketing system in Metro Manila for traffic violations. Under this service, the MMDA is expressly
authorized "to set the policies concerning traffic" and "coordinate and regulate the implementation of all
traffic management programs." In addition, the MMDA may "install and administer a single ticketing system,"
fix, impose and collect fines and penalties for all traffic violations.

It will be noted that the powers of the MMDA are limited to the following acts: formulation, coordination,
regulation, implementation, preparation, management, monitoring, setting of policies, installation of a
system and administration. There is no syllable in R. A. No. 7924 that grants the MMDA police power, let
alone legislative power. Even the Metro Manila Council has not been delegated any legislative power. Unlike
the legislative bodies of the local government units, there is no provision in R. A. No. 7924 that empowers the
MMDA or its Council to "enact ordinances, approve resolutions and appropriate funds for the general
welfare" of the inhabitants of Metro Manila. The MMDA is, as termed in the charter itself, a "development
authority." It is an agency created for the purpose of laying down policies and coordinating with the various
national government agencies, peoples organizations, non-governmental organizations and the private
sector for the efficient and expeditious delivery of basic services in the vast metropolitan area. All its
functions are administrative in nature and these are actually summed up in the charter itself

Petitioner cannot seek refuge in the cases of Sangalang v. Intermediate Appellate Courtwhere we upheld a
zoning ordinance issued by the Metro Manila Commission (MMC), the predecessor of the MMDA, as an
exercise of police power. The first Sangalang decision was on the merits of the petition, while the second
decision denied reconsideration of the first case and in addition discussed the case of Yabut v. Court of

Contrary to petitioners claim, the two Sangalang cases do not apply to the case at bar. Firstly, both
involved zoning ordinances passed by the municipal council of Makati and the MMC. In the instant case, the
basis for the proposed opening of Neptune Street is contained in the notice of December 22, 1995 sent by
petitioner to respondent BAVA, through its president. The notice does not cite any ordinance or law, either
by the Sangguniang Panlungsod of Makati City or by the MMDA, as the legal basis for the proposed opening
of Neptune Street. Petitioner MMDA simply relied on its authority under its charter "to rationalize the use of
roads and/or thoroughfares for the safe and convenient movement of persons." Rationalizing the use of
roads and thoroughfares is one of the acts that fall within the scope of transport and traffic management. By
no stretch of the imagination, however, can this be interpreted as an express or implied grant of ordinance-
making power, much less police power. Misjuris

Secondly, the MMDA is not the same entity as the MMC in Sangalang. Although the MMC is the forerunner
of the present MMDA, an examination of Presidential Decree (P. D.) No. 824, the charter of the MMC, shows
that the latter possessed greater powers which were not bestowed on the present MMDA. Jjlex

In 1990, President Aquino issued Executive Order (E. O.) No. 392 and constituted the Metropolitan Manila
Authority (MMA). The powers and functions of the MMC were devolved to the MMA. It ought to be stressed,
however, that not all powers and functions of the MMC were passed to the MMA. The MMAs power was
limited to the "delivery of basic urban services requiring coordination in Metropolitan Manila." The MMAs
governing body, the Metropolitan Manila Council, although composed of the mayors of the component cities
and municipalities, was merely given the power of: (1) formulation of policies on the delivery of basic services
requiring coordination and consolidation; and (2) promulgation of resolutions and other issuances, approval
of a code of basic services and the exercise of its rule-making power.

Under the 1987 Constitution, the local government units became primarily responsible for the governance
of their respective political subdivisions. The MMAs jurisdiction was limited to addressing common problems
involving basic services that transcended local boundaries. It did not have legislative power. Its power was
merely to provide the local government units technical assistance in the preparation of local development
plans. Any semblance of legislative power it had was confined to a "review [of] legislation proposed by the
local legislative assemblies to ensure consistency among local governments and with the comprehensive
development plan of Metro Manila," and to "advise the local governments accordingly."

When R.A. No. 7924 took effect, Metropolitan Manila became a "special development and administrative
region" and the MMDA a "special development authority" whose functions were "without prejudice to the
autonomy of the affected local government units." The character of the MMDA was clearly defined in the
legislative debates enacting its charter.

It is thus beyond doubt that the MMDA is not a local government unit or a public corporation endowed
with legislative power. It is not even a "special metropolitan political subdivision" as contemplated in Section
11, Article X of the Constitution. The creation of a "special metropolitan political subdivision" requires the
approval by a majority of the votes cast in a plebiscite in the political units directly affected. R. A. No. 7924
was not submitted to the inhabitants of Metro Manila in a plebiscite. The Chairman of the MMDA is not an
official elected by the people, but appointed by the President with the rank and privileges of a cabinet
member. In fact, part of his function is to perform such other duties as may be assigned to him by the
President, whereas in local government units, the President merely exercises supervisory authority. This
emphasizes the administrative character of the MMDA.

Clearly then, the MMC under P. D. No. 824 is not the same entity as the MMDA under R. A. No. 7924.
Unlike the MMC, the MMDA has no power to enact ordinances for the welfare of the community. It is the
local government units, acting through their respective legislative councils, that possess legislative power and
police power. In the case at bar, the Sangguniang Panlungsod of Makati City did not pass any ordinance or
resolution ordering the opening of Neptune Street, hence, its proposed opening by petitioner MMDA is illegal
and the respondent Court of Appeals did not err in so ruling. We desist from ruling on the other issues as
they are unnecessary. Esmso

We stress that this decision does not make light of the MMDAs noble efforts to solve the chaotic traffic
condition in Metro Manila. Everyday, traffic jams and traffic bottlenecks plague the metropolis. Even our
once sprawling boulevards and avenues are now crammed with cars while city streets are clogged with
motorists and pedestrians. Traffic has become a social malaise affecting our peoples productivity and the
efficient delivery of goods and services in the country. The MMDA was created to put some order in the
metropolitan transportation system but unfortunately the powers granted by its charter are limited. Its good
intentions cannot justify the opening for public use of a private street in a private subdivision without any
legal warrant. The promotion of the general welfare is not antithetical to the preservation of the rule of law.


711 SCRA 302

G.R. No. 175356

December 3, 2013
TOPIC: Bill of Rights; Eminent Domain v. Police Power

FACTS: RA 7432 was passed into law (amended by RA 9257), granting senior citizens 20% discount on certain

To implement the tax provisions of RA 9257, the Secretary of Finance and the DSWD issued its own Rules and

Hence, this petition.

Petitioners are not questioning the 20% discount granted to senior citizens but are only assailing the
constitutionality of the tax deduction scheme prescribed under RA 9257 and the implementing rules and
regulations issued by the DSWD and the DOF.

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which
provides that: "private property shall not be taken for public use without just compensation."

Respondents maintain that the tax deduction scheme is a legitimate exercise of the States police power.

ISSUE: Whether the legally mandated 20% senior citizen discount is an exercise of police power or eminent

RULING: The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an exercise of police power
or eminent domain. The judicious approach, therefore, is to look at the nature and effects of the challenged
governmental act and decide on the basis thereof.

The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be
gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing
basic commodities. It serves to honor senior citizens who presumably spent their lives on contributing to the
development and progress of the nation.

In turn, the subject regulation affects the pricing, and, hence, the profitability of a private establishment.

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or
rate of return on investment control laws which are traditionally regarded as police power measures.

The subject regulation differs there from in that (1) the discount does not prevent the establishments from
adjusting the level of prices of their goods and services, and (2) the discount does not apply to all customers
of a given establishment but only to the class of senior citizens. Nonetheless, to the degree material to the
resolution of this case, the 20% discount may be properly viewed as belonging to the category of price
regulatory measures which affect the profitability of establishments subjected thereto. On its face, therefore,
the subject regulation is a police power measure.


G.R. No. L-43082

June 18, 1937

FACTS: Thomas Hanley died, leaving a will and a considerable amount of real and personal properties.
Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the CFI
of Zamboanga. The will was admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real
properties which, under the will, were to pass to nephew Matthew ten years after the two executors named
in the will was appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein
was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (Posadas)
assessed against the estate an inheritance tax, together with the penalties for deliquency in payment.
Lorenzo paid said amount under protest, notifying Posadas at the same time that unless the amount was
promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzos protest and refused
to refund the said amount. Plaintiff went to court. The CFI dismissed Lorenzos complaint and Posadas
counterclaim. Both parties appealed to this court.


(e) Has there been delinquency in the payment of the inheritance tax?

HELD: The judgment of the lower court is accordingly modified, with costs against the plaintiff in both


The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of
the decedents property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee
was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the first paragraph of
subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is
sustained. A trustee is but an instrument or agent for the cestui que trust

The appointment of Moore as trustee was made by the trial court in conformity with the wishes of the
testator as expressed in his will. It is true that the word trust is not mentioned or used in the will but the
intention to create one is clear. No particular or technical words are required to create a testamentary trust.
The words trust and trustee, though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created. To constitute a valid testamentary
trust there must be a concurrence of three circumstances:

(1) Sufficient words to raise a trust;

(2) a definite subject;

(3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing.

There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointmening a trustee to carry into effect the provisions of the will

As the existence of the trust was already proven, it results that the estate which plaintiff represents has been
delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge
provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. On that
date trust estate vested in him. The interest due should be computed from that date.

NOTES: Other issues:

(a) When does the inheritance tax accrue and when must it be satisfied?

The accrual of the inheritance tax is distinct from the obligation to pay the same.

Acording to article 657 of the Civil Code, the rights to the succession of a person are transmitted from the
moment of his death. In other words, said Arellano, C. J., . . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his

Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in
any event at the moment of the decedents death. The time when the heirs legally succeed to the inheritance
may differ from the time when the heirs actually receive such inheritance. Thomas Hanley having died on
May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to
pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544
of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same
Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with
the desire of the predecessor. xx

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to each beneficiary his share.

The instant case does[not] fall under subsection (a), but under subsection (b), of section 1544 above-quoted,
as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have
been paid before the delivery of the properties in question to Moore as trustee.

(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the
testators death, or on its value ten years later?

If death is the generating source from which the power of the estate to impose inheritance taxes takes its
being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the value of the estate as it stood at the time of the decedents
death, regardless of any subsequent contingency value of any subsequent increase or decrease in value

(c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to

A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this it does not follow
that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to
tax. There is no statute in the Philippines which requires trustees commissions to be deducted in
determining the net value of the estate subject to inheritance tax

(d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be
given retroactive effect?

A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . . Act No. 3606 itself contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can be given the statute by this court.
Engracio Francia vs Intermediate Appellate Court

Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a portion of his
land (125 square meter) was expropriated by the government for P4,116.00. The expropriation was made to
give way to the expansion of a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So in
December 1977, the remaining 203 square meters of his land was sold at a public auction (after due notice
was given him). The highest bidder was a certain Ho Fernandez who paid the purchase price of P2,400.00
(which was lesser than the price of the portion of his land that was expropriated).

Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was grossly
inadequate. He further argued that his land should have never been auctioned because the P2,400.00 he
owed the government in taxes should have been set-off by the debt the government owed him (legal
compensation). He alleged that he was not paid by the government for the expropriated portion of his land
because though he knew that the payment therefor was deposited in the Philippine National Bank, he never
withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the debt owed him by the government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each
other, are extinguished (Art. 1278, Civil Code). This is not applicable in taxes. There can be no off-setting of
taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy,
to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to
the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise
out of the contract or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money. Had he done that, he
could have paid his tax obligations even before the auction sale or could have exercised his right to redeem
which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The
Supreme Court said: alleged gross inadequacy of price is not material when the law gives the owner the
right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier
it is for the owner to effect redemption. If mere inadequacy of price is held to be a valid objection to a sale
for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether
impracticable. Where land is sold for taxes, the inadequacy of the price given is not a valid objection to the
sale. This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be
useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales
are grossly out of proportion to the value of the land.

Republic v Mambulao Lumber Company, et al GR No L-17725, February 28, 1962

Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation charges for the
years 1947 to
1956. It is the companys contention that said sum of 9,127.50, not having been used in the reforestation of
the area covered by its license, the same is refundable to it or may be applied in compensation of P 4,802.37
due from it as forest charges.
Court of First Instance of Manila ordered the company to pay the government the sum of P 4,802.37 with 6%
interest thereon from date of the filing of the complaint until fully paid, plus costs. Thus, the present appeal.

ISSUE: Whether the set-off or compensation is proper

No. There is nothing in the law which requires that the amount collected as reforestation charges should be
used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and
that if not so used, the same shall be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a
tax which forms part of the Forestation Fund, payable by him irrespective of whether the area covered by his
license is reforested or not.
Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for
thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing
reforestation or afforestation.
The weight of authority is to the effect that internal revenue taxes, such as the forest charges in question is
not subject to set-off or compensation. Taxes are not in the nature of contracts between the parties but grow
out of a duty to, and are positive acts of the government, to the making and enforcing of which, the personal
consent of the individual taxpayers is not required.
With respect to the forest charges which the company has paid to the government, they are in the coffers of
the government as tax collected, and the government does not owe anything. It is crystal clear that the
Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other,
because compensation refers to mutual debts.


G.R. No. 165109, December 14,2009


Decision to entertain a taxpayers suit is discretionary upon the Court. When the issue hinges on the
illegal disbursement of public funds, a liberal approach should be preferred as it is more in keeping with truth
and justice.


The Sangguniang Panlalawigan of Cagayan passed a resolution authorizing Governor Edgar R. Lara to
engage the services of and appoint Preferred Ventures Corporation as financial advisor or consultant for the
issuance and flotation of bonds to fund the priority projects of the governor without cost and commitment. It
also ratified the Memorandum of Agreement (MOA) entered into by Gov. Lara and Preferred Ventures
Corporation which provides that the provincial government of Cagayan shall pay Preferred Ventures
Corporation a one-time fee of 3% of the amount of bonds floated. In addition, the Sangguniang Panlalawigan,
authorized Gov. Lara to negotiate, sign and execute contracts or agreements pertinent to the flotation of the
bonds of the provincial government in an amount not to exceed P500 million for the construction and
improvement of his priority projects, including the construction of the New Cagayan Town Center, to be
approved by the Sangguniang Panlalawigan. Subsequently, Lara issued the Notice of Award to Asset Builders
Corporation, giving to the latter the planning, design, construction and site development of the town center

Petitioners Manuel N. Mamba, Raymund P. Guzman and Leonides N. Fausto filed a Petition for Annulment of
Contracts and Injunction with prayer for a Temporary Restraining Order/Writ of Preliminary Injunction
against the respondents (Gov. Lara et al.). The RTC, however, dismissed their petition on the grounds that
the (1) petitioners have no locus standi to file a case as they are not party to the contract and (2) that the
controversy is in the nature of a political question, thus, the court cant take cognizance of it.


Whether or not the petitioners have locus standi to sue as taxpayers

Whether or not the controversy is in the nature of a political question


Yes, the petitioners have legal standing to sue as taxpayers.

No, the controversy is not a political question but a justiciable one.

Ratio Decidendi:

A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that the public
money is being deflected to any improper purpose, or that there is wastage of public funds through the
enforcement of an invalid or unconstitutional law.

For a taxpayers suit to prosper, two requisites must be met: (1) public funds derived from taxation are
disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is
committed and (2) the petitioner is directly affected by the alleged act.

In the case at bar, although the construction of the town center would be primarily sourced from the
proceeds of the bonds, which respondents insist are not taxpayers money, a government support in the
amount of P187 million would still be spent for paying the interest of the bonds. The governor requested the
Sangguniang Panlalawigan to appropriate an amount of P25 million for the interest of the bond. So clearly,
the first requisite has been met.

As to the second requisite, the Supreme Court explained that the court, in recent cases, has relaxed the
stringent direct injury test bearing in mind that locus standi is a procedural technicality. By invoking
transcendental importance, paramount public interest, or far-reaching implications, ordinary citizens and
taxpayers were allowed to sue even if they failed to show direct injury. In cases where serious legal issues
were raised or where public expenditures of millions of pesos were involved, the court did not hesitate to
give standing to taxpayers.

It argued that, to protect the interest of the people and to prevent taxes from being squandered or wasted
under the guise of government projects, a liberal approach must be adopted in determining locus standi in
public suits.

A political question is a question of policy, which is to be decided by the people in their sovereign capacity or
by the legislative or the executive branch of the government to which full discretionary authority has been
delegated. A justiciable question on the other hand, calls upon the duty of the courts to settle actual
controversies wherein there are rights involved which are legally demandable and enforceable. It is one
which is proper to be examined or decided in courts of justice because its determination would not involve
an encroachment upon the legislative or executive power. In simple terms, a political question refers to the
wisdom, while a justiciable question refers to the legality of the acts complained of.

In the case at bar, the issues raised in the petition do not refer to the wisdom but to the legality of the acts
complained of. Thus, the Supreme Court found the instant controversy within the ambit of judicial review.

Also, in the present case, petitioners alleged grave abuse of discretion and clear violations of law by public
respondents. They put in issue the overpriced construction of the town center; the grossly disadvantageous
bond flotation; the irrevocable assignment of the provincial governments annual regular income, including
the IRA, to respondent RCBC to cover and secure the payment of the bonds floated; and the lack of
consultation and discussion with the community regarding the proposed project, as well as a proper and
legitimate bidding for the construction of the town center.

Thus, the high court said that, even if the issues were political in nature, it would still come within their
powers of review under the expanded jurisdiction conferred upon them by Section 1, Article VIII of the
Constitution, which includes the authority to determine whether grave abuse of discretion amounting to
excess or lack of jurisdiction has been committed by any branch or instrumentality of the government.




This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch from
allowing, and theprivate respondents from continuing with, the operation of tax and duty-free shops located
at the Subic Special EconomicZone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare Section
5 of EO No. 80, EO No. 97-A, andSection 4 of BCDA Board Resolution No. 93-05-034 as unconstitutional,
illegal, and void.FACTS: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the
sound and balancedconversion of the Clark and Subic military reservations and their extensions into
alternative productive uses in the form of special economic zones in order to promote the economic and
social development of Central Luzon in particular and thecountry in general. Among the salient provisions are
as follows: SECTION 12. x x x The Subic Special Economic Zoneshall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capitalwithin, into and exported out of the
Subic Special Economic Zone, as well as provide incentives such as tax and duty-freeimportations of raw
materials, capital and equipment. However, exportation or removal of goods from the territory of theSubic
Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and
taxesunder the Customs and Tariff Code and other relevant tax laws of the Philippines; x x xOn April 3, 1993,
President Fidel V. Ramos issued EO No. 80, which declared, among others, that Clark shall have all
theapplicable incentives granted to the Subic Special Economic and Free Port Zone under RA No.
7227.Pursuant to the directive under EO No. 80, the BCDA passed Board Resolution No. 93-05-034 on May
18, 1993, allowingthe tax and duty-free sale at retail of consumer goods imported via Clark for consumption
outside the CSEZ.On June 10, 1993, the President issued EO No. 97 and subsequently, EO No. 97-A to
Clarifying the Tax and Duty FreeIncentive within the Subic Special Economic Zone Pursuant to RA No. 7227.
EO No. 97-A further provides that $100monthly and $200 yearly tax-free shopping privileges is granted to
SSEZ residents living outside the Secured Area of theSSEZ and to Filipinos aged 15 and over residing outside
the SSEZ.ISSUE: Whether or not the assailed issuances are unconstitutional, illegal and void for being an
exercise of executivelawmaking, contrary to RA No. 7227 and in violation of the Constitutional provisions,
particularly the equal protectionclause, prohibition of unfair competition and combinations in restraint of
trade, and preferential use of Filipino labor,domestic materials and locally produced goods?HELD: On the
issue of executive legislation.

petitioners contend that the wording of RA No. 7227 clearly limits the grantof tax incentives to the
importation of raw materials, capital and equipment only. Hence, they claim that the assailedissuances
constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods
suchas those being sold in the duty-free shops, in violation of the letter and intent of RA No. 7227. The Court
held that Section12 of RA No. 7227 clearly does not restrict the duty-free importation only to 'raw materials,
capital and equipment. To limitthe tax-free importation privilege of enterprises located inside the special
economic zone only to raw materials, capital andequipment clearly runs counter to the intention of the
Legislature to create a free port where the 'free flow of


or capital within, into, and out of the zones' is insured. The phrase 'tax and duty-free importations of raw
materials, capitaland equipment was merely cited as an example of incentives that may be given to entities
operating within the zone.Moreover, the records of the Senate containing the discussion of the concept of
'special economic zone in Section 12 (a)of Republic Act No. 7227 show the legislative intent that consumer
goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to
duties and taxes in accordance with Philippine laws. However, thesecond sentences of paragraphs 1.2 and
1.3 of EO No. 97-A, allowing tax and duty-free removal of goods to certainindividuals, even in a limited
amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section12 of RA No. 7227.
Said Section clearly provides that exportation or removal of goods from the territory of the SubicSpecial
Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes
under theCustoms and Tariff Code and other relevant tax laws of the Philippines.On the other hand, insofar
as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable.While Section 12
of RA No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in
favor of other economic zones, including the CSEZ. Tax and duty-free incentives being in the nature of
taxexemptions, the basis thereof should be categorically and unmistakably expressed from the language of
the statute.Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in
RA No. 7227, therewould be no legal basis to uphold the questioned portions of two issuances: Section 5 of
Executive Order No. 80 andSection 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the
CSEZ.On the issue on equal protection, it is an established principle of constitutional law that the guaranty of
the equalprotection of the laws is not violated by a legislation based on a reasonable classification.
Classification, to be valid, must


Facts:Sea-land, a foreign shipping and forwarding company licensed to do businessin the Philippines, received
from Seaborne Trading Company in California a shipmentconsigned to Sen Hiap Hing. The shipper not having
declared the value of theshipment, no value was indicated in the BOL. The shipment was discharged in
Manila,and while awaiting transshipment to Cebu the cargo was stolen and never recovered.The lower court
sentences Sea-land to pay Cue the value of the lost cargo, theunrealized profit and attorneys fees. The CA
affirmed the decision, hence the petition.Issue:Whether or not the consignee of seaborne freight is bound by
stipulations inthe covering bill of lading limiting to a fixed amount the liability of the carrier for lossor damage
to the cargo where its value is not declared in the bill.
Held:Yes.There is no question of the right of a consignee in a bill of lading to recoverfrom the carrier or
shipper for loss of, or damage to, goods being transported undersaid bill, although that document may have
been drawn up only by the consignor andthe carrier without the intervention of the consignee

Luzon Stevedoring Corp v Court of Tax Appeals GR No L-30232, July 29, 1988

Luzon Stevedoring Corp imported various engine parts and other equipment for tugboat repair and
maintenance in 1961 and 1962. It paid the assessed compensation tax under protest. Unable to secure a tax
refund from the Commissioner for the amount of P33,442.13, it filed a petition for review with the Court of
Tax Appeals. The CTA denied the petition as well as the motion for reconsideration filed thereafter. Hence,
this petition.

Is the Corporation exempt from compensation tax?

No. As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is never
presumed and any reduction or diminution thereof with respect to its mode or its rate, must be strictly
construed, and the same must be couched in clear and unmistakable terms in order that it may be applied.
The corporations tugboats do not fall under the categories of passenger or cargo vessels to avail of the
exemption from compensation tax in Section 190 of the Tax Code. It may be further noted that the
amendment of Section 190 of Republic Act of 3176 was intended to provide incentives and inducements to
bolster the shipping industry and not in the business of stevedoring, in which the corporation is engaged in.

Thus, Luzon Stevedoring Corp is not exempt from compensation tax under Section 190, and is thus not
entitled to refund.

CIR vs Arnoldus Carpentry Shop

GR No. 71122

Subject: Sales
Doctrine: Contract of Sale vs Contract for a Piece of Work

Facts: Arnoldus Carpentry Shop, Inc. is a domestic corporation which has been in existence since 1960 which
has for its purpose the preparing, processing, buying, selling, exporting, importing, manufacturing, trading
and dealing in cabinet shop products, wood and metal home and office furniture, cabinets, doors, windows,
etc., including their component parts and materials, of any and all nature and description. The company
kept samples or models of its woodwork on display from where its customers may refer to when placing their
On March 1979, the examiners from BIR who conducted an investigation on the companys tax liabilities
reported that subject corporation should be considered a contractor and not a manufacturer since the
corporation renders service in the course of an independent occupation representing the will of his employer
only as to the result of his work, and not as to the means by which it is accomplished. Hence, in the
computation of the percentage tax, the 3% contractors tax should be imposed instead of the 7%
manufacturers tax. However, responded company holds that the carpentry shop is a manufacturer and
therefore entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal
Revenue Code. CIR rendered its decision classifying the respondent as contractor which was in turn reversed
by the CTA. Hence, this appeal.
Issue: Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer
and not a contractor.

Held: The Supreme Court holds that the private respondent is a manufacturer as defined in the Tax Code
and not a contractor under Section 205(e) of the Tax Code.
Petitioner CIR wants to impress upon this Court that under Article 1467, the true test of whether or not the
contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale
(which would classify private respondent as a manufacturer) is the mere existence of the product at the time
of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work.
This is not the test followed in this jurisdiction. Based on Art. 1467, what determines whether the contract is
one of work or of sale is whether the thing has been manufactured specially for the customer and upon his
special order. Thus, if the thing is specially done at the order of another, this is a contract for a piece of
work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary
course of ones business, it is a contract of sale. The distinction between a contract of sale and one for work,
labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which
never would have existed but for the order of the party desiring to acquire it, or a thing which would have
existed and has been the subject of sale to some other persons even if the order had not been given. The one
who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that
he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor
A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not,
is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is a contract for a piece of work. The facts show that the company
had a ready stock of its shop products for sale to its foreign and local buyers. As a matter of fact, the
purchase orders from its foreign buyers showed that they ordered by referring to the models designated by
petitioner. Even purchases by local buyers for television cabinets were by orders for existing models except
only for some adjustments in sizes and accessories utilized.
The Court finds itself in agreement with CTA and as the CTA did not err in holding that private respondent is a
manufacturer, then private respondent is entitled to the tax exemption under See. 202 (d) and (e) now Sec.
167 (d) and (e)] of the Tax Code.