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Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. Nos. L-22805 & L-27858 June 30, 1975

WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. LUCIO QUIJANO, President & General Manager, petitioner,
vs.
THE HON. COURT OF TAX APPEALS and THE BUREAU OF INTERNAL REVENUE BEING REPRESENTED BY THE COMMISSIONER OF
INTERNAL REVENUE, respondents.

L-22805

Sarte and Espinosa for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney Augusto A. Lim for respondents.

L-27858

Jose Sarte for petitioner.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special Attorney
Elpidio C. Cid for respondents.

ESGUERRA, J.:

Two petitions for review of the decisions of the respondent Court of Tax Appeals in G.R. Nos. L-22805 and L-27858. The first decision (L-22805)
dismissed the appeal of petitioner Wonder Mechanical Engineering Corporation in C.T.A. Case No. 1036, "for lack of jurisdiction, the same having
been filed beyond the 30 day period prescribed in Section 11 of Republic Act No. 1125", and confirmed the decision of respondent Commissioner of
Internal Revenue which "assessed against petitioner the total amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the
25% surcharge for the years 1953-54". The second decision (L-27858) ordered the same petitioner to pay, respondent Commissioner of Internal
Revenue the amount of "P25,080.91 as deficiency sales and percentage taxes from 1957 to June 30, 1960, inclusive of the 25% surcharge, plus
costs", based on the common principal issue of "whether or not the manufacture and sale of steel chairs, jeepney parts and other articles which are
not machines for making other products, and job orders done by petitioner come within the purview of the tax exemption granted it under Republic
Act Nos. 35 and 901."

Petitioner is a corporation which was granted tax exemption privilege under Republic Act 35 in respect to the "manufacture of machines for making
cigarette paper, pails, lead washers, rivets, nails, candies. chairs, etc.". The tax exemption expired on May 30, 1951. On September 14, 1953,
petitioner applied with the Secretary of Finance for reinstatement of the exemption privilege under the provisions of R.A. 901 approved July 7, 1954,
the reinstatement to commence on June 20, 1953, the date Republic Act 901 took effect.

In G.R. No. L-22805, respondent Commissioner of Internal Revenue, sometime in 1955, caused the investigation of petitioner for the purpose of
ascertaining whether or not it had any tax liability. The findings of Revenue Examiner Alfonso B. Camillo on September 30, 1955, stated "that during
the years 1953 and 1954 the petitioner was engaged in the business of manufacturing various articles, namely, auto spare parts, flourescent lamp
shades, rice threshers, post clips, radio screws, washers, electric irons, kerosene stoves and other articles; that it also engaged in business of
electroplating and in repair of machines; that although it was engaged in said business, it did not provide itself with the proper privilege tax receipts as
required by Section 182 of the Tax Code and did not pay the sales tax on its gross sales of articles manufactured by it and the percentage tax due on
the gross receipts of its electroplating and repair business pursuant to Sections 183, 185, 186 and 191 of the same Code".

Based on the foregoing, respondent Commissioner of Internal Revenue assessed against petitioner on November 29, 1955, the total amount of
P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the 25% surcharge, as follows:

Sales and percentage taxes for


1953 and 1954 P55,719.65

25% surcharge 13,929.91

C-14 fixed tax (1953-1954) 20.00

C-4 (27) fixed tax (1954) 10.00

C-4 (37) fixed tax (1953-1954) 20.00


TOTAL P69.699.56

Respondent also suggested the payment of the amount of P3,300.00 as penalties in extrajudicial settlement of petitioner's violations of Sections 182,
183, 185, 186 and 191 of the Tax Code and of the Bookkeeping Regulations (p. 25, B.I.R. rec.).

In G.R. No. L-27858, respondent Commissioner of Internal Revenue caused the investigation of petitioner for the purpose of ascertaining its tax
liability on August 10, 1960, as a result of which on December 7, 1960, Revenue Examiner Pedro Cabigao reported that "petitioner had manufactured
and sold steel chairs without paying the 30% sales tax imposed by Section 185(c) of the Tax Code; accepted job orders without paying the 3% tax in
gross receipts imposed by Section 191 of the same Code; manufactured and sold other articles subject to 7% sales tax under Section 186 of the
same Code but not covered by the tax exemption privilege; failed to register with the Bureau of Internal Revenue books of accounts and sales
invoices as required by the Bookkeeping Regulations; failed to indicate in the sales invoices the Residence Certificate number of customers who
purchased articles worth P50.00 or over, in violation of the Bookkeeping Regulation; and failed to produce its books of accounts and business
records for inspection and examination when required to do so by the revenue examiner in violation of the Bookkeeping Regulations (pp. 17-18 B.I.R.
rec.)".

Based on the foregoing, the respondent Commissioner of Internal Revenue on October 6, 1961, assessed against the petitioner "the payment of
P25,080.91 as deficiency percentage taxes and 25% surcharge for 1957 to 1960 and suggested the payment of P5,020.00 as total compromise
penalty in extrajudicial settlement of the various violations of the Tax Code and Bookkeeping Regulation (pp. 28-29 B.I.R. rec.). "
1wph1. t

Regarding the compromise penalty suggested by respondent Bureau of Internal Revenue in both G.R. L-22805 and L-27858, it does not appear that
petitioner accepted the imposition of the compromise amounts. Hence We find no compelling reasons to alter the decision of respondent Court of
Tax Appeals in L-27858 that

With respect to the compromise penalty in the total amount of P5,020.00 suggested by respondent to be paid by petitioner, it is now a well settled
doctrine that compromise penalty cannot be imposed or collected without the agreement or conformity of the tax payer (Collector of Internal Revenue
vs. University of Santo Tomas, et al., G.R. Nos. L-11274 & L-11280, November 28, 1958; the Collector of Internal Revenue v. Bautista, et al., G.R.
Nos. L-12250 & 12259, May 27, 1959; the Philippines International Fair, Inc. v. Collector of Internal Revenue, G.R. Nos. L-12928 & L-12932, March
31, 1962). (Emphasis for emphasis)

Inasmuch as the figures appearing in the Bureau of Internal Revenue's tax delinquency assessments in both cases (L-22805 and L-27858) are not in
dispute, and the respondent Court of Tax Appeals ruled in its decision in G.R. No. L-27858 on the lone issue presented in both cases that the tax
assessment of "P25,080.91 as deficiency sales and percentage taxes from 1957 to June 30, 1960" must be paid by petitioner as the sale of other
manufactured items did not come within the purview, of the tax exemption granted petitioner. We find it no longer necessary to make a definite stand
on the question raised in L-22805 as to the alleged error committed by respondent Court of Tax Appeals in dismissing the appeal in C.T.A. 1036
(subject matter of L-22805) for lack of jurisdiction, the same having been filed beyond the 30-day period prescribed in Section 11 of Republic Act
1126. Suffice it to say on that issue that appellants must perfect their appeal from the decision of the Commissioner of Internal Revenue to the Court
of Tax Appeals within the statutory period of 30 days, otherwise said Court acquires no jurisdiction.

We turn Our attention on the vital issue of tax exemption claimed by petitioner as basis for questioning the tax assessments made by respondent
Bureau of Internal Revenue in both cases (G.R. L-22805 and 27858). There is no doubt that petitioner was given a Certificate of Tax Exemption By
the Secretary of Finance on July 7,1954, as follows:

Be it known that upon application filed by Wonder Mechanical Engineering Corporation, 1310 M. Hizon, Sta. Cruz, Manila, in respect to the
manufacture of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc., the said industry/industries have been
determined to be new and necessary under the provisions of Republic Act No. 901 (or of Republic Act No. 35), in view of which this Certificate of Tax
Exemption has been issued entitling the abovenamed firm/person to tax exemption from the payment of taxes directly payable by it/him in respect to
the said industry/industries until December 31, 1958, and thereafter to a diminishing exemption until June 20, 1959, as provided in section 1 of
Republic Act No. 901, except the exemption from the income tax which will wholly terminate on June 20, 1955 (B.I.R. rec., page 13). (Emphasis for
emphasis)

Republic Act 35, approved on September 30, 1946, grants to persons "who or which shall engage in a new and necessary industry", for a period of
four years from the date of the organization of such industry, exemption "from the payment of all internal revenue taxes directly payable by such
person". Republic Act 901, approved on June 20, 1953, which amended Republic Act 35 by extending the period of tax exemption, elaborated on the
meaning of "new and necessary industry" as follows:

Sec. 2. For the purposes of this Act, a "new industry is one not existing or operating on a commercial scale prior to January first, nineteen hundred
and forty-five. Where several applications for exemptionare filed in connection with the same kind of industry, the Secretary of Finance shall approve
them in the order in which they have been filed until the total output or production of those already granted exemption for that particular kind of
industry is sufficient to meet local demand or consumption: Provided, That the limitation shall not apply to products intended for export. (Emphasis for
emphasis)

Sec. 3. For the purposes of this Act, a "necessary" industry is one complying with the following requirements:

(1) Where the establishment of the industry will contribute to the attainment of a stable and balanced national economy.

(2) Where the industry will operate on a commercial scale in conformity with up-to-date practices and will make its products available to the general
public in quantities and at prices which justify its operation with a reasonable degree of permanency.

(3) Where the imported raw materials represent a value not exceeding sixty percentum of the manufacturing cost plus reasonable selling price and
administrative expenses:Provided, That a grantee of tax exemption shall use materials of domestic origin, growth, or manufacture wherever the same
are available or could be made available in reasonable quantity and quality and at reasonable prices. ... (Emphasis for emphasis) .
From the above-quoted provisions of the law, it is clear that an industry to be entitled to tax exemption must be "new and necessary" and that the tax
exemption was granted to new and necessary industries as an incentive to greater and adequate production of products made scarce by the second
world war which wrought havoc on our national economy, a production "sufficient to meet local demand or consumption"; that will contribute "to the
attainment of a stable and balanced national economy"; an industry that "will make its products available to the general public in quantities and at
prices which will justify its operation."

Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are firmly convinced that petitioner was granted tax exemption in
the manufacture and sale "of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as explicitly stated in the
Certificate of Exemption (Annex A of the petition in G.R. No. L-22805), but certainly not for the manufacture and sale of the articles produced by
those machines.

That such was the intention of the State when it granted tax exemption to the petitioner in the manufacture of machines for making certain products
could be deduced from the following:

Before the approval of the original grant of tax exemption to Petitioner for engaging in a new and necessary industry under Republic Act No. 35, the
then Secretary of Finance submitted a memorandum to the Cabinet, dated March 3, 1949, the pertinent portions of which read as follows:

"... If (petitioner) turns out machines whenever orders therefore are received. Among its products are a medicine tablet wrapping machine for Dr.
Agustin Liboro, photographs of which are attached, a loud speaker for the Manila Supply, and a "Lompia wrapping"machine for a certain Chinese. ...

The manufacture of the above-mentioned machines can be considered a new and necessary industry for the purpose of Republic Act No. 35. It is
recommended that the benefits of said Act be extended to this corporation in respect to said industry.

Respectfully submitted:

(SGD.) PIO PEDROSA


Secretary"

The letter of the Executive Secretary to the petitioner dated May 30, 1949, reads as follows:

"Sirs:

I have the honor to advise you that His Excellency, the President, has today, upon recommendation of the Honorable, the Secretary of Finance,
approved your application for exemption from the payment of internal revenue taxes on your business of manufacturing machines for making a
number of products, such as cigarette paper, pails, lead washers, rivets, nails, candies, chairs, etc., under the provisions of Section 2 of Republic Act
No. 35.

Very respectfully,

(SGD.) TEODORO EVANGELISTA


Executive Secretary"
(Emphasis for emphasis)

Aside from the clarity of the State's intention in granting tax exemption to petitioner in so far as it manufactures machines for making certain products,
as manifested in the acts of its duly authorized representatives in the Executive branch of the government, it is quite difficult for Us to believe that the
manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would fall under the classification of
"new and necessary" industries envisioned in Republic Acts 35 and 901 as to entitle the petitioner to tax exemption.

There is no way to dispute the "cardinal rule in taxation that exemptions therefrom are highly disfavored in law and he who claims tax exemption must
be able to justify his claim or right thereto by the dearest grant of organic or statute law" as succinctly stated in the decision of the respondent Court of
Tax Appeals in C.T.A. No. 1265 (L-27858). 1wp h1. t

Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden cannot be permitted to exist
upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; House vs. Posadas, 53 Phil. 338; Collector of Internal Revenue vs. Manila
Jockey Club, Inc., G.R. No. L-8755, March 23, 1956, 98 Phil. 676).

WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases are affirmed. Costs against the petitioner in both cases.

Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 166408 October 6, 2008

QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,


vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

REYES, R.T., J.:

CLAIMS for tax exemption must be based on language in law too plain to be mistaken. It cannot be made out of inference or implication.

The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of Appeals (CA) and that2 of the Regional Trial Court (RTC)
ordering the refund and declaring invalid the imposition and collection of local franchise tax by the City Treasurer of Quezon City on ABS-CBN
Broadcasting Corporation (ABS-CBN).

The Facts

Petitioner City Government of Quezon City is a local government unit duly organized and existing by virtue of Republic Act (R.A.) No. 537, otherwise
known as the Revised Charter of Quezon City. Petitioner City Treasurer of Quezon City is primarily responsible for the imposition and collection of
taxes within the territorial jurisdiction of Quezon City.

Under Section 31, Article 13 of the Quezon City Revenue Code of 1993,3 a franchise tax was imposed on businesses operating within its jurisdiction.
The provision states:

Section 31. Imposition of Tax. - Any provision of special laws or grant of tax exemption to the contrary notwithstanding, any person, corporation,
partnership or association enjoying a franchise whether issued by the national government or local government and, doing business in Quezon City,
shall pay a franchise tax at the rate of ten percent (10%) of one percent (1%) for 1993-1994, twenty percent (20%) of one percent (1%) for 1995, and
thirty percent (30%) of one percent (1%) for 1996 and the succeeding years thereafter, of gross receipts and sales derived from the operation of the
business in Quezon City during the preceding calendar year.

On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio and television broadcasting stations in the Philippines under R.A.
No. 7966.4 Section 8 of R.A. No. 7966 provides the tax liabilities of ABS-CBN which reads:

Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or corporations are now hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the radio/television
business transacted under this franchise by the grantee, its successors or assigns, and the said percentage tax shall be in lieu of all taxes
on this franchise or earnings thereof; Provided that the grantee, its successors or assigns shall continue to be liable for income taxes under Title II
of the National Internal Revenue Code pursuant to Section 2 of Executive No. 72 unless the latter enactment is amended or repealed, in which case
the amendment or repeal shall be applicable thereto. (Emphasis added)
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in view of the above provision in R.A. No. 9766 that it "shall pay a
franchise tax x x x in lieu of all taxes," the corporation developed the opinion that it is not liable to pay the local franchise tax imposed by Quezon City.
Consequently, ABS-CBN paid under protest the local franchise tax imposed by Quezon City on the dates, in the amounts and under the official
receipts as follows:

O.R. No. Date Amount Paid


2464274 7/18/1995 P 1,489,977.28
2484651 10/20/1995 1,489,977.28
2536134 1/22/1996 2,880,975.65
8354906 1/23/1997 8,621,470.83
48756 1/23/1997 2,731,135.81
67352 4/3/1997 2,731,135.81
Total P19,944,672.665

On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise tax paid to Quezon City for 1996 and for the first quarter of 1997 in
the total amount of Fourteen Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) broken
down as follows:

O.R. No. Date Amount Paid


2536134 1-22-96 P 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
Total P14,233,582.296

In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated its claim for refund of local franchise taxes paid.

On June 25, 1997, for failure to obtain any response from the Quezon City Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City
seeking the declaration of nullity of the imposition of local franchise tax by the City Government of Quezon City for being unconstitutional. It likewise
prayed for the refund of local franchise tax in the amount of Nineteen Million Nine Hundred Forty-Four Thousand Six Hundred Seventy-Two and
66/100 centavos (P19,944,672.66) broken down as follows:

O.R. No. Date Amount Paid


2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.667

Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could not have been intended to prevail over a constitutional mandate
which ensures the viability and self-sufficiency of local government units. Further, that taxes collectible by and payable to the local government were
distinct from taxes collectible by and payable to the national government, considering that the Constitution specifically declared that the taxes
imposed by local government units "shall accrue exclusively to the local governments." Lastly, the City contended that the exemption claimed by
ABS-CBN under R.A. No. 7966 was withdrawn by Congress when the Local Government Code (LGC) was passed. 8 Section 193 of the LGC
provides:

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (Emphasis added)

On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for refund the local franchise tax paid for the third quarter of 1997 in
the amount of Two Million Seven Hundred Thirty-One Thousand One Hundred Thirty-Five and 81/100 centavos (P2,731,135.81) and of other
amounts of local franchise tax as may have been and will be paid by ABS-CBN until the resolution of the case.

Quezon City insisted that the claim for refund must fail because of the absence of a prior written claim for it.

RTC and CA Dispositions

On January 20, 1999, the RTC rendered judgment declaring as invalid the imposition on and collection from ABS-CBN of local franchise tax paid
pursuant to Quezon City Ordinance No. SP-91, S-93, after the enactment of R.A. No. 7966, and ordered the refund of all payments made. The
dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered declaring the imposition on and collection from plaintiff ABS-CBN BROADCASTING CORPORATION
of local franchise taxes pursuant to Quezon City Ordinance No. SP-91, S-93 after the enactment of Republic Act No. 7966 to be invalid, and,
accordingly, the Court hereby orders the defendants to refund all its payments made after the effectivity of its legislative franchise on May 3, 1995.

SO ORDERED.9

In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in Section 8 of R.A. No. 7966 absolutely excused ABS-CBN from the
payment of local franchise tax imposed under Quezon City Ordinance No. SP-91, S-93. The intent of the legislature to excuse ABS-CBN from
payment of local franchise tax could be discerned from the usage of the "in lieu of all taxes" provision and from the absence of any qualification
except income taxes. Had Congress intended to exclude taxes imposed from the exemption, it would have expressly mentioned so in a fashion
similar to the proviso on income taxes.

The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc.
(CEPALCO).10 In said case, the exemption of respondent electric company CEPALCO from payment of provincial franchise tax was upheld on the
ground that the franchise of CEPALCO was a special law, while the Local Tax Code, on which the provincial ordinance imposing the local franchise
tax was based, was a general law. Further, it was held that whenever there is a conflict between two laws, one special and particular and the other
general, the special law must be taken as intended to constitute an exception to the general act.

The RTC noted that the legislative franchise of ABS-CBN was granted years after the effectivity of the LGC. Thus, it was unavoidable to conclude
that Section 8 of R.A. No. 7966 was an exception since the legislature ought to be presumed to have enacted it with the knowledge and awareness of
the existence and prior enactment of Section 13711 of the LGC.

In addition, the RTC, again citing the case of Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc. (CEPALCO),12 ruled
that the imposition of the local franchise tax was an impairment of ABS-CBN's contract with the government. The imposition of another franchise on
the corporation by the local authority would constitute an impairment of the former's charter, which is in the nature of a private contract between it and
the government.

As to the amounts to be refunded, the RTC rejected Quezon City's position that a written claim for refund pursuant to Section 196 of the LGC was a
condition sine qua non before filing the case in court. The RTC ruled that although Fourteen Million Two Hundred Thirty-Three Thousand Five
Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) was the only amount stated in the letter to the Quezon City Treasurer claiming refund,
ABS-CBN should nonetheless be also refunded of all payments made after the effectivity of R.A. No. 7966. The inaction of the City Treasurer on the
claim for refund of ABS-CBN legally rendered any further claims for refund on the part of plaintiff absurd and futile in relation to the succeeding
payments.

The City of Quezon and its Treasurer filed a motion for reconsideration which was subsequently denied by the RTC. Thus, appeal was made to the
CA. On September 1, 2004, the CA dismissed the petition of Quezon City and its Treasurer. According to the appellate court, the issues raised were
purely legal questions cognizable only by the Supreme Court. The CA ratiocinated:

For another, the issues which appellants submit for this Court's consideration are more of legal query necessitating a legal opinion rather than a call
for adjudication on the matter in dispute.

xxxx

The first issue has earlier been categorized in Province of Misamis Oriental v. Cagayan Electric and Power Co., Inc. to be a legal one. There is no
more argument to this.

The next issue although it may need the reexamination of the pertinent provisions of the local franchise and the legislative franchise given to appellee,
also needs no evaluation of facts. It suffices that there may be a conflict which may need to be reconciled, without regard to the factual backdrop of
the case.

The last issue deals with a legal question, because whether or not there is a prior written claim for refund is no longer in dispute. Rather, the question
revolves on whether the said requirement may be dispensed with, which obviously is not a factual issue. 13

On September 23, 2004, petitioner moved for reconsideration. The motion was, however, denied by the CA in its Resolution dated December 16,
2004. Hence, the present recourse.

Issues

Petitioner submits the following issues for resolution:

I.

Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent appellee (Section 8 of RA 7966) serves to exempt it from
the payment of the local franchise tax imposed by the petitioners-appellants.

II.

Whether or not the petitioners-appellants raised factual and legal issues before the Honorable Court of Appeals.14
Our Ruling

The second issue, being procedural in nature, shall be dealt with immediately. But there are other resultant issues linked to the first.

I. The dismissal by the CA of petitioners' appeal is in order because it raised purely legal issues, namely:

1) Whether appellee, whose franchise expressly provides that its payment of franchise tax shall be in lieu of all taxes in this franchise or earnings
thereof, is absolutely excused from paying the franchise tax imposed by appellants;

2) Whether appellants' imposition of local franchise tax is a violation of appellee's legislative franchise; and

3) Whether one can do away with the requirement on prior written claim for refund. 15

Obviously, these are purely legal questions, cognizable by this Court, to the exclusion of all other courts. There is a question of law when the doubt or
difference arises as to what the law is pertaining to a certain state of facts. 16

Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA under Rule 41 raising only questions of law is erroneous and shall
be dismissed, issues of pure law not being within its jurisdiction. 17Consequently, the dismissal by the CA of petitioners' appeal was in order.

In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the appeal of petitioner was valid, considering the issues raised there
were pure questions of law, viz.:

Petitioners interposed an appeal to the Court of Appeals but it was dismissed for being the wrong mode of appeal. The appellate court held that since
the issue being raised is whether the RTC has jurisdiction over the subject matter of the case, which is a question of law, the appeal should have
been elevated to the Supreme Court under Rule 45 of the 1997 Rules of Civil Procedure, as amended. Section 2, Rule 41 of the same Rules which
governs appeals from judgments and final orders of the RTC to the Court of Appeals, provides:

SEC. 2. Modes of appeal. -

(a) Ordinary appeal. - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction shall
be taken by filing a notice of appeal with the court which rendered the judgment or final order appealed from and serving a copy thereof upon the
adverse party. No record on appeal shall be required except in special proceedings and other cases of multiple or separate appeals where the law or
these Rules so require. In such cases, the record on appeal shall be filed and served in like manner.

(b) Petition for review. - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its appellate jurisdiction
shall be by petition for review in accordance with Rule 42.

(c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for
review on certiorari in accordance with Rule 45.

In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we summarized the rule on appeals as follows:

(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal may be made to the Court of Appeals by mere notice of appeal
where the appellant raises questions of fact or mixed questions of fact and law;

(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the appellant raises only questions of law, the appeal must be
taken to the Supreme Court on a petition for review on certiorari under Rule 45;

(3) All appeals from judgments rendered by the RTC in the exercise of its appellate jurisdiction, regardless of whether the appellant raises questions
of fact, questions of law, or mixed questions of fact and law, shall be brought to the Court of Appeals by filing a petition for review under Rule 42.

It is not disputed that the issue brought by petitioners to the Court of Appeals involves the jurisdiction of the RTC over the subject matter of the case.
We have a long standing rule that a court's jurisdiction over the subject matter of an action is conferred only by the Constitution or by statute.
Otherwise put, jurisdiction of a court over the subject matter of the action is a matter of law. Consequently, issues which deal with the jurisdiction of a
court over the subject matter of a case are pure questions of law. As petitioners' appeal solely involves a question of law, they should have directly
taken their appeal to this Court by filing a petition for review on certiorari under Rule 45, not an ordinary appeal with the Court of Appeals under Rule
41. Clearly, the appellate court did not err in holding that petitioners pursued the wrong mode of appeal.

Indeed, the Court of Appeals did not err in dismissing petitioners' appeal. Section 2, Rule 50 of the same Rules provides that an appeal from the RTC
to the Court of Appeals raising only questions of law shall be dismissed; and that an appeal erroneously taken to the Court of Appeals shall be
dismissed outright, x x x.19(Emphasis added)

However, to serve the demands of substantial justice and equity, the Court opts to relax procedural rules and rule upon on the merits of the case.
In Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation,20 this Court stated:

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. In Aguam v. Court of Appeals, the Court explained:
"The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court, not a duty. The "discretion must
be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case."
Technicalities, however, must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or
dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts." Litigations
must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just
determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon
where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid,
technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action
for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the
case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more
delay, if not a miscarriage of justice.21

II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment of local franchise tax.

A. The present controversy essentially boils down to a dispute between the inherent taxing power of Congress and the delegated authority to tax of
local governments under the 1987 Constitution and effected under the LGC of 1991.

The power of the local government of Quezon City to impose franchise tax is based on Section 151 in relation to Section 137 of the LGC, to wit:

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses
enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized within its territorial jurisdiction. x x x

xxxx

Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may levy the taxes, fees and charges which the province
or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and component cities
shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes. (Emphasis supplied)

Such taxing power by the local government, however, is limited in the sense that Congress can enact legislation granting exemptions. This principle
was upheld in City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.22 Said this Court:

This thus raises the question of whether or not the City's Revenue Code pursuant to which the city treasurer of Quezon City levied real property taxes
against Bayantel's real properties located within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended.

Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other persons or corporations on
all its real or personal properties, exclusive of its franchise."

Bayantel's posture is well-taken. While the system of local government taxation has changed with the onset of the 1987 Constitution, the power of
local government units to tax is still limited. As we explained in Mactan Cebu International Airport Authority:

"The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely be
virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the
basic policy of local autonomy. x x x"

Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units' delegated
power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on local taxation remains
essentially the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the Congress."

This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional Commission which crafted
the 1987 Constitution, thus:

"What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations
do not possess inherent powers of taxation. What it does is to confer municipal corporations a general power to levy taxes and otherwise create
sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative authority relative to the fiscal
powers of local governments has been reduced to the authority to impose limitations on municipal powers. Moreover, these limitations must be
"consistent with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved
against municipal corporations. Henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. It is understood, however, that taxes imposed by local government must be for a public purpose, uniform within a locality,
must not be confiscatory, and must be within the jurisdiction of the local unit to pass."

In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of the legislature, which
necessarily includes the power to exempt, and the local government's delegated power to tax under the aegis of the 1987 Constitution.
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the city's territory and removed
exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or juridical [x x x]" there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly provides that "a province or city or
municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from
the taxing power of local government units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter
specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable.

For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao, this Court has upheld the power of Congress to grant
exemptions over the power of local government units to impose taxes. There, the Court wrote:

"Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means
that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations." 23 (Emphasis
supplied)

In the case under review, the Philippine Congress enacted R.A. No. 7966 on March 30, 1995, subsequent to the effectivity of the LGC on January 1,
1992. Under it, ABS-CBN was granted the franchise to install and operate radio and television broadcasting stations in the Philippines. Likewise,
Section 8 imposed on ABS-CBN the duty of paying 3% franchise tax. It bears stressing, however, that payment of the percentage franchise tax shall
be "in lieu of all taxes" on the said franchise.24

Congress has the inherent power to tax, which includes the power to grant tax exemptions. On the other hand, the power of Quezon City to tax is
prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or
other special law, the City may impose a franchise tax. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. As
earlier discussed, this Court in City Government of Quezon City v. Bayan Telecommunications, Inc.25 sustained the power of Congress to grant tax
exemptions over and above the power of the local government's delegated power to tax.

B. The more pertinent issue now to consider is whether or not by passing R.A. No. 7966, which contains the "in lieu of all taxes" provision, Congress
intended to exempt ABS-CBN from local franchise tax.

Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not expressly exempt it from payment of local franchise tax.
They contend that a tax exemption cannot be created by mere implication and that one who claims tax exemptions must be able to justify his claim by
clearest grant of organic law or statute.

Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus, statutes granting tax exemptions are
construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based
on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. 26 The burden of proof rests upon the
party claiming the exemption to prove that it is in fact covered by the exemption so claimed. 27

The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions is to minimize differential treatment and
foster impartiality, fairness and equality of treatment among taxpayers. 28 He who claims an exemption from his share of common burden must justify
his claim that the legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored in law, nor are they
presumed. They must be expressed in the clearest and most unambiguous language and not left to mere implications. It has been held that
"exemptions are never presumed, the burden is on the claimant to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since taxation is the rule and exemption the exception, the intention to make
an exemption ought to be expressed in clear and unambiguous terms.29

Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3) percent of all gross receipts of the radio/television business
transacted under the franchise and the franchise tax shall be "in lieu of all taxes" on the franchise or earnings thereof.

The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. It is not
clear whether the exemption would include both local, whether municipal, city or provincial, and national tax. What is clear is that ABS-CBN shall be
liable to pay three (3) percent franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu of all taxes provision" would include
exemption from local tax is not unequivocal.

As adverted to earlier, the right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications
but must be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should be construed against ABS-CBN.
ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this regard.

ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal Revenue,30 Manila Railroad v. Rafferty,31 Philippine Railway Co. v.
Collector of Internal Revenue,32 and Visayan Electric Co. v. David33 to support its claim that that the "in lieu of all taxes" clause includes exemption
from all taxes.

However, a review of the foregoing case law reveals that the grantees' respective franchises expressly exempt them from municipal and provincial
taxes. Said the Court in Manila Railroad v. Rafferty:34

On the 7th day of July 1906, by an Act of the Philippine Legislature, a special charter was granted to the Manila Railroad Company. Subsection 12 of
Section 1 of said Act (No. 1510) provides that:

"In consideration of the premises and of the granting of this concession or franchise, there shall be paid by the grantee to the Philippine Government,
annually, for the period of thirty (30) years from the date hereof, an amount equal to one-half (1/2) of one per cent of the gross earnings of the grantee
in respect of the lines covered hereby for the preceding year; after said period of thirty (30) years, and for the fifty (50) years thereafter, the amount so
to be paid annually shall be an amount equal to one and one-half (1 1/2) per cent of such gross earnings for the preceding year; and after such period
of eighty (80) years, the percentage and amount so to be paid annually by the grantee shall be fixed by the Philippine Government.

Such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature - municipal, provincial or
central - upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by the grantee under this concession or
franchise."35 (Underscoring supplied)

In the case under review, ABS-CBN's franchise did not embody an exemption similar to those in Carcar, Manila Railroad, Philippine Railway,
and Visayan Electric. Too, the franchise failed to specify the taxing authority from whose jurisdiction the taxing power is withheld, whether municipal,
provincial, or national. In fine, since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a grant expressed in terms "too plain
to be mistaken" its claim for exemption for local franchise tax must fail.

C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the abolition of the franchise tax on broadcasting
companies with yearly gross receipts exceeding Ten Million Pesos.

In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of all taxes" provision contained in Section 8 of R.A. No. 7966,
ABS-CBN is exempt from the payment of the local franchise tax. The RTC further pronounced that ABS-CBN shall instead be liable to pay a
franchise tax of 3% of all gross receipts in lieu of all other taxes.

On this score, the RTC ruling is flawed. In keeping with the laws that have been passed since the grant of ABS-CBN's franchise, the corporation
should now be subject to VAT, instead of the 3% franchise tax.

At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject to 3% franchise tax under Section 117(b) of the 1977 National
Internal Revenue Code (NIRC), as amended, viz.:

SECTION 117. Tax on franchises. - Any provision of general or special laws to the contrary notwithstanding, there shall be levied, assessed and
collected in respect to all franchise, upon the gross receipts from the business covered by the law granting the franchise, a tax in accordance with the
schedule prescribed hereunder:

(a) On electric utilities, city gas, and water supplies Two (2%) percent

(b) On telephone and/or telegraph systems, radio and/or broadcasting stations Three (3%) percent

(c) On other franchises Five (5%) percent. (Emphasis supplied)

On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added Tax Law, 36 took effect and subjected to VAT those services
rendered by radio and/or broadcasting stations. Section 3 of R.A. No. 7716 provides:

Section 3. Section 102 of the National Internal Revenue Code, as amended is hereby further amended to read as follows:

SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate and base of tax. - There shall be levied, assessed and
collected, as value-added tax equivalent to 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; x x x services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; x x x (Emphasis supplied)

Notably, under the same law, "telephone and/or telegraph systems, broadcasting stations and other franchise grantees" were omitted from the list of
entities subject to franchise tax. The impression was that these entities were subject to 10% VAT but not to franchise tax. Only the franchise tax on
"electric, gas and water utilities" remained. Section 12 of R.A. No. 7716 provides:

Section 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

SEC. 117. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding there shall be levied, assessed and collected
in respect to all franchises on electric, gas and water utilities a tax of two percent (2%) on the gross receipts derived from the business covered by the
law granting the franchise. (Emphasis added)

Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more amendments to the NIRC. Radio and/or television companies whose
annual gross receipts do not exceed P10,000,000.00 were granted the option to choose between paying 3% national franchise tax or 10% VAT.
Section 9 of R.A. No. 8241 provides:

SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as follows:

"Sec. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

"Sec. 117. Tax on franchise. - Any provision of general or special law to the contrary, notwithstanding, there shall be levied, assessed and collected
in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed
Ten million pesos (P10,000,000.00), subject to Section 107(d) of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax
of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise: Provided, however, That radio and
television broadcasting companies referred to in this section, shall have an option to be registered as a value-added tax payer and pay the tax due
thereon: Provided, further, That once the option is exercised, it shall not be revoked. (Emphasis supplied)

On the other hand, radio and/or television companies with yearly gross receipts exceeding P10,000,000.00 were subject to 10% VAT, pursuant to
Section 102 of the NIRC.

On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT liability of radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00.

R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The said law further amended the NIRC by increasing the rate of
VAT to 12%. The effectivity of the imposition of the 12% VAT was later moved from January 1, 2006 to February 1, 2006.

In consonance with the above survey of pertinent laws on the matter, ABS-CBN is subject to the payment of VAT. It does not have the option to
choose between the payment of franchise tax or VAT since it is a broadcasting company with yearly gross receipts exceeding Ten Million Pesos
(P10,000,000.00).

VAT is a percentage tax imposed on any person whether or not a franchise grantee, who in the course of trade or business, sells, barters, exchanges,
leases, goods or properties, renders services. It is also levied on every importation of goods whether or not in the course of trade or business. The
tax base of the VAT is limited only to the value added to such goods, properties, or services by the seller, transferor or lessor. Further, the VAT is an
indirect tax and can be passed on to the buyer.

The franchise tax, on the other hand, is a percentage tax imposed only on franchise holders. It is imposed under Section 119 of the Tax Code and is
a direct liability of the franchise grantee.

The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot apply when what is paid is a tax other than a franchise tax. Since
the franchise tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been abolished, the "in lieu of all taxes"
clause has now become functus officio, rendered inoperative.

In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of all taxes" clause in its franchise failed to specify the taxes the
company is sought to be exempted from. Neither did it particularize the jurisdiction from which the taxing power is withheld. Second, the clause has
become functus officio because as the law now stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for VAT.

WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED AND SET ASIDE. The petition in the trial court for refund of local
franchise tax is DISMISSED.

SO ORDERED.

RUBEN T. REYES
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO


Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the
Court's Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1
Rollo, pp. 56-67. Dated August 31, 2004. Penned by Associate Justice Magdangal M. De Leon, with Associate Justices Romeo A. Brawner and
Mariano C. Del Castillo, concurring.

2
Id. at 46-54. Dated January 20, 1999. Penned by then Judge, now CA Associate Justice, Lucas P. Bersamin.

3
Quezon City Ordinance No. SP-91, S-93.

4
"An Act Granting the ABS-CBN Broadcasting Corporation a Franchise to Construct, Install, Operate and Maintain Television and Radio
Broadcasting Stations in the Philippines, and for Other Purposes." Enacted on March 30, 1995 and date of effectivity on May 3, 1995.

5
Rollo, p. 17.

6
Id.

7
Id. at 17-18.

8
Id. at 46-60.

9
Id. at 54.

10
G.R. No. 45355, January 12, 1990, 181 SCRA 38.

11
Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business
is enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction. x x x

12
Supra.

13
Rollo, pp. 64-65.

14
Id. at 23.

15
Id. at 65.

16
Calvo v. Vergara, G.R. No. 134741, December 19, 2001, 372 SCRA 650, as cited in Lavides v. Pre, G.R. No. 127830, October 17, 2001, 367
SCRA 382.

17
Rule 50, 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 of pure 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 to the Court of Appeals shall not be transferred to the appropriate court but shall be dismissed outright.

18
G.R. No. 146454, September 14, 2007.

19
Sevilleno v. Carilo, id.

20
G.R. No. 168115, June 8, 2007, 524 SCRA 333.

21
Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation, id. at 343-344.

22
G.R. No. 162015, March 6, 2006, 484 SCRA 169.
23
City Government of Quezon City v. Bayan Telecommunications, Inc., id. at 183-186.

24
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, as other persons or corporations are now hereafter may be required by law to pay. In addition thereto,
the grantee, its successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the radio/television business
transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof; Provided that the grantee, its successors or assigns shall continue to be liable for income taxes under Title II of the National Internal
Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment
or repeal shall be applicable thereto.

25
Supra note 20.

26
Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680.

27
Agpalo, R.E., Statutory Construction, 2003 ed., p. 301.

28
Maceda v. Macaraeg, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771, 799, citing Sands, C.D., Statutes and Statutory Construction, Vol. 3, p.
207.

29
See note 27, at 302.

30
53 O.G. (No. 4) 1068.

31
40 Phil 224 (1919).

32
91 Phil 35 (1952).

33
92 Phil. 969 (1953).

34
Supra.

35
Manila Railroad v. Rafferty, id. at 226.

36
Approved on May 5, 1994.

37
Entitled "An Act Amending Republic Act No. 7716, Otherwise Known as the Expanded Value-Added Tax Law and Other Pertinent Provisions of the
National Internal Revenue Code, as Amended." Approved on December 20, 1996.

38
Published in the Philippine Star on January 9, 1997. Published in the Official Gazette, Vol. 93, No. 6, p. 1463, on March 10, 1997.

39
Otherwise known as the Tax Reform Act of 1997, amended some provisions of the 1977 NIRC by renumbering Section 117 as 119 and Section
102 as 108.

FIRST DIVISION

G.R. No. 137377 December 18, 2001

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
MARUBENI CORPORATION, respondent.

PUNO, J.:
In this petition for review, the Commissioner of Internal Revenue assails the decision dated January 15, 1999 of the Court of Appeals in CA-G.R. SP
No. 42518 which affirmed the decision dated July 29, 1996 of the Court of Tax Appeals in CTA Case No. 4109. The tax court ordered the
Commissioner of Internal Revenue to desist from collecting the 1985 deficiency income, branch profit remittance and contractor's taxes from
Marubeni Corporation after finding the latter to have properly availed of the tax amnesty under Executive Orders Nos. 41 and 64, as amended.

Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is engaged in general import and export
trading, financing and the construction business. It is duly registered to engage in such business in the Philippines and maintains a branch office in
Manila.

Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of accounts of the
Manila branch office of respondent corporation for the fiscal year ending March 1985. In the course of the examination, petitioner found respondent to
have undeclared income from two (2) contracts in the Philippines, both of which were completed in 1984. One of the contracts was with the National
Development Company (NDC) in connection with the construction and installation of a wharf/port complex at the Leyte Industrial Development Estate
in the municipality of Isabel, province of Leyte. The other contract was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the
construction of an ammonia storage complex also at the Leyte Industrial Development Estate.

On March 1, 1986, petitioner's revenue examiners recommended an assessment for deficiency income, branch profit remittance, contractor's and
commercial broker's taxes. Respondent questioned this assessment in a letter dated June 5, 1986.

On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from petitioner assessing respondent several deficiency taxes.
The assessed deficiency internal revenue taxes, inclusive of surcharge and interest, were as follows:

I. DEFICIENCY INCOME TAX


FY ended March 31, 1985
Undeclared gross income (Philphos and
NDC construction projects) P967,269,811.14
Less: Cost and expenses (50%) 483,634,905.57
Net undeclared income 483,634,905.57
Income tax due thereon 169,272,217.00
Add: 50% surcharge 84,636,108.50

20% int. p.a.fr. 7-15-85 to 8-15-86 36,675,646.90


TOTAL AMOUNT DUE P290,583,972.40
II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
FY ended March 31, 1985
Undeclared gross income from Philphos
and NDC construction projects P483,634,905.57
Less: Income tax thereon 169,272,217.00
Amount subject to Tax 314,362,688.57
Tax due thereon 47,154,403.00
Add: 50% surcharge 23,577,201.50

20% int. p.a.fr. 4-26-85 to 8-15-86 12,305,360.66


TOTAL AMOUNT DUE P83,036,965.16
III. DEFICIENCY CONTRACTOR'S TAX

FY ended March 31, 1985


Undeclared gross receipts/gross income
from Philphos and NDC construction
projects P967,269,811.14
Contractor's tax due thereon (4%) 38,690,792.00
Add: 50% surcharge for non-declaration 19,345,396.00

20% surcharge for late payment 9,672,698.00


Sub-total 67,708,886.00
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 17,854,739.46
TOTAL AMOUNT DUE P85,563,625.46
IV. DEFICIENCY COMMERCIAL BROKER'S TAX
FY ended March 31, 1985
Undeclared share from commission income
(denominated as "subsidy from Home
Office") P24,683,114.50
Tax due thereon 1,628,569.00
Add: 50% surcharge for non-declaration 814,284.50

20% surcharge for late payment 407,142.25


Sub-total 2,849,995.75
Add: 20% int. p.a.fr. 4-21-85 to 8-15-86 751,539.98
TOTAL AMOUNT DUE P3,600,535.68

The 50% surcharge was imposed for your client's failure to report for tax purposes the aforesaid taxable revenues while the 25% surcharge was
imposed because of your client's failure to pay on time the above deficiency percentage taxes.

xxx xxx xxx"1

Petitioner found that the NDC and Philphos contracts were made on a "turn-key" basis and that the gross income from the two projects amounted to
P967,269,811.14. Each contract was for a piece of work and since the projects called for the construction and installation of facilities in the
Philippines, the entire income therefrom constituted income from Philippine sources, hence, subject to internal revenue taxes. The assessment letter
further stated that the same was petitioner's final decision and that if respondent disagreed with it, respondent may file an appeal with the Court of
Tax Appeals within thirty (30) days from receipt of the assessment.

On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. The first petition, CTA Case No. 4109,
questioned the deficiency income, branch profit remittance and contractor's tax assessments in petitioner's assessment letter. The second, CTA
Case No. 4110, questioned the deficiency commercial broker's assessment in the same letter.

Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 2 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985
was issued. Under this E.O., a taxpayer who wished to avail of the income tax amnesty should, on or before October 31, 1986: (a) file a sworn
statement declaring his net worth as of December 31, 1985; (b) file a certified true copy of his statement declaring his net worth as of December 31,
1980 on record with the Bureau of Internal Revenue (BIR), or if no such record exists, file a statement of said net worth subject to verification by the
BIR; and (c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth from December 31, 1980 to December 31, 1985.

In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986 and attached thereto its sworn statement
of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY 1986. The return was received by the BIR on November 3, 1986 and
respondent paid the amount of P2,891,273.00 equivalent to ten percent (10%) of its net worth increase between 1981 and 1986.

The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December 5, 1986 by E.O. No. 54 dated November 4, 1986.

On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. In addition to the income tax
amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No. 64 3 included estate and donor's taxes under Title III and the tax on business
under Chapter II, Title V of the National Internal Revenue Code, also covering the years 1981 to 1985. E.O. No. 64 further provided that the
immunities and privileges under E.O. No. 41 were extended to the foregoing tax liabilities, and the period within which the taxpayer could avail of the
amnesty was extended to December 15, 1986. Those taxpayers who already filed their amnesty return under E.O. No. 41, as amended, could avail
themselves of the benefits, immunities and privileges under the new E.O. by filing an amended return and paying an additional 5% on the increase in
net worth to cover business, estate and donor's tax liabilities.

The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated December 17, 1986.

On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64 and paid a further amount of
P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between 1981 and 1986.

On July 29, 1996, almost ten (10) years after filing of the case, the Court of Tax Appeals rendered a decision in CTA Case No. 4109. The tax court
found that respondent had properly availed of the tax amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as
deemed cancelled and withdrawn. The Court of Tax Appeals disposed of as follows:

"WHEREFORE, the respondent Commissioner of Internal Revenue is hereby ORDERED to DESIST from collecting the 1985 deficiency taxes it had
assessed against petitioner and the same are deemed considered [sic] CANCELLED and WITHDRAWN by reason of the proper availment by
petitioner of the amnesty under Executive Order No. 41, as amended."4

Petitioner challenged the decision of the tax court by filing CA-G.R. SP No. 42518 with the Court of Appeals.

On January 15, 1999, the Court of Appeals dismissed the petition and affirmed the decision of the Court of Tax Appeals. Hence, this recourse.

Before us, petitioner raises the following issues:

"(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of Tax Appeals which ruled that herein respondent's deficiency
tax liabilities were extinguished upon respondent's availment of tax amnesty under Executive Orders Nos. 41 and 64.

(2) Whether or not respondent is liable to pay the income, branch profit remittance, and contractor's taxes assessed by petitioner."5
The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O. Nos. 41 and 64. There are three (3) types
of taxes involved herein income tax, branch profit remittance tax and contractor's tax. These taxes are covered by the amnesties granted by E.O.
Nos. 41 and 64. Petitioner claims, however, that respondent is disqualified from availing of the said amnesties because the latter falls under the
exception in Section 4 (b) of E.O. No. 41.

Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz:

"Sec. 4. Exceptions. The following taxpayers may not avail themselves of the amnesty herein granted:

a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;

b) Those with income tax cases already filed in Court as of the effectivity hereof;

c) Those with criminal cases involving violations of the income tax law already filed in court as of the effectivity hereof;

d) Those that have withholding tax liabilities under the National Internal Revenue Code, as amended, insofar as the said liabilities are concerned;

e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of information furnished under
Section 316 of the National Internal Revenue Code, as amended;

f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan;

g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and Transactions) and Chapter Four (Malversation of Public Funds and
Property) of the Revised Penal Code, as amended."

Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986, CTA Case No. 4109 had already been filed and was
pending; before the Court of Tax Appeals. Respondent therefore fell under the exception in Section 4 (b) of E.O. No. 41.

Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those
taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point of reference is the date of effectivity of E.O. No. 41. The
filing of income tax cases in court must have been made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be
disqualified under Section 4 (b) there must have been no income tax cases filed in court against him when E.O. No. 41 took effect. This is regardless
of when the taxpayer filed for income tax amnesty, provided of course he files it on or before the deadline for filing.

E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income, branch profit remittance and contractor's
tax assessments was filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on August 22,
1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation did not fall under the said exception in Section 4 (b), hence,
respondent was not disqualified from availing of the amnesty for income tax under E.O. No. 41.

The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch profit remittance tax is defined and imposed in
Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code. 6 In the tax code, this tax falls under Title II on Income Tax. It is a tax
on income. Respondent therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit remittance
tax assessment.

The difficulty herein is with respect to the contractor's tax assessment and respondent's availment of the amnesty under E.O. No. 64. E.O. No. 64
expanded the coverage of E.O. No. 41 by including estate and donor's taxes and tax on business. Estate and donor's taxes fall under Title III of the
Tax Code while business taxes fall under Chapter II, Title V of the same. The contractor's tax is provided in Section 205, Chapter II, Title V of the Tax
Code; it is defined and imposed under the title on business taxes, and is therefore a tax on business.7

When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the amnesty for business, estate and
donor's taxes. Instead, Section 8 of E.O. No. 64 provided that:

"Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this amendatory Executive Order shall
remain in full force and effect."

By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent with the amendatory act were reenacted in E.O.
No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty coverage also applied to E.O. No. 64. With respect to Section 4 (b) in particular,
this provision excepts from tax amnesty coverage a taxpayer who has "income tax cases already filed in court as of the effectivity hereof." As to what
Executive Order the exception refers to, respondent argues that because of the words "income" and "hereof," they refer to Executive Order No. 41.8

In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and its date of effectivity. The general
rule is that an amendatory act operates prospectively. 9 While an amendment is generally construed as becoming a part of the original act as if it had
always been contained therein,10 it may not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested
right or obligations of contract are thereby impaired.11

There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance. Neither is it
necessarily implied from E.O. No. 64 that it or any of its provisions should apply retroactively. Executive Order No. 64 is a substantive amendment of
E.O. No. 41. It does not merely change provisions in E.O. No. 41. It supplements the original act by adding other taxes not covered in the first.12 It has
been held that where a statute amending a tax law is silent as to whether it operates retroactively, the amendment will not be given a retroactive
effect so as to subject to tax past transactions not subject to tax under the original act. 13 In an amendatory act, every case of doubt must be resolved
against its retroactive effect.14

Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional overlooking by the State of its authority
to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. 15 It partakes of an absolute forgiveness or waiver by
the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate.16 A tax amnesty,
much like a tax exemption, is never favored nor presumed in law.17 If granted, the terms of the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing authority. 18 For the right of taxation is inherent in government. The State
cannot strip itself of the most essential power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden
must justify his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the
intent of the legislature, that doubt must be resolved in favor of the state. 19

In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be construed strictly against the taxpayer. The term
"income tax cases" should be read as to refer to estate and donor's taxes and taxes on business while the word "hereof," to E.O. No. 64. Since
Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity
referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986.

Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on November 17, 1986, CTA Case No. 4109 was
already filed and pending in court. By the time respondent filed its supplementary tax amnesty return on December 15, 1986, respondent already fell
under the exception in Section 4 (b) of E.O. Nos. 41 and 64 and was disqualified from availing of the business tax amnesty granted therein.

It is respondent's other argument that assuming it did not validly avail of the amnesty under the two Executive Orders, it is still not liable for the
deficiency contractor's tax because the income from the projects came from the "Offshore Portion" of the contracts. The two contracts were divided
into two parts, i.e., the Onshore Portion and the Offshore Portion. All materials and equipment in the contract under the "Offshore Portion" were
manufactured and completed in Japan, not in the Philippines, and are therefore not subject to Philippine taxes.

Before going into respondent's arguments, it is necessary to discuss the background of the two contracts, examine their pertinent provisions and
implementation.

The NDC and Philphos are two government corporations. In 1980, the NDC, as the corporate investment arm of the Philippine Government,
established the Philphos to engage in the large-scale manufacture of phosphatic fertilizer for the local and foreign markets. 20 The Philphos plant
complex which was envisioned to be the largest phosphatic fertilizer operation in Asia, and among the largest in the world, covered an area of 180
hectares within the 435-hectare Leyte Industrial Development Estate in the municipality of Isabel, province of Leyte.

In 1982, the NDC opened for public bidding a project to construct and install a modern, reliable, efficient and integrated wharf/port complex at the
Leyte Industrial Development Estate. The wharf/port complex was intended to be one of the major facilities for the industrial plants at the Leyte
Industrial Development Estate. It was to be specifically adapted to the site for the handling of phosphate rock, bagged or bulk fertilizer products, liquid
materials and other products of Philphos, the Philippine Associated Smelting and Refining Corporation (Pasar),21 and other industrial plants within the
Estate. The bidding was participated in by Marubeni Head Office in Japan.

Marubeni, Japan pre-qualified and on March 22, 1982, the NDC and respondent entered into an agreement entitled "Turn-Key Contract for Leyte
Industrial Estate Port Development Project Between National Development Company and Marubeni Corporation." 22 The Port Development Project
would consist of a wharf, berths, causeways, mechanical and liquids unloading and loading systems, fuel oil depot, utilities systems, storage and
service buildings, offsite facilities, harbor service vessels, navigational aid system, fire-fighting system, area lighting, mobile equipment, spare parts
and other related facilities.23 The scope of the works under the contract covered turn-key supply, which included grants of licenses and the transfer of
technology and know-how,24 and:

". . . the design and engineering, supply and delivery, construction, erection and installation, supervision, direction and control of testing and
commissioning of the Wharf-Port Complex as set forth in Annex I of this Contract, as well as the coordination of tie-ins at boundaries and schedule of
the use of a part or the whole of the Wharf/Port Complex through the Owner, with the design and construction of other facilities around the site. The
scope of works shall also include any activity, work and supply necessary for, incidental to or appropriate under present international industrial port
practice, for the timely and successful implementation of the object of this Contract, whether or not expressly referred to in the abovementioned
Annex I."25

The contract price for the wharf/port complex was 12,790,389,000.00 and P44,327,940.00. In the contract, the price in Japanese currency was
broken down into two portions: (1) the Japanese Yen Portion I; (2) the Japanese Yen Portion II, while the price in Philippine currency was referred to
as the Philippine Pesos Portion. The Japanese Yen Portions I and II were financed in two (2) ways: (a) by yen credit loan provided by the Overseas
Economic Cooperation Fund (OECF); and (b) by supplier's credit in favor of Marubeni from the Export-Import Bank of Japan. The OECF is a Fund
under the Ministry of Finance of Japan extended by the Japanese government as assistance to foreign governments to promote economic
development.26 The OECF extended to the Philippine Government a loan of 7,560,000,000.00 for the Leyte Industrial Estate Port Development
Project and authorized the NDC to implement the same.27 The other type of financing is an indirect type where the supplier, i.e., Marubeni, obtained a
loan from the Export-Import Bank of Japan to advance payment to its sub-contractors.28

Under the financing schemes, the Japanese Yen Portions I and II and the Philippine Pesos Portion were further broken down and subdivided
according to the materials, equipment and services rendered on the project. The price breakdown and the corresponding materials, equipment and
services were contained in a list attached as Annex III to the contract.29

A few months after execution of the NDC contract, Philphos opened for public bidding a project to construct and install two ammonia storage tanks in
Isabel. Like the NDC contract, it was Marubeni Head Office in Japan that participated in and won the bidding. Thus, on May 2, 1982, Philphos and
respondent corporation entered into an agreement entitled "Turn-Key Contract for Ammonia Storage Complex Between Philippine Phosphate
Fertilizer Corporation and Marubeni Corporation."30 The object of the contract was to establish and place in operating condition a modern, reliable,
efficient and integrated ammonia storage complex adapted to the site for the receipt and storage of liquid anhydrous ammonia 31 and for the delivery
of ammonia to an integrated fertilizer plant adjacent to the storage complex and to vessels at the dock. 32 The storage complex was to consist of
ammonia storage tanks, refrigeration system, ship unloading system, transfer pumps, ammonia heating system, fire-fighting system, area lighting,
spare parts, and other related facilities.33 The scope of the works required for the completion of the ammonia storage complex covered the supply,
including grants of licenses and transfer of technology and know-how,34 and:

". . . the design and engineering, supply and delivery, construction, erection and installation, supervision, direction and control of testing and
commissioning of the Ammonia Storage Complex as set forth in Annex I of this Contract, as well as the coordination of tie-ins at boundaries and
schedule of the use of a part or the whole of the Ammonia Storage Complex through the Owner with the design and construction of other facilities at
and around the Site. The scope of works shall also include any activity, work and supply necessary for, incidental to or appropriate under present
international industrial practice, for the timely and successful implementation of the object of this Contract, whether or not expressly referred to in the
abovementioned Annex I."35

The contract price for the project was 3,255,751,000.00 and P17,406,000.00. Like the NDC contract, the price was divided into three portions. The
price in Japanese currency was broken down into the Japanese Yen Portion I and Japanese Yen Portion II while the price in Philippine currency was
classified as the Philippine Pesos Portion. Both Japanese Yen Portions I and II were financed by supplier's credit from the Export-Import Bank of
Japan. The price stated in the three portions were further broken down into the corresponding materials, equipment and services required for the
project and their individual prices. Like the NDC contract, the breakdown in the Philphos contract is contained in a list attached to the latter as Annex
III.36

The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion under the two contracts corresponds to the two parts
into which the contracts were classified the Foreign Offshore Portion and the Philippine Onshore Portion. In both contracts, the Japanese Yen
Portion I corresponds to the Foreign Offshore Portion. 37 Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine
Onshore Portion.38

Under the Philippine Onshore Portion, respondent does not deny its liability for the contractor's tax on the income from the two projects. In fact
respondent claims, which petitioner has not denied, that the income it derived from the Onshore Portion of the two projects had been declared for tax
purposes and the taxes thereon already paid to the Philippine government.39 It is with regard to the gross receipts from the Foreign Offshore Portion
of the two contracts that the liabilities involved in the assessments subject of this case arose. Petitioner argues that since the two agreements are
turn-key,40 they call for the supply of both materials and services to the client, they are contracts for a piece of work and are indivisible. The situs of
the two projects is in the Philippines, and the materials provided and services rendered were all done and completed within the territorial jurisdiction
of the Philippines.41Accordingly, respondent's entire receipts from the contracts, including its receipts from the Offshore Portion, constitute income
from Philippine sources. The total gross receipts covering both labor and materials should be subjected to contractor's tax in accordance with the
ruling in Commissioner of Internal Revenue v. Engineering Equipment & Supply Co. 42

A contractor's tax is imposed in the National Internal Revenue Code (NIRC) as follows:

"Sec. 205. Contractors, proprietors or operators of dockyards, and others. A contractor's tax of four percent of the gross receipts is hereby imposed
on proprietors or operators of the following business establishments and/or persons engaged in the business of selling or rendering the following
services for a fee or compensation:

(a) General engineering, general building and specialty contractors, as defined in Republic Act No. 4566;

xxx xxx xxx

(q) Other independent contractors. The term "independent contractors" includes persons (juridical or natural) not enumerated above (but not
including individuals subject to the occupation tax under the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for
a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or
their employees. It does not include regional or area headquarters established in the Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region.

xxx xxx xxx43

Under the afore-quoted provision, an independent contractor is a person whose activity consists essentially of the sale of all kinds of services for a
fee, regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or
their employees. The word "contractor" refers to a person who, in the pursuit of independent business, undertakes to do a specific job or piece of
work for other persons, using his own means and methods without submitting himself to control as to the petty details. 44

A contractor's tax is a tax imposed upon the privilege of engaging in business. 45 It is generally in the nature of an excise tax on the exercise of a
privilege of selling services or labor rather than a sale on products;46 and is directly collectible from the person exercising the privilege. 47 Being an
excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or performed within the jurisdiction of said
authority.48 Like property taxes, it cannot be imposed on an occupation or privilege outside the taxing district. 49

In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the two subject contracts. Respondent,
however, argues that the work therein were not all performed in the Philippines because some of them were completed in Japan in accordance with
the provisions of the contracts.

An examination of Annex III to the two contracts reveals that the materials and equipment to be made and the works and services to be performed by
respondent are indeed classified into two. The first part, entitled "Breakdown of Japanese Yen Portion I" provides:
"Japanese Yen Portion I of the Contract Price has been subdivided according to discrete portions of materials and equipment which will be shipped
to Leyte as units and lots. This subdivision of price is to be used by owner to verify invoice for Progress Payments under Article 19.2.1 of the Contract.
The agreed subdivision of Japanese Yen Portion I is as follows:

xxx xxx xxx50

The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen Portion II and the Philippine Pesos Portion
enumerate other materials and equipment and the construction and installation work on the project. In other words, the supplies for the project are
listed under Portion I while labor and other supplies are listed under Portion II and the Philippine Pesos Portion. Mr. Takeshi Hojo, then General
Manager of the Industrial Plant Section II of the Industrial Plant Department of Marubeni Corporation in Japan who supervised the implementation of
the two projects, testified that all the machines and equipment listed under Japanese Yen Portion I in Annex III were manufactured in Japan. 51 The
machines and equipment were designed, engineered and fabricated by Japanese firms sub-contracted by Marubeni from the list of sub-contractors
in the technical appendices to each contract. 52 Marubeni sub-contracted a majority of the equipment and supplies to Kawasaki Steel Corporation
which did the design, fabrication, engineering and manufacture thereof; 53 Yashima & Co. Ltd. which manufactured the mobile equipment;
Bridgestone which provided the rubber fenders of the mobile equipment; 54 and B.S. Japan for the supply of radio equipment. 55 The engineering and
design works made by Kawasaki Steel Corporation included the lay-out of the plant facility and calculation of the design in accordance with the
specifications given by respondent.56 All sub-contractors and manufacturers are Japanese corporations and are based in Japan and all engineering
and design works were performed in that country.57

The materials and equipment under Portion I of the NDC Port Project is primarily composed of two (2) sets of ship unloader and loader; several boats
and mobile equipment.58 The ship unloader unloads bags or bulk products from the ship to the port while the ship loader loads products from the port
to the ship. The unloader and loader are big steel structures on top of each is a large crane and a compartment for operation of the crane. Two sets of
these equipment were completely manufactured in Japan according to the specifications of the project. After manufacture, they were rolled on to a
barge and transported to Isabel, Leyte.59 Upon reaching Isabel, the unloader and loader were rolled off the barge and pulled to the pier to the spot
where they were installed.60 Their installation simply consisted of bolting them onto the pier.61

Like the ship unloader and loader, the three tugboats and a line boat were completely manufactured in Japan. The boats sailed to Isabel on their own
power. The mobile equipment, consisting of three to four sets of tractors, cranes and dozers, trailers and forklifts, were also manufactured and
completed in Japan. They were loaded on to a shipping vessel and unloaded at the Isabel Port. These pieces of equipment were all on wheels and
self-propelled. Once unloaded at the port, they were ready to be driven and perform what they were designed to do. 62

In addition to the foregoing, there are other items listed in Japanese Yen Portion I in Annex III to the NDC contract. These other items consist of
supplies and materials for five (5) berths, two (2) roads, a causeway, a warehouse, a transit shed, an administration building and a security building.
Most of the materials consist of steel sheets, steel pipes, channels and beams and other steel structures, navigational and communication as well as
electrical equipment.63

In connection with the Philphos contract, the major pieces of equipment supplied by respondent were the ammonia storage tanks and refrigeration
units.64 The steel plates for the tank were manufactured and cut in Japan according to drawings and specifications and then shipped to Isabel. Once
there, respondent's employees put the steel plates together to form the storage tank. As to the refrigeration units, they were completed and
assembled in Japan and thereafter shipped to Isabel. The units were simply installed there. 65 Annex III to the Philphos contract lists down under the
Japanese Yen Portion I the materials for the ammonia storage tank, incidental equipment, piping facilities, electrical and instrumental apparatus,
foundation material and spare parts.

All the materials and equipment transported to the Philippines were inspected and tested in Japan prior to shipment in accordance with the terms of
the contracts.66 The inspection was made by representatives of respondent corporation, of NDC and Philphos. NDC, in fact, contracted the services
of a private consultancy firm to verify the correctness of the tests on the machines and equipment 67 while Philphos sent a representative to Japan to
inspect the storage equipment.68

The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid by respondent in Japan. In his deposition upon oral
examination, Kenjiro Yamakawa, formerly the Assistant General Manager and Manager of the Steel Plant Marketing Department, Engineering &
Construction Division, Kawasaki Steel Corporation, testified that the equipment and supplies for the two projects provided by Kawasaki under
Japanese Yen Portion I were paid by Marubeni in Japan. Receipts for such payments were duly issued by Kawasaki in Japanese and
English.69 Yashima & Co. Ltd. and B.S. Japan were likewise paid by Marubeni in Japan. 70

Between Marubeni and the two Philippine corporations, payments for all materials and equipment under Japanese Yen Portion I were made to
Marubeni by NDC and Philphos also in Japan. The NDC, through the Philippine National Bank, established letters of credit in favor of respondent
through the Bank of Tokyo. The letters of credit were financed by letters of commitment issued by the OECF with the Bank of Tokyo. The Bank of
Tokyo, upon respondent's submission of pertinent documents, released the amount in the letters of credit in favor of respondent and credited the
amount therein to respondent's account within the same bank.71

Clearly, the service of "design and engineering, supply and delivery, construction, erection and installation, supervision, direction and control of
testing and commissioning, coordination. . . "72 of the two projects involved two taxing jurisdictions. These acts occurred in two countries Japan
and the Philippines. While the construction and installation work were completed within the Philippines, the evidence is clear that some pieces of
equipment and supplies were completely designed and engineered in Japan. The two sets of ship unloader and loader, the boats and mobile
equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and completed in Japan. They were already
finished products when shipped to the Philippines. The other construction supplies listed under the Offshore Portion such as the steel sheets, pipes
and structures, electrical and instrumental apparatus, these were not finished products when shipped to the Philippines. They, however, were
likewise fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication, engineering and manufacture of the
materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not subject to contractor's tax.

Contrary to petitioner's claim, the case of Commissioner of Internal Revenue v. Engineering Equipment & Supply Co73 is not in point. In that case, the
Court found that Engineering Equipment, although an independent contractor, was not engaged in the manufacture of air conditioning units in the
Philippines. Engineering Equipment designed, supplied and installed centralized air-conditioning systems for clients who contracted its services.
Engineering, however, did not manufacture all the materials for the air-conditioning system. It imported some items for the system it designed and
installed.74 The issues in that case dealt with services performed within the local taxing jurisdiction. There was no foreign element involved in the
supply of materials and services.

With the foregoing discussion, it is unnecessary to discuss the other issues raised by the parties.

IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed.

SO ORDERED.

Davide, Jr., C .J ., Kapunan, Pardo, and Ynares-Santiago, JJ ., concur.

Footnotes

1
Assessment Letter of the Commissioner of Internal Revenue, Rollo, pp. 73-74; also marked as Exhibit "C" Pet and Exhibit "2" Resp, Folder No. 11,
BIR Records, pp. 2072-2076.

2
Entitled "Declaring a One-Time Tax Amnesty Covering Unpaid Income Taxes for the Years 1981 to 1985."

3
Entitled "Declaring a One-Time Tax Amnesty Covering Income Taxes, Estate and Donor's Taxes Under Title III, And The Tax on Business Under
Chapter II, Title V, of the National Internal Revenue Code, As Amended, For the Years 1981-1985."

4
CTA Decision, Annex "B" to Petition, Rollo, p. 45.

5
Petition, p. 6; Rollo, p. 15.

6
1984 and 1986 NIRC.

7
Title V, 1984 and 1986 NIRC. Business taxes were replaced in 1988 by the Value-Added Tax under Executive Order No. 273.

8
Comment, pp. 14-15; Rollo, pp. 99-100.

9
Agpalo, Statutory Construction, p. 395 [1998]; Sutherland, Statutory Construction, vol. 1A (5th ed.) Sec. 22.36, p. 304 [1992-1994].

10
People v. Garcia, 85 Phil. 651, 655 [1951]; Sutherland, supra, Sec. 22.35.

11
Buyco v. Philippine National Bank, 112 Phil. 588, 592 [1961]; Pacia v. Kapisanan ng mga Manggagawa sa MRR Co., 99 Phil. 45, 48 [1956];
Agpalo, supra, pp. 370, 395 [1998].

12
A supplementary act is an amendatory act that supplies a deficiency, adds to, completes or extends that which is already in existence without
changing or modifying the original Sutherland, supra, Secs. 22.24 and 22.01.

13
Collector of Internal Revenue v. La Tondea, Inc., 115 Phil. 841, 846-847 [1962].

14
Montilla v. Agustinian Corp., 24 Phil. 220, 222 [1913]; Agpalo, supra, at 370, 395.

15
Republic v. Intermediate Appellate Court, 196 SCRA 335, 340 [1991] citing Commissioner of Internal Revenue v. Botelho Corporation & Shipping
Co., Inc., 20 SCRA 487 [1967].

16
Ibid.

17
Commissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152, 171-172 [1999]; People v. Castaeda, 165 SCRA 327, 341 [1988].

18
People v. Castaeda, supra, at 341; E. Rodriguez Inc. v. Collector of Internal Revenue, 28 SCRA 1119, 1127-1128 [1969]; Commissioner of
Internal Revenue v. A.D. Guerrero, 21 SCRA 180, 183-185 [1967]; Asiatic Petroleum v. Llanes, 49 Phil. 466, 471 [1926].

19
Asiatic Petroleum v. Llanes, supra, at 471-472.

20
Exh. "AA," Project Background, Philippine Phosphatic Fertilizer Corporation, Folder No. 5, CTA Case No. 4109.

Pasar is a copper smelter plant whose sulfuric acid by-product is used in manufacturing fertilizers Exhibit "AA-1" Pet, Folder No. 5, CTA Case
21

No. 4109
22
Exhibit "J" Pet, "Wharf/Port Complex," Turn-Key Contract for Leyte Industrial Estate Port Project Between the National Development Company [sic]
and Marubeni Corporation (hereinafter to be referred to as the "NDC Contract"), Folder No. 2, CTA Case No. 4109 and CTA Case No. 4110.

23
Exhibit "J" Pet, NDC Contract, Article 1, supra.

24
Exhibit "J" Pet, NDC Contract, Article 2.1, supra.

25
"Scope of Work," Exhibit "J" Pet, NDC Contract, Article 2.2, supra.

26
Exhibit "JJJ" Pet, Exchange of Notes dated June 9, 1981 by and between the Japanese and Philippine Governments, Folder No. 8, CTA Case No.
4109 and CTA Case No. 4110.

27
Exhibit "JJJ-1" Pet, "Loan Agreement for the Leyte Industrial Estate Port Development Project," Folder No. 8, CTA Case No. 4109 and CTA Case
No. 4110.

28
Takeshi Hojo, TSN of March 23, 1990, pp. 17-20.

29
Exhibit "J-2" Pet, Breakdown of Japanese Yen Portions I & II and Philippine Pesos Portion of Contract Price, Annex III to NDC Contract, Folder No.
2, CTA Case No. 4109 and CTA Case No. 4110.

30
Exhibit "I" Pet, Folder No. 4, CTA Case No. 4109 and CTA Case No. 4110.

31
Ammonia is one of the raw materials for fertilizer production Hojo, TSN of March 21, 1990, pp. 20-21.

32
Exhibit "I" Pet, Article 2.1, Turn-key Contract for Ammonia Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni
Corporation," (hereinafter referred to as Philphos Contract), supra.

33
Exhibit "I" Pet, Article I, "Ammonia Storage Complex," Philphos Contract, supra.

34
Exhibit "I" Pet, Article 2.1, Philphos Contract, supra.

35
"Scope of Work," Exhibit "I" Pet," Article 2.2, Philphos Contract, supra.

36
Exhibit "I-2 Pet," Breakdown of Japanese Yen Portions I & II and Philippine Pesos Portion of Contract Price, Annex III to Philphos Contract, Folder
No. 4, CTA Case No. 4109 and CTA Case No. 4110.

37
Hojo, TSN of March 22, 1990, pp. 6-7.

38
Id.

39
Footnote No. 2, Comment, p.16; Rollo, p. 19.

40
A "turn-key job" is defined as a job or contract in which the contractor agrees to complete the work of building and installation to the point of
readiness for operation or occupancy Webster's Third New International Dictionary of the English Language, Unabridged [1993].

41
Exhibit "4" Resp, Memorandum of Head Revenue Examiner to the Commissioner of Internal Revenue, BIR Records, Folder No. 11, CTA Case No.
4109 and CTA Case No. 4110; Exhibit "2" Resp, Letter Assessment of Commissioner Tan, Rollo, pp. 73-77.

42
64 SCRA 590 [1975].

43
1984 NIRC; Sec. 170, 1986 NIRC. The contractor's tax was replaced in 1988 by the Value-Added Tax pursuant to Executive Order No. 273.

44
Commissioner of Internal Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590, 597-598 [1975].

45
Section 205 in relation to Section 188, 1984 NIRC; Aranas, National Internal Revenue Code, vol. 2, p. 134 [1983].

46
Commissioner of Internal Revenue v. Court of Tax Appeals and Avecilla Building Corp., 134 SCRA 49, 54 [1985];Celestino & Co. v. Collector, 99
Phil. 841, 843 [1956]; E. Gonzales and C. Gonzales, National Internal Revenue Code, p. 527 [1984].

47
Gonzales and Gonzales, National Internal Revenue Code, p. 456 [1986].

48
Iloilo Bottlers, Inc. v. City of Iloilo, 164 SCRA 607, 615 [1988]; Commissioner of Internal Revenue v. British Overseas Airways Corp., 149 SCRA
395, 410 [1987].
49
Gulf Refining Co. v. City of Knoxville, 136 Tenn 23, 188 SW 798, 799 [1916]; Robinson v. City of Norfolk, 108 Va. 14, 60 SE 762, 763-764, 15 LRA
(N.S.) 294 [1908] a license tax for revenue cannot be imposed by a city upon a circus exhibiting beyond its territorial limits; see also Cooley, The
Law of Taxation, vol. 4, Secs. 1675, 1683; Cooley, vol. 1, Secs. 46, 94-95 [1924].

50
Exhibit "J-2" Pet, Annex III to NDC Contract, supra; Exhibit "I-2" Pet, Annex III to Philphos Contract, supra.

51
Hojo, TSN of March 22, 1990, pp. 11, 15.

52
Exhibits "J-8-a" to "J-8-d" Pet ,Vendor's List, Chapter 1.14, Leyte Industrial Estate Port Development Project, Technical Appendices to the Contract,
pp. 1-127 to 1-131, Folder No. 2, CTA Case No. 4109; Exhibits "I-13-a" to "I-13-i" Pet, Vendor's List for Main Items, Chapter II, Technical Appendices
for Leyte Fertilizer Project, Ammonia Storage Complex, pp. II-5.7-1 to II-5.7-9, Folder No. 1, CTA Case No. 4109.

53
Hojo, TSN of March 22, 1990, p. 34; Kenjiro Yamakawa, TSN of Deposition Upon Oral Examination, January 31, 1992, p. 6; Exhibit "OO" Pet, Plant
Supply Contract between Marubeni and Kawasaki Steel Corporation for NDC Project, Folder No. 6, CTA Case No. 4109; Exhibit "BBB-1" Pet, Plant
Supply Contract between Marubeni and Kawasaki Steel Corporation for Philphos Project, Folder No. 7, CTA Case No. 4109. Both contracts allow
Marubeni to procure materials and equipment from an approved list of sub-contractors without need of further approval from the owner Article 8.4,
Philphos contract; Article 8.4, NDC contract, supra.

54
Hojo, TSN of March 22, 1990, p. 34.

55
Exhibit "AAA-1" to "AAA-1-b" Pet, Folder No. 7, CTA Case No. 4109.

56
Hojo, TSN of March 21, 1990, p. 32.

57
Hojo, TSN of March 21, 1990, pp. 33-34.

58
Exhibit "J-2" Pet, Annex III to NDC Contract, pp. 356-363, supra.

59
Exhibit "FF" Pet, Photograph of ship unloader and loader on a barge, Folder No. 5, CTA Case No. 4109.

60
Hojo, TSN of March 22, 1990, pp. 11-12; Exhibit "FF-1" Pet, Photograph of roll off works for ship unloader, Folder No. 5, CTA Case No. 4109.

61
Hojo, TSN of March 22, 1990, pp. 11-12; TSN of March 23, 1990, pp. 39-40.

62
Hojo, TSN of March 23, 1990, pp. 38-39; Exhibits "II" and "JJ" Pet, Photographs of mobile equipment, Folder No. 5, supra.

63
Annex III to NDC Contract pp. 357-363, Exhibit "J-2" Pet, Folder No. 2, CTA Case No. 4109 and CTA Case No. 4110.

64
Hojo, TSN of March 23, 1990, pp. 42-43.

65
Hojo, TSN of March 23, 1990, pp. 42-43.

66
Exhibit "J" Pet, Article 11, pp. 45-47, NDC Contract, supra; Exhibit "I" Pet, Article 11.5, pp. 43-44, Philphos Contract, supra.

67
Exhibit "KK" Pet, NDC Board Resolution appointing Pacific Consultants, Int'l., Folder No. 3, CTA Case No. 4109.

68
Exhibit "LL" Pet, letter of Philphos VP appointing a representative to inspect storage equipment, Folder No. 5, CTA Case No. 4109.

69
Exhibits "VV," "VV-1" to "VV-50-a" Pet, Folder No. 7, CTA Case No. 4109; Exhibits "CCC-1" to "CCC-27-a" Pet, Folder No. 6, CTA Case No. 4109.

70
Hisatsugu Yoshida, TSN of September 20, 1991, pp. 15-33; Exhibits "VV" Pet, "ZZ," "ZZ-2-d," "AAA" Pet, Folder No. 6, CTA Case No. 4109.

71
Yoshida, TSN of Deposition Upon Oral Interrogatories, January 27, 1993, pp. 11-12; Exhibits "JJJ-3" to "JJJ-17-c" Pet, Folder No. 10, CTA Case
No. 4109.

72
"Scope of Work," Exhibit "J" Pet, Article 2.1, NDC Contract; Exhibit "I" Pet, Article 2.1 Philphos Contract.

73
64 SCRA 590 [1975].

74
Such as refrigeration compressors in complete set, heat exchangers or coils Id., at 598.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,


vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON. VICENTE R. JAYME, in his capacity
as Secretary of the Department of Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U.
ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW
BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.


Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:
This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and
the production of power from other sources. 1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges and
restrictions of the Republic of the Philippines, its provinces, cities and municipalities.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress declared as a national policy the total
electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and rural
electrification which should be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial
institutions. The corporate existence of NPC was extended to carry out this policy, specifically to undertake the development of hydro electric
2

generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis. Being a non-profit corporation, Section 13 of the law provided in detail the exemption of the NPC from all taxes, duties, fees,
3

imposts and other charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of Republic Act No. 6395 by specifying, among
others, the exemption of NPC from such taxes, duties, fees, imposts and other charges imposed "directly or indirectly," on all petroleum products
used by NPC in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of government-owned or controlled
corporations including their subsidiaries. However, said law empowered the President and/or the then Minister of Finance, upon recommendation of
4

the FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and duty exemption privileges of NPC from June
11, 1984 to June 30, 1985. On January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges
effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty incentives granted to government and private
entities which had been restored under Presidential Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax and/or duty exemptions.

On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective March 10, 1987. On October 5,
1987, the President, through respondent Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties originally paid by respondents Caltex, Petrophil and
Shell for specific and ad valorem taxes to the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell and Caltex to the Bureau of
Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability of Public Officers and Investigations (Blue Ribbon)
Report No. 474 dated January 12, 1989 and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are identified in
quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No. 1931 was promulgated abolishing the tax exemptions of all
government-owned or-controlled corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and
delivered to the NPC. This non-payment of taxes therefore spanned a period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the purchases of NPC of petroleum products from the oil
companies on the erroneous belief that the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the letter of Deputy
Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated October 29, 1980 granting blanket authority to the NPC to purchase
petroleum products from the oil companies without payment of specific tax (copy of this letter is attached hereto as petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only after the promulgation of P.D. No. 1931
on June 11, 1984, withdrawing all exemptions granted in favor of government-owned or-controlled corporations and empowering the FIRB to
recommend to the President or to the Minister of Finance the restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum products to NPC covering the period from October 31, 1984 to
April 27, 1985." (par. 23, p. 7, Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax portion. Beginning June 11, 1984, when P.D. 1931 was
promulgated abolishing NPC's tax exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn, Oct. 10, 1988, pp. 1-5)
(par. 24, p, 7, Annex "A")
4. For the sales of petroleum products delivered to NPC during the period from October, 1984 to April, 1985, NPC was billed a total of
P522,016,77.34 (sic) including both duties and taxes, the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified true copy of which is hereto attached as Annex "C",
restored the tax exemption privileges of NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said resolution reads
as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under C.A. No. 120, as amended, are
restored up to June 30, 1985.

Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR for a "refund of Specific Taxes paid on petroleum
products . . . in the total amount of P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's Annex "D"), Acting BIR Commissioner Ruben Ancheta
declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase petroleum products from the oil companies free of specific and ad
valorem taxes, during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

7. On June 6, 1985The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata, Chairman of the FIRB (Annex "E"), requesting "the FIRB
to resolve conflicting rulings on the tax exemption privileges of the National Power Corporation (NPC)." These rulings involve FIRB Resolutions No.
1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata confirmed the ruling of May 8, 1985 of Acting BIR
Commissioner Ruben Ancheta, (par. 41, p. 12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil Development Co., Ltd., a Korean contractor of NPC for its
infrastructure projects, certified true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as amended by P.D. 938, this Office is of the opinion, and so holds, that
the scope of the tax exemption privilege enjoyed by NPC under said section covers only taxes for which it is directly liable and not on taxes which are
only shifted to it. (Phil. Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly payable by the contractor, not by
NPC, your request for exemption, based on the stipulation in the aforesaid contract that NPC shall assume payment of your contractor's tax liability,
cannot be granted for lack of legal basis." (Annex "H") (emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for which it is directly liable and does not cover taxes which are
only shifted to it or for indirect taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by Ancheta himself favoring
NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex (Annex "F"), the BIR Commissioner declared that PAL's
tax exemption is limited to taxes for which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum products is a
direct liability of the manufacturer or producer thereof". (par. 51, p. 15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax exemptions retroactively from July 1, 1985 to a indefinite period,
certified true copy of which is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the P58,020,110.79 (corresponding to Caltex) was approved and
released by way of a Tax Credit Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto as petitioner's Annex "F,"
which was assigned by NPC to Caltex. BIR Commissioner Tan approved the Deed of Assignment on July 30, 1987, certified true copy of which is
hereto attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to Caltex in partial settlement of its outstanding obligations to
the latter while Caltex, in turn, would apply the assigned tax credit against its specific tax payments for two (2) months. (per memorandum dated July
28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax credit assigned to Caltex, the NPC reiterated its request
for the release of the balance of its pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period from June 11, 1984
to early part of 1986 amounting to P410.58 million. (The claim of the first two (2) oil companies covers the period from June 11, 1984 to early part of
1986; while that of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18, 1986, under BIR Ruling 152-86 (certified
true copy of which is attached hereto as petitioner's Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered only
the period from June 11, 1984 up to June 30, 1985. It further declared that, despite FIRB No. 1-86, NPC had already lost its tax and duty exemptions
because it only enjoys special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410 Million tax refund application of
NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2;
Memorandum for the Complainant, Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")
15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR Commissioner Tan, Jr. (certified true copy of which is
hereto attached and made a part hereof as petitioner's Annex "J"), reversed his previous position and states this time that all deliveries of petroleum
products to NPC are tax exempt, regardless of the period of delivery.

16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93, entitled "Withdrawing All Tax and Duty Incentives,
Subject to Certain Exceptions, Expanding the Powers of the Fiscal Incentives Review Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax exemption privilege and included in the exemption "those
pertaining to its domestic purchases of petroleum and petroleum products, and the restorations were made to retroact effective March 10, 1987, a
certified true copy of which is hereto attached and made a part hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoez, Secretary of Justice, issued Opinion No. 77, series of 1987, opining that "the power conferred
upon Fiscal Incentives Review Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of legislative power and,
therefore, [are] unconstitutional," a copy of which is hereto attached and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to the Chairman of the FIRB a certified true copy of which
is hereto attached and made a part hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June 24, 1987, allegedly
pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig, who by letter dated May 2, 1988 asked him to rule "on
whether or not, as the law now stands, the National Power Corporation is still exempt from taxes, duties . . . on its local purchases of . . . petroleum
products . . ." declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum
products purchased locally and used for the generation of electricity," a certified true copy of which is attached hereto as petitioner's Annex "N." (par.
30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1 5, 1988 but without the usual official form of "By the
Authority of the President," a certified true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on the RESOLUTION No. 17-87 of FIRB restoring the tax
and duty exemption of the respondent NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988 reported that the Office of the President and the
Department of Finance had ordered the BIR to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410 Million Tax
refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B.
Fernando to BIR Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner Tan requesting them to hold in abeyance the release of
the Pl.58 billion and await the outcome of the investigation in regard to Senate Resolution No. 227," copies attached as Petitioner's Annexes "P" and
"P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of the BIR dated August, 1988 requesting him to hold in
abeyance the release of the tax refunds to NPC until after the termination of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof from customs custody, the corresponding customs duties
and ad valorem taxes are paid. Bunker fuel oil is one of the petroleum products processed from the crude oil; and same is sold to NPC. After the sale,
NPC applies for tax credit covering the duties and ad valorem exemption under its Charter. Such applications are processed by the Bureau of
Customs and the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to the oil firm that imported the crude oil.
These certificates are eventually used by the assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of Customs. (par. 70,
p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being sought by respondent NPC for refund from the Bureau
of Customs for duties paid by the oil companies on the importation of crude oil from which the processed products sold locally by them to NPC was
derived. However, based on figures submitted to the Blue Ribbon Committee of the Philippine Senate which conducted an investigation on this
matter as mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a much bigger figure was actually refunded to
NPC representing duties and ad valorem taxes paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979 to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227, entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To conduct a Formal and Extensive Inquiry into the Reported Massive
Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By
Their Availing of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax
Refund Totalling P1.55 Billion From the Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting to Billions of Pesos on
Imported Crude Oil Purportedly for the Use of the National Power Corporation, the Non-Payment of Surtax on Windfall Profits from Increases in the
Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a lengthy formal inquiry on the matter, calling all parties
interested to the witness stand including representatives from the different oil companies, and in due time submitted its Committee Report No. 474 . . .
The Blue Ribbon Committee recommended the following courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power Corporation (NPC) and its approval of Tax Credit memo covering
said amount (Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of Assignment (Annex "Q" hereto) by NPC to Caltex, dated
July 28, 1986, and collect from Caltex its tax liabilities which were erroneously treated as paid or settled with the use of the tax credit certificate that
NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when PD 938 was issued. Therefore, the grant of a tax refund to NPC in the
amount of P58 million was illegal, and therefore, null and void. Such refund was a nullity right from the beginning. Hence, it never transferred any
right in favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil companies on the same ground that the NPC, since May 27, 1976
up to June 17, 1987 was never granted any indirect tax exemption. So, the P1.58 billion represent taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on petroleum products sold to NPC from May 27, 1976 (promulgation of PD
938) to June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of petroleum products by NPC and allegedly granted
under the NPC charter covering the years 1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the Bureau of Internal Revenue and of
Customs to proceed with the processing of claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his ruling, the
dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless restrained by proper authorities, that department
and/or its line-tax bureaus may now proceed with the processing of the claims of the National Power Corporation for duty and tax free exemption
and/or tax credits/ refunds, if there be any, in accordance with the ruling of that Department dated May 20,1988, as confirmed by this Office on June
15, 1988 . . .
5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining order, praying among
others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against respondent FIRB Executive Secretary Macaraig, and
Secretary of Finance Jayme restraining them and other persons acting for, under, and in their behalf from enforcing their resolution, orders and ruling,
to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

B. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q"); and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of Customs Mison and Internal Revenue Ong restraining them
from processing and releasing any pending claim or application by respondent NPC for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary injunction against above-named respondents and all persons
acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May 27, 1976 up to the present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax refund for P58,020,110.79 (petitioner's Annex "F");
7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30, 1987 (petitioner's Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with the Bureau of Internal Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC by way of tax credit certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by respondent NPC with the Bureau of Customs and the Bureau
of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal Revenue from enforcing the abovequestioned resolution, orders
and ruling of respondents Executive Secretary, Secretary of Finance, and FIRB by processing and releasing respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the pending claims for refund of respondent NPC with the
Bureau of Customs covering the period from 1985 to the present; to cancel and invalidate the illegal payment made by respondents Caltex, Shell and
PNOC by using the tax credit certificates assigned to them by NPC and to recover from respondents Caltex, Shell and PNOC all the amounts
appearing in said tax credit certificates which were used to settle their duty and tax liabilities with the Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending claims for refund of respondent NPC with the
Bureau of Internal Revenue covering the period from June 11, 1984 to June 17, 1987.

PETITIONER prays for such other relief and remedy as may be just and equitable in the premises. 6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty refunds, this Honorable Court must resolve the following
issues:

Main issue

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment of P.D. No. 938 on May 27, 1976 which
amended P.D. No. 380, issued on January 11, 1974.

Corollary issues

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's tax exemption privilege effective June 11, 1984 to June
30, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985 included the restoration
of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24, 1987 which restored NPC's tax exemption privilege
effective March 10, 1987; and if said Resolution was validly issued, the nature and extent of the tax exemption privilege restored to NPC. 7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required respondents to comment thereon, within ten (10)
days from notice. The respondents having submitted their comment, on October 10, 1989 the Court required petitioner to file a consolidated reply to
the same. After said reply was filed by petitioner on November 15, 1989 the Court gave due course to the petition, considering the comments of
respondents as their answer to the petition, and requiring the parties to file simultaneously their respective memoranda within twenty (20) days from
notice. The parties having submitted their respective memoranda, the petition was deemed submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public
respondent argues that petitioner must show he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere
general interest common to all members of the public. 8

The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal
expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned
tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for petitioner is an appeal to the
Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said law provides

Sec. 11. Who may appeal; effect of appealAny person, association or corporation adversely affected by a decision or ruling of the Commissioner of
Internal Revenue, the Collector of Customs (Commissioner of Customs) or any provincial or City Board of Assessment Appeals may file an appeal in
the Court of Tax Appeals within thirty days after receipt of such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Commissioner of
Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not
found by him to be proper. It would be tantamount to a usurpation of executive functions. 9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal Revenue and
Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. 10

Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of jurisdiction or to prevent the
11

oppressive exercise of legal authority. Precisely, petitioner questions the lawfulness of the acts of public respondents in this case.
12

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an indirect tax. A direct tax is a tax for which a
taxpayer is directly liable on the transaction or business it engages in. Examples are the custom duties and ad valorem taxes paid by the oil
companies to the Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal
Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else ." For example, the excise
13

and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted
to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential Decree No. 938, the exemption of NPC from
indirect taxation was revoked and repealed. While petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect
taxes on the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under Presidential Decree No. 380, however, by the
deletion of the phrases "directly or indirectly" and "on all petroleum products used by the Corporation in the generation, transmission, utilization and
sale of electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No. 938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No. 938 regarding the payments of "all forms of
taxes, etc." cannot be interpreted to include indirect tax exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal
Revenue. Petitioner emphasizes the principle in taxation that the exception contained in the tax statutes must be strictly construed against the one
14

claiming the exemption, and that the rule that a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved against its existence. Petitioner cites rulings of
15

the BIR that the phrase exemption from "all taxes, etc." from "all forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is
directly liable.
16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree No. 1931, the relevant provision of which are
to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes . . . heretofore
granted in favor of government-owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal Incentives Review Board . . . is
hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under C.A. No. 120
as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the NPC is hereby required to
furnish the FIRB on a periodic basis the particulars of items received or to be received through such arrangements, for purposes
of tax and duty exemptions privileges. 17
Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC) under
Commonwealth Act No. 120, as amended, are restored: Provided, That importations of fuel oil (crude oil equivalent), and coal of
the herein grantee shall be subject to the basic and additional import duties; Provided, further, that the following shall remain fully
taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other monetary benefits from deposit substitutes,
trust funds and other similar arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by
it provided that the beneficial use of the property is not transferred to another pursuant to the provisions of Sec. 10(a) of the Real
Property Tax Code, as amended. 18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86. Indeed, they were issued in compliance with the
requirement of Section 2, P.D. No. 1931, whereby the FIRB should make the recommendation subject to the approval of "the President of the
Philippines and/or the Minister of Finance." While said Resolutions do not appear to have been approved by the President, they were nevertheless
approved by the Minister of Finance who is also duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions. 19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and 1-86 which were promulgated by then Acting
Minister of Finance Alfredo de Roda, Jr. and Minister of Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately approved
by said Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of the said resolutions which are reproduced in full in the
dissenting opinion show that the said officials signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay, wherein the Court observed that under
20

P.D. No. 776 the power of the FIRB was only recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were not valid and effective while the validity of FIRB
17-87 was upheld as it was duly approved by the Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended P.D. No. 776, it is clearly provided for that
such FIRB resolution, may be approved by the "President of the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos.
10-85 and 1-86 were duly approved by the Minister of Finance, hence they are valid and effective. To this extent, this decision modifies or
supersedes the Court's earlier decision in Albay afore-referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption privileges enjoyed by the NPC under its charter, C.A.
No. 120, as amended, are restored, that is, only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under the
principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a tax credit certificate which was assigned to
21

respondent Caltex through a deed of assignment approved by the BIR is patently illegal. He also contends that the pending claim of respondent
22

NPC in the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex
from July 1, 1985 up to 1986, being illegal, should not be released.

Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June 24, 1987. It was issued under authority of
Executive Order No. 93 dated December 17, 1986 which grants to the FIRB among others, the power to recommend the restoration of the tax and
duty exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the effect that the powers conferred upon the FIRB by
Section 2(a), (b), and (c) and (4) of Executive Order No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional."
Petitioner observes that the FIRB did not merely recommend but categorically restored the tax and duty exemption of the NPC so that the
memorandum of the respondent Executive Secretary dated October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine in Philippine Aceytelene, petitioner avers that
the restoration cannot cover indirect taxes and it cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the government of the Republic of the
23

Philippines. From the very beginning of its corporate existence, the NPC enjoyed preferential tax treatment to enable the Corporation to pay the
24 25

indebtedness and obligation and in furtherance and effective implementation of the policy enunciated in Section one of "Republic Act No.
6395" which provides:
26

Sec. 1. Declaration of PolicyCongress hereby declares that (1) the comprehensive development, utilization and conservation of Philippine water
resources for all beneficial uses, including power generation, and (2) the total electrification of the Philippines through the development of power from
all sources to meet the need of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and
restrictions of the Republic of the Philippines, its provinces, cities and municipalities."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and other Charges by Government and
Governmental Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be
a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and
projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and
sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 380:

Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees, Imposts and other Charges by the Government and
Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared, exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in any court or administrative proceedings in which it may
be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other
governmental agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operation and
projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum produced used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and
Government Instrumentalities.The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries hereby declared exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings. (Emphasis supplied.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all taxes, duties, fees, imposts, charges,
etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380,
made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in
its operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from
"all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. The
rationale for this exemption is that being non-profit the NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, . . ."
27

The preamble of P.D. No. 938 states

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-profit character of the NPC has not been fully
utilized because of restrictive interpretations of the taxing agencies of the government on said provisions. . . . (Emphasis supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be construed strictly against NPC. On
the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political
subdivision or instrumentality. 28

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with
reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of
treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. 29

In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same
degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the rule and taxation the
exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A. No. 6395 and P.D. No. 380, is deemed repealed
by P.D. No. 938 when the reference to it was deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to be passed with deliberation and
with knowledge of all existing ones on the subject, it is logical to conclude that in passing a statute it is not intended to interfere with or abrogate a
former law relating to the same subject matter, unless the repugnancy between the two is not only irreconcilable but also clear and convincing as a
result of the language used, or unless the latter Act fully embraces the subject matter of the earlier. The first effort of a court must always be to
31

reconcile or adjust the provisions of one statute with those of another so as to give sensible effect to both provisions. 32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or a particular provision
alone. When construing a statute, the reason for its enactment should be kept in mind and the statute should be construed with reference to its
33

intended scope and purpose and the evil sought to be remedied.


34 35

The NPC is a government instrumentality with the enormous task of undertaking development of hydroelectric generation of power and production of
electricity from other sources, as well as the transmission of electric power on a nationwide basis, to improve the quality of life of the people pursuant
to the State policy embodied in Section E, Article II of the 1987 Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes
as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given controlling weight. 36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June 26, 1985 confirming said ruling, the letters of
the BIR of August 18, 1986, and December 22, 1986, the letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive
Secretary of October 9, 1987, by authority of the President, confirming and approving FIRB Resolution No. 17-87, the letter of the Secretary of
Finance of May 20, 1988 to the Executive Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it was
uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as amended, included exemption from payment of all taxes relative to
NPC's petroleum purchases including indirect taxes. Thus, then Secretary of Finance Vicente Jayme in his letter of May 20, 1988 to the Executive
37

Secretary Macaraig aptly stated the justification for this tax exemption of NPC

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the phrase 'taxes imposed indirectly on oil products and its
exemption from 'all forms of taxes.' It is suggested that the change in language evidenced an intention to exempt NPC only from taxes directly
imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes on fuel-oil purchased by NPC locally are levied on and paid by its oil
suppliers, NPC thereby lost its exemption from those taxes. The principal authority relied on is the 1967 case of Philippine Acetylene Co., Inc. vs.
Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the strengthening of NPC's preferential tax treatment was clearly the
intention. To the extent that the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes effected by P.D. 938 can only
be read as being expansive rather than restrictive, including its version of Section 13.
Our Tax Code does not recognize that there are taxes directly imposed and those imposed indirectly. The textbook distinction between a direct and
an indirect tax may be based on the possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the very person
intended to be the payor, although it may ultimately be shifted to another. An example of a direct tax is the personal income tax. On the other hand,
indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of
another. An example of this type of tax is the sales tax levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of no moment. What is more relevant is that when an
"indirect tax" is paid by those upon whom the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the market price of the
commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case, when he analyzed the nature of the percentage (sales) tax
to determine whether it is a tax on the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls upon the manufacturer
or producer. The phrase "pass on" the tax was criticized as being inaccurate. Justice Castro says that the tax remains on the manufacturer alone.
The purchaser does not pay the tax; he pays an amount added to the price because of the tax. Therefore, the tax is not "passed on" and does not for
that reason become an "indirect tax" on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976 may have used
lessons from the analysis of Chief Justice Castro in 1967 Philippine Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the so-called oil crunch had already drastically pushed up
crude oil Prices from about $1.00 per bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-78, NPC was
operating the Meralco thermal plants under a lease agreement. The power generated by the leased plants was sold to Meralco for distribution to its
customers. This lease and sale arrangement was entered into for the benefit of the consuming public, by reducing the burden on the swiftly rising
world crude oil prices. This objective was achieved by the use of NPC's "tax umbrella under its Revised Charterthe exemption from specific taxes
on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have withdrawn the exemption from tax on fuel oil to which NPC was
already entitled and which exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies on oil products sold to NPC, whether paid to them by NPC
or no never entered into the rates charged by NPC to its customers not even during those periods of uncertainty engendered by the issuance of P.D.
1931 and E. 0. 93 on NP/Cs tax status. No tax component on the fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining process, specific and ad valorem taxes are levied on the
finished products including fuel oil or residue upon their withdrawal from the refinery. These taxes are paid by the oil companies as the manufacturer
thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax component. NPC pays the oil companies' invoices including
the duty component but net of the tax component. NPC then applies for drawback of customs duties paid and for a credit in amount equivalent to the
tax paid (by the oil companies) on the products purchased. The tax credit is assigned to the oil companiesas payment, in effect, of the tax
component shown in the sales invoices. (NOTE: These procedures varied over timeThere were instances when NPC paid the tax component that
was shifted to it and then applied for tax credit. There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all exemptions
of government corporations. In these latter instances, the resolutions of the Fiscal Incentives Review Board (FIRB) come into play. These incidents
will not be touched upon for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically (without need of fresh approvals) reflected in the
subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept liability to the tax and duty component on the oil products,
such amount will go into its fuel cost and be passed on to its customers through corresponding increases in rates. Since 1974, when NPC operated
the oil-fired generating stations leased from Meralco (which plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's
electric rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed upon me by yet another circumstance. It is conceded
that NPC at the very least, is exempt from taxes to which it is directly liable. NPC therefore could very well have imported its fuel oil or crude residue
for burning at its thermal plants. There would have been no question in such a case as to its exemption from all duties and taxes, even under the
strictest interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976, there were already operating in the Philippines
three oil refineries. The establishment of these refineries in the Philippines involved heavy investments, were economically desirable and enabled the
country to import crude oil and process / refine the same into the various petroleum products at a savings to the industry and the public. The refining
process produced as its largest output, in volume, fuel oil or residue, whose conventional economic use was for burning in electric or steam
generating plants. Had there been no use locally for the residue, the oil refineries would have become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC to by-pass the local oil refineries and import its fossil fuel
requirements directly in order to avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both for economic
development and national security reasons. In fact, the restoration by the FIRB of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded
direct fuel oil importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the provisions of its Revised Charter retains its exemption from
duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise and control the collection of government revenues by
the application and implementation of revenue laws. It is prepared to take the measures supplemental to this ruling necessary to carry the same into
full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that
while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a consequence, as of
our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to
be specific order to the Bureaus concerned for the resumption of the processing of these claims." 38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said opinion ruling of the latter was
confirmed and its implementation was directed. 39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the Secretary of Finance as confirmed by the then
Executive Secretary are well-taken. When the NPC was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No.
938, it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or indirectly on petroleum products used in its
operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the NPC extends only to taxes for which it is directly
liable and not to taxes merely shifted to it. However, these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It involved the sales tax of products the plaintiff
sold to NPC from June 2, 1953 to June 30,1958 when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so plaintiff cannot claim exemptions simply because
the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC whereby Section 13 thereof was amended by
emphasizing its non-profit character and expanding the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345 spells out clearly the exemption of the NPC from
indirect taxes. And as hereinabove stated, in P.D. No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to
include those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the same in general terms to cover "all forms of
taxes, duties, fees, imposts, etc." which, as hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used in its
operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the authority of which FIRB Resolution Nos.
10-85 and 1-86 were issued, and when Executive Order No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental circumstances. As a matter of fact, the
amendments of Section 13, under R.A. No. 6395, P.D. No, 380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent
rulings of the tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption of the NPC from indirect taxes on
petroleum products it uses in its operation. Effectively, said amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax
exemption of NPC should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the affirmative, that is, FIRB Resolution No. 10-85
dated February 7, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration
of the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which restored NPC's tax exemption privilege
effective March 10, 1987, the Court finds that the same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power Corporation, including those
pertaining to its domestic purchases of petroleum and petroleum products, granted under the terms and conditions of Commonwealth Act No. 120
(Creating the National Power Corporation, defining its powers, objectives and functions, and for other purposes), as amended, are restored effective
March 10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not limited to those financed by the NPC's own internal funds,
domestic borrowings from any source whatsoever, borrowing from foreign-based private financial institutions, etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of disposition of relieved tax and duty payments for such
expansion on an annual basis or as often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB reporting
requirements on incentive availment. 40

Executive Order No. 93 provides as follows


Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted " to government and private
entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in
combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible
beneficiaries and the terms and conditions for the grant thereof taking into consideration the international commitments of the Philippines and the
necessary precautions such that the grant of subsidies does not become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into account any or all of the following
considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that the powers conferred upon the FIRB by
Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue delegation of legislative power and is therefore unconstitutional. However,
he was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated March 30, 1989. The Executive Secretary, by
authority of the President, has the power to modify, alter or reverse the construction of a statute given by a department secretary. 41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The standards of the delegated power are also clearly
provided for.

The required "standard" need not be expressed. In Edu vs. Ericta and in De la Llana vs. Alba this Court held: "The standard may be either express
42 43

or implied. If the former, the non-delegated objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."
In People vs. Rosenthal the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams, , it was "public welfare" and
44 45

in Cervantes vs. Auditor General, it was the purpose of promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law
46

as a whole, "national security" was considered sufficient standard and so was "protection of fish fry or fish eggs.
47 48

The observation of petitioner that the approval of the President was not even required in said Executive Order of the tax exemption privilege
approved by the FIRB unlike in previous similar issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the President. In this case, FIRB Resolution No. 17-87 was
approved by the respondent Executive Secretary, by authority of the President, on October 15, 1987. 49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated

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 direct and efficacious, not to say specific solutions. 50

Thus, in the case of Tablarin vs. Gutierrez, this Court enunciated the rationale in favor of delegation of legislative functions
51

One thing however, is apparent in the development of the principle of separation of powers and that is that the maxim of delegatus non potest
delegare or delegati potestas non potest delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline, Yale
University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the Roman Law d. 17.18.3) has been made to adapt itself to the
complexities of modern government, giving rise to the adoption, within certain limits, of the principle of subordinate legislation, not only in the United
States and England but in practically all modern governments. (People vs. Rosenthal and Osmea, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency toward the delegation of greater power by the legislative, and toward the approval of the practice by the
Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of persons or entities
would be restored. The task may be assigned to an administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption can be overturned if its invalidity
is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of constitutionality of legislation should be adopted. 52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And as above discussed, the tax exemption
privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum
products used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay. 53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by President Marcos in 1984 are invalid as they were
presumably promulgated under the infamous Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members of the Batasan Pambansa." And, even
conceding that the reservation of legislative power in the President was valid, it is opined that it was not validly exercised as there is no showing that
such presidential encroachment was justified under the conditions then existing. Consequently, it is concluded that Executive Order No. 93, which
was intended to implement said decrees, is also illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay, as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree withdrew tax exemptions of
54

government-owned or controlled corporations including their subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as
above-discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86 cannot be enforced as said resolutions were
only recommendatory and were not duly approved by the President of the Philippines as required by P.D. No. 776. The Court also sustained 55

in Albaythe validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No. 17-87 which was issued pursuant
thereto, as it was duly approved by the President as required by said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other executive issuances not inconsistent with this constitution
shall remain operative until amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with the Constitution. 1wphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are unconstitutional, the result would be the same,
as then the latest applicable law would be P.D. No. 938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products used in its operation. This is as it should be, if We
are to hold as invalid and inoperative the withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93 and the
delegation of the power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court ruled that the NPC is liable for real estate
taxes as of June 11, 1984 (the date of promulgation of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB
Resolution Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984 to December 1, 1990 is estimated to
amount to P7.49 billion plus another P4.76 billion in fuel import duties the firm had earlier paid to the government which the NPC now proposed to
pass on to the consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo increase per kilowatt hour that
took effect just over a week ago., Hence, another case has been filed in this Court to stop this proposed increase without a hearing.
56

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776 dated August 24, 1975 was already amended by
P.D. No. 1931 , wherein it is provided that such FIRB resolutions may be approved not only by the President of the Philippines but also by the
57

Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right and also in his capacity as FIRB Chairman. Thus,
a separate approval thereof by the Minister of Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and consequently, Albaymust be considered superseded
to this extent by this decision. This is because P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all
forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country but more importantly, to assure
cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There are various arrangements in the payment of crude
1a\^/phi1

oil purchased by NPC from oil companies. Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC. As to
the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the price net of tax, on condition that NPC would seek a
tax refund to the oil companies. No tax component on fuel had been charged or recovered by NPC from the consumers through its power
rates. Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The billions of pesos involved in these exemptions will
58

certainly inure to the ultimate good and benefit of the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors may claim the same privilege should be
dispelled by the fact that (a) this decision particularly treats of only the exemption of the NPC from all taxes, duties, fees, imposts and all other
charges imposed by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d) of R.A. No. 6395 and Section
13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on all
petroleum products used in its operation only, which is the very exemption which this Court deems to be carried over by the passage of P.D. No. 938.
As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the aforesaid exemption from taxes, etc. covers those "directly or indirectly"
imposed by the "Republic of the Philippines, its provincies, cities, municipalities and other government agencies and instrumentalities" on said
petroleum products. The exemption therefore from direct and indirect tax on petroleum products used by NPC cannot benefit the suppliers, importers
and contractors of NPC of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government. The amount of revenue received or expected to be
received by this tax exemption is, however, not going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its tremendous task of providing electricity for the country
and at the least cost to the consumers. Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The resulting
increased revenue in the government will also mean increased power rates to be shouldered by the consumers if the NPC is to survive and continue
to provide our power requirements. The greater interest of the people must be paramount.
59

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.


Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil companies for ultimately these oil companies get the
benefit of the alleged tax exemption.
Padilla, J., took no part.

Separate Opinions

CRUZ, J., Dissenting:

I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following additional observations.

A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted or inferred. When claimed, it must be strictly
construed against the taxpayer, who must prove that he comes under the exemption rather than the rule that every one must contribute his just share
in the maintenance of the government.

In the case at bar, the ponencia would justify the tax exemption as having been validly granted under P.D. Nos. 1931 and 1955 and Resolutions Nos.
10-85 and 1-86 of the Fiscal Incentives Review Board. It is also asserted that FIRB Resolution No. 17-87, which restored MPC's tax exemption
effective March 10 1987, was lawfully adopted pursuant to a valid delegation of power made by Executive Order No. 93.

When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa was already in existence and discharging its
legislative powers. Presumably, these decrees were promulgated under the infamous Amendment No. 6. Assuming that the reservation of legislative
power in the President was then valid, I submit that the power was nevertheless not validly exercised. My reason is that the President could legislate
under the said amendment only if the Batasang Pambansa "failed or was unable to act adequately on any matter that in his judgment required
immediate action" to meet the "exigency." There is no showing that the presidential encroachment on legislative prerogatives was justified under
these conditions. Simply because the rubber-stamp legislature then meekly submitted did not make the usurpation valid.

By these decrees, President Marcos, exercising legislative power, delegated it to himself as executive and empowered himself and/or the Minister of
Finance to restore the exemptions previously withdrawn.

As the decrees themselves were invalid it should follow that Executive Order No. 93, which was intended only to implement them, should also be
illegal. But even assuming the legality of the said decrees, I would still question the authority of the President to sub-delegate the powers delegated
to her thereunder.

Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we were to disregard the opinion of Secretary of
Justice Sedfrey A. Ordoez that there were no sufficient standards in Executive Order No. 93 (although he was reversed on this legal questions by
the Executive Secretary), the President's delegated authority could still not be extended to the FIRB which was not a delegate of the legislature.

It is remarkable that the respondents could seriously argue that a mere administrative body like the FIRB can exercise the legislative power to grant
tax exemptions. I am not aware that any other such agency, including the Bureau of Internal Revenue and the Bureau of Customs, has this authority.
An administrative body can apply tax exemptions under existing law but it cannot itself create such exemptions. This is a prerogative of the Congress
that cannot be usurped by or even delegated to a mere administrative body.

In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who could restore the exemption, subject only to the
recommendation of the FIRB. The FIRB was not empowered to directly restore the exemption. And even if it be accepted that the FIRB merely
recommended the exemption, which was approved by the Finance Minister, there would still be the curious anomaly of Minister Virata upholding his
very own act as chairman of the FIRB.

This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA 261, the Secretary of Agriculture and Natural
Resources approved a decision earlier rendered by him when he was the Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the
respondent, as presidential executive assistant, affirmed on appeal to Malacaang his own decision as chairman of the Civil Service Commission.

It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule under the 1973 Constitution was that "no law
granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]).
Laws are usually passed by only a majority of those present in the chamber, there being a quorum, but not where it grants a tax exemption. This
requires an absolute majority. Yet, despite this stringent limitation on the national legislature itself, such stricture does not inhibit the President and
the FIRB in the exercise of their delegated power. It would seem that the delegate has more power than the principal. Significantly, this limitation is
maintained in the present Constitution under Article VI, Section 28(4).

The ponencia holds that the rule of strict construction is not applicable where the grantee is an agency of the government itself, like the MPC in the
case before us. I notice, however, that the ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part of the
Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no reason why we should be exceptionally lenient in
applying the exception.

The tax credits involved in this petition are tremendousno less than Pl.58 billion. This amount could go a long way in improving the national
economy and the well-being of the Filipino people, who deserve the continuing solicitude of the government, including this Court. I respectfully submit
that it is to them that we owe our foremost loyalty.

Gutierrez, Jr., J., concurs

SARMIENTO, J., dissenting:

I would like to point out specifically two things in connection with the majority's disposition as to: (1) Finance Incentives Review Board FIRB
Resolutions Nos. 10-85 and 186; and (2) the National Power Corporation's tax exemption vis-a-vis our decision in the case of Philippine Acetylene
Co., Inc. vs. Commission of Internal Revenue, and in the light of the provisions of its charter, Republic Act No. 6395, and the various amendments
1

entered into it.

(1)

On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86 had validly restored the National Power
Corporation's tax exemption privileges, which Presidential Decree No. 1931 had meanwhile suspended. I wish to stress that in the case of National
Power Corporation vs. Province of Albay, the Court held that the FIRB Resolutions Nos. 10-85 and 1-86 had the bare force of recommendations and
2

did not operate as a restoration, in the absence of an approval by the President (in then President Marcos' exercise of legislative powers), of tax
exemptions. The Court noted that there is nothing in Presidential Decree No. 776, the FIRB charter, conferring on it the authority to grant or restore
exemptions, other than to make recommendations on what exemptions to grant or restore. I quote:

xxx xxx xxx

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the President of the Philippines
and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any
of the abovecited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may accomplish. . . .
3

xxx xxx xxx

As the Court held there, it was only on March 10, 1987 that the restoration became effective, not because Resolutions Nos. 10-85 and 1-86 decreed
a restoration, but because of Resolution No. 17-87 which, on the other hand, carried the approval of the Office of the President . (FIRB Resolution
4

No. 17-87 made the National Power Corporation's exemption effective March 10, 1987.) Hence, the National Power Corporation, so the Court held,
was liable for payment of real property taxes to the Province of Albay between. June 11, 1984, the date Presidential Decree No. 1931 (withdrawing
its tax exemptions) took effect, and March 10, 1987,

As far therefore as the majority in the present case rules that the National Power Corporation is also entitled to a refund as a result of FIRB
Resolutions Nos. 10-15 and 1-86, I respectfully submit that a serious conflict has arisen.

While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister Cesar Virata, I submit nonetheless, as Albay in fact
5

held, that the signature of the Mr. Virata is not enough to restore an exemption. The reason is that Mr. Virata signed them (FIRB Resolutions Nos.
10-85 and 1-86) in his capacity as chairman of the Finance Incentives Review Board FIRB. I find this clear from the very Resolutions in question:

FISCAL INCENTIVES REVIEW BOARD


RESOLUTION NO. 10-85

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under C.A. No. 120 as amended are
restored up to June 30, 1985.

2. Provided, That this restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;

b. commercially-funded importations; and

c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the NPC is hereby required to furnish the FIRB on a
periodic basis the particulars of items received or to be received through such arrangements, for purposes of tax and duty exemption privileges.

(Sgd.) ALFREDO PIO DE RODA, JR.


Acting Minister of Finance
Acting Chairman, FIRB

FISCAL INCENTIVES REVIEW BOARD


RESOLUTION NO. 1-86

BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC) under Commonwealth Act No. 120,
as amended, are restored; Provided, That importations of fuel oil (crude oil equivalent) and coal of the herein grantee shall be subject to the basic
and additional import duties; Provided, further, That the following shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other monetary benefits from deposit substitutes, trust fund and other
similar arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by it provided that the beneficial use
of the property is not transferred to another pursuant to the provisions of Sec. 40(a) of the Real Property Tax Code, as amended.

(Sgd.) CESAR E.A. VIRATA


Minister of Finance
Chairman-FIRB

I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution No. 10-85 was not even signed by Mr. Virata, but
rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to confer on the Board actual "restoration" or even exemption powers, because in all cases, FIRB
Resolutions are signed by Mr. Virata (or the acting chairman) in his capacity as Board Chairman. I submit that we can not consider an FIRB
Resolution as an act of Mr. Virata in his capacity as Minister of Finance (and therefore, as a grant or restoration of tax exemption) although Mr. Virata
also happened to be concurrently, Minister of Finance, because to do so would be to blur the distinction between the capacities in which he, Mr.
Virata, actually acted. I submit that he, Mr. Virata, need have issued separate approvals of the Resolutions in question, in his capacity as Finance
Minister.
Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it "delegates" the power to restore exemptions to the
FIRB, I hold that in the first place, Executive Order No. 93 makes no delegation at all. As the majority points out, "[u]nder Section 1 (f) of Executive
Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be approved by the President." Hence, the FIRB does not
6

exercise any powerand as I had held, its powers does not merely recommendatoryand it is the President who in fact exercises it. It is true that
Executive Order No. 93 has set out certain standards by which the FIRB as a reviewing body, may act, but I do not believe that a genuine delegation
question has arisen because precisely, the acts of the Board are subject to approval by the President, in the exercise of her legislative powers under
the Freedom Constitution. 7

(2)

According to the Decision, the National Power Corporation, under its charter, is also exempt from indirect taxes, and that there is nothing irregular
about what is apparently standard operating procedure between the Corporation and the oil firms in which the latter sell to the Corporation of "net of
tax" and that thereafter, the Corporation assigns to them its tax credit.

I gather first, and with all due respect, that there has been a misunderstanding about so-called indirect taxes and the theory of shifting taxes. In
Philippine Acetylene Co., Inc., supra, the Court intimated that there are no such things as indirect taxes for purposes of exemption, and that the
National Power Corporation's exemption from taxes can not be claimed, as well, by a manufacturer (who sells his products to the Corporation) on the
theory that the taxes he will shift will be shifted to a tax-exempt entity. According to the Court, "the purchaser does not pay the tax . . . [h]e pays or
may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the
goods and for nothing else." 8

It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the price, thereby transferring the burden to the
purchaser of whom the incidence of the tax settles (indirect tax). I submit, however, that it is only for purposes of escape from taxation.
As Acetylene has clarified, the tax which the manufacturer is liable to pay directly under a statute is still a personal tax and in "passing and tax on" to
the purchaser, he does not really make the latter pay the tax, and what the latter pays actually is just the price. Thus, for purposes of exemption, and
so Acetylene tells us, the manufacturer can not claim one because the purchaser happens to be exempted from taxes. Mutatis mutandis and so I
respectfully submit, the purchaser can not be allowed to accept the goods "net of tax" because it never paid for the tax in the first place, and was
never liable therefor in the second place.

According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the various amendments to the charter of the
National Power Corporation as authority for its view.

First, there is nothing in those amendments that would remotely point to this conclusion.

Second, Acetylene's pronouncement is founded on the very science of taxationthat indirect taxes are no taxes for purposes of exemption, and that
consequently, one who did not pay taxes can not claim an exemption although the price he paid for the goods included taxes. To enable him to claim
an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I submit, to defeat the very laws of science.

The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-settled concepts of taxation, as the law of supply
and demand is to the law of economics. A President is said (unfairly) to have attempted it, but one can not repeal the law on supply and demand.

I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the majority finds it evident, from the Corporation's
charter, Republic Act No. 6395, as amended by Presidential Decrees Nos. 380 and 938. It is true that since Commonwealth Act No. 120 (the
Corporation's original charter, which Republic Act No. 6395 repealed), the Corporation has enjoyed a "preferential tax treatment," I seriously doubt,
however, whether or not that preference embraces "indirect taxes" as wellwhich, as I said, are no taxes for purposes of claims for exemptions by
the "indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not take that to include, as a matter of logic, "indirect
taxes," and as discussed above, that scenario is not possible.

I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent amendatory statutes was to give the National
Power Corporation a broad tax preference on account of the vital functions it performs, indeed, "to enable the Corporation to pay the indebtedness
and obligation and in furtherance and effective implementation of the policy initiated" by its charter. I submit, however, that that alone can not entitle
the Corporation to claim an exemption for indirect taxes. I also believe that its existing exemption from direct taxes is sufficient to serve the legislative
purpose.

The fact that the National Power Corporation has been tasked with an enormous undertaking "to improve," as the majority puts it, "the quality of life of
the people" pursuant to constitutional mandates is no reason, I believe, to include indirect taxes within the coverage of its preferential tax treatment.
After all, it is exempt from direct taxes, and the fact that it will be made to shoulder indirect taxes (which are no taxes) will not defeat its exemption or
frustrate the intent of both legislature and Constitution.

I do not think that the majority can point to the various executive constructions as authorities for its own construction. First and foremost, with respect
to then Commissioner Ruben Ancheta's ruling of May 8, 1985 cited on pages 32-33 of the Decision, it is notable that in his BIR Ruling No. 183-85,
dated October 22, 1985, he in fact reversed himself, I quote:

In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by P.D. No. 938, this Office is of the opinion, and so holds, that
the scope of the tax exemption privilege enjoyed by NPC under said section covers only taxes for which it is directly liable and not on taxes which are
merely shifted to it. (Phil. Acetylene Co. vs. Comm. of Internal Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly payable by the
contractor, not by NPC, your request for exemption, based on the stipulation in the aforesaid contract that NPC shall assume payment of your
contractor's tax liability, cannot be granted for lack of legal basis. (emphasis added) 9
In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an apparent claim for refund by the Philippine Airlines,
that "PAL's tax exemption is limited to taxes for which PAL is directly liable, and that the payment of specific and ad valorem taxes on petroleum
products is a direct liability of the manufacturer or producer thereof . . ."
10

Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National Power Corporation's claim for a refund I quote:

. . . this Office has maintained the stand that your tax exemption privileges covers only taxes for which you are directly liable. 11

Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms of taxes" covers only direct taxes, 12

In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant Commissioner for Legal, opposed Caltex Philippines'
claim for a P58-million refund, and although the Commissioner at that time hedged he was later persuaded by Special Assistant Abraham De la Via
and in fact, instructed Atty. De la Via to "prepare [the] corresponding notice to NPC and Caltex" to inform them that their claim has been denied.
13

(Although strangely, he changed his mind later.)

Hence, I do not think that we can judiciously rely on executive construction because executive construction has been at best, erratic, and at worst,
conflicting.

I do not find that majority's historical construction a reliable yardstick in this case, for if the historical development of the law were any indication, the
legislative intent is, on the contrary, to exclude indirect taxes from the coverage of the National Power Corporation's tax exemption. Thus, under
Commonwealth Act No. 120, the Corporation was made exempt from the payment of all taxes in connection with the issuance of bonds. Under
Republic Act No. 358, it was made exempt from the payment of all taxes, duties, fees, imposts, and charges of the national and local governments.

Under Republic Act No. 6395, the National Power Corporation was further declared exempt:

(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by the Corporation . . .

By virtue of Presidential Decree No. 380, it was made exempt:

(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum products used by the corporation in the generation,
transmission, utilization and sale of electric power.

By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:

. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in
Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees,
imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings.

The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law were truly to exempt the National Power
Corporation from so-called indirect taxes as well, the law would have said so specifically, as it said so specifically in Presidential Decree No. 380.

I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is warranted, in particular, the following whereas
clause:

WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the non-profit character of NPC has not been fully utilized
because of the restrictive interpretations of the taxing agencies of the government on said provisions;

I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that the term "restrictive interpretations" refers to BIR
rulings confining the exemption to the Corporation alone (but not its subsidiaries), and not, rather, to the scope of its exemption. Indeed, as
Presidential Decree No. 938 specifically declares, "the Corporation, including its subsidiaries, is hereby declared exempt . . . " 14

The majority expresses the apprehension that if the National Power Corporation were to be made to assume "indirect taxes," the latter will be forced
to pass them on to the consuming public.

First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A decision to absorb the burden of the tax is largely a
matter of economics." Furthermore:
15

In the long run a sales tax is probably shifted to the consumer, but during the period when supply is being adjusted to changes in demand it must be
in part absorbed. In practice the businessman will treat the levy as an added cost of operation and distribute it over his sales as he would any other
cost, increasing by more than the amount of the tax prices of goods demand for which will be least affected and leaving other prices unchanged. 47
Harv. Ld. Rev. 860, 869 (1934). 16

It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.

Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid the payment of tax. And to be sure, the populist
allure of that argument has appealed to many, yet it has probably also obscured what is as fundamental as protecting consumerspreserving public
revenue, the very lifeblood of the nation. I am afraid that this is not healthy policy, and what occurs to meand what indeed leaves me very
uncomfortableis that by the stroke of the pen, we should have in fact given away P13,750,214,639.00 (so it is said) of legitimate government
money.

According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not use taxes to increase prices of electricity to
consumers because the cost of electric generation and sale already takes into account the tax component. " 17

I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the arrangement (as I gather from the Decision) between
the National Power Corporation and the oil companies in which the former assigns its tax credit to the latter. I also presume that this is the natural
consequence of the "understanding," as I discussed above, to purchase oil "net of tax" between NAPOCOR and the oil firms, because logically, the
latter will look for other sources from which to recoup the taxes they had failed to shift and recover their losses as a result. According to the Decision,
no tax is left unpaid because they have been pre-paid before the oil is delivered to the National Power Corporation. But whatever taxes are paid are
in fact wiped out because the subsequent credit transfer will enable the oil companies to recover the taxes pre- paid.

According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for the NPC." The problem, precisely, is that while it
18

is NPC which is entitled to "tax relief," the arrangement between NPC and the oil companies has enabled instead the latter to enjoy relief when
relief is due to NPC alone. The point still remains that no tax money actually reaches our coffers because as I said, that arrangement enables them to
wipe it out. If the NPC were the direct importer, I would then have no reason to object, after all, the NPC is exempt from direct taxation and secondly,
the money it is paying to finance its importations belongs to the government. The law, however, gave the exemption to NPC, not the oil companies.

According to the Decision: "The amount of revenue received or expected to be received by this tax exemption is, however, not going to any of the oil
companies. . . " and that "[t]here would be no loss to the government."
19 20

With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to the oil companies and that the government is not
losing anything. Definitely, the tax credit assignment arrangement between the NPC and the oil firms enables the latter to recover revenue they have
paid. And definitely, that means loss for the government.

The majority is concerned with the high cost of electricity. The increasing cost of electricity is however due to myriad factors, foremost of which, is the
devaluation of the peso and as recent events have suggested, "miscalculations" at the top levels of NPC. I can not however attribute it, as the
21

majority in all earnest attributes it, to the fact, far-fetched as it is, that the NPC has not been allowed to enjoy exemption from indirect taxes.

Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that as such, they can not be assigned, unless the
statute granting them permits an assignment. 22

While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally different matter. And while I agree with the National
Power Corporation should be given the widest financial assistance possible, assistance should not be an excuse for plain tax evasion, if not tax fraud,
by Big Business, in particular, Big Oil.

(3) Postscripts

With all due respect, I do not think that the majority has appreciated enough the serious implications of its decisionto the contrary, in particular, its
shrinking coffers. I do not think that we are, after all, talking here of "simple" billions, but in fact, billions upon billions in lost revenue looming large.

I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil companies but in fact, for the National Power
Corporation's suppliers, importers, and contractors. Although I am not, as of this writing, aware of their exact number or the precise amount the
National Power Corporation has spent in payment of supplies and equipment, I can imagine that the Corporation's assets consisting of those
supplies and equipment, machines and machinery, are worth no fewer than billions.

With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage tanks, steel towers, cables and cable poles, to
builders of dikes, to layers of pipelines, and pipes, from claiming the same privilege.

There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber for edifices, to the very engineers and technicians
who designed them, from demanding equal rights.

There will be no stopping the Corporation's transporters, from container van and rig owners to suppliers of service vehicles of NPC executives, from
demanding the privilege.

What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from asking for exemption, since food billed includes
sales taxes shifted to a tax-exempt entity and, following the theory of the majority, taxes that may be refunded?

What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are aware, the rule of taxationand consequently,
tax exemptionis uniform and equitable? 23

Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities, say, the Marinduque Mining Corporation and Nonoc
Mining Corporation. Per existing records and per reliable information, Caltex Philippines, between 1979 and 1986, successfully recovered the total
sum of P49,835,791.00. In 1985, Caltex was said to have been refunded the amount of P4,217,423.00 arising from the same tax arrangement with
the Nonoc Mining Corporation.

Again, what is stoppingby virtue of this decision notonly the oil firms but also Marinduque's and Nonoc's suppliers, importers, and ridiculously,
caterers, from claiming a future refund?
The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that . . . the decision particularly treats of only the
exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on the petroleum products it need or
uses for its operation . . . " Firstly, under Presidential Decree No. 938, the supposed tax exemption of the National Power Corporation covers "all
24

forms of taxes. If therefore "all forms of taxes covers as well indirect taxes because Presidential Decree No. 380 supposedly extended the
25

Corporation's exemption to indirect taxes (and the majority "deems Presidential Decree No. 380 to have been carried over to Presidential Decree No.
938"), then the conclusion seems in escapablefollowing the logic of the majoritythat the Corporation is exempt from all indirect taxes, on
petroleum and any and all other products and services.

The fact of the matter, second of all, is that the Decision is premised on the alleged exemption of the National Power Corporation from all forms of
taxes, meaning, direct and indirect taxes. It is a premise that is allegedly supported by statutory history, and the legislature's alleged intent to grant
the Corporation awesome exemptions. If that were the case, the Corporation must logically be exempt from all kinds of taxes payable. Logically, the
majority can not limit the sweep of its pronouncement by exempting the National Power Corporation from "indirect taxes on petroleum" alone. What is
sauce for the goose (taxes on petroleum) is also sauce for the gander (all other taxes).

I still would have reason for my fears.

I can not, in all candor, accept the majority's efforts, and going back to the Corporation's charters, to "carry over," in particular, Section 13(d) of
Presidential Decree No. 380, to Presidential Decree No. 938. First of all, if Presidential Decree No. 938 meant to absorb Presidential Decree No. 380
it would have said so specifically, or at the very least, left it alone. Obviously, Presidential Decree No. 938 meant otherwise, to begin with, because it
is precisely an amendatory statute. Secondly, a "carry-over" would have allowed this Court to make law, so only it can fit in its theories.

The country has gone to lengths fashioning an elaborate tax system and an efficient tax collection machinery. Planners' efforts have seen various
shifts in the taxing system, from specific, to ad valorem, to value-added taxation, purportedly to minimize collection. For this year, the Bureau of
Internal Revenue has a collection target of P130 billion, and significantly, it has been unrelenting in its tax and tax-consciousness drive. I am not
prepared to cite numbers but I figure that the money it will lose by virtue of this Decision is a meaningful chunk off its target, and a significant setback
to the government's programs.

I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation) in favor of a tree (the welfare of a government
corporation). The issue, in my opinion, is not the viability of the National Power Corporationas if the fate of the nation depended alone on itbut the
very survival of the Republic. I am not of course to be mistaken as being less concerned with NAPOCOR's fiscal chart. The picture, as I see it
however, is that we are in fact assisting the oil companies, out of that alleged concern, in evading taxes at the expense, needless to state, of our
coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love of country.

Grio-Aquino, Davide, Jr. and Gutierrez, Jr., JJ., concur

Footnotes

1
Section 1, Com. Act No. 120 (1936).

2
Section 1, Rep. Act No. 6395 (1971).

3
Section 2, Rep. Act No. 6395 (1971).

4
Section 1, Pres. Decree No. 1931 (1984).

5
Pages 7 to 19, rollo.

6
Pages 49 to 52, rollo.

7
Page 19, rollo.

8
Citing Ex parte Levit 302 U.S. 633; Tileson vs. Ullman, 318 U.S. 446; Lozada vs. Commission on Elections, 120 SCRA 337 (1983).

9
Citing Meralco Securities Corporation vs. Savellano, 117 SCRA 804 (1982).

10
Ibid., page 812.

11
Citing Strong vs. Castro, 137 SCRA 322 (1985).

12
Citing Fortun vs. Labang, 104 SCRA 607 (1981).

13
51 Am. Jur. Section 21; 61 C.J. Section 6, note 57(e), p. 73.

14
20 SCRA 1056 (1967).
15
Citing United Garment Co., Inc. vs. Court of Tax Appeals, 4 SCRA 304 (1962); and Butuan Sawmill, Inc. vs. City of Butuan, 16 SCRA 755 (1966).

16
See page 27 of Petition.

17
Annex C, petition, page 123, Rollo.

18
Annex H, petition; page 135, Rollo.

19
Annexes C and I to the Petition.

20
G.R. No. 87479 promulgated on June 4, 1990.

21
Annex 3 to the Petition (tax credit memo).

22
Annex F to the Petition.

23
Section 1, Commonwealth Act No. 120; Sections 2 and 13, Republic Act No. 6395 in relation to Section 3, Act No. 1495.

24
Section 5, Republic Act No. 6395.

25
Section 4, Republic Act No. 120; Section 2, Republic Act No. 358; Section 13, Republic Act No. 6395; Section 10, Presidential Decree No. 380.

26
Section 13, Republic Act No. 6395, as amended by Presidential Decrees Nos. 380 and 938.

27
Section 13, P.D. No. 938.

28
2 Cooley on the Law of Taxation, 4th edition, 1414 (1927).

C. Dallas Sands, Statutes and Statutory Construction, Vol. 3, p. 207, citing Crosby vs. U.S., 292 F. Supp. 314; Pasadena vs. Los Angeles Country,
29

187 P. 418 and other cases.

30
Com. vs. City of Richmond, 116 Va. 69, 81 S.E. 69.

31
U.S. vs. Palacio, 33 Phil. 208 (1916); Commissioner of Customs vs. Esso Standard Eastern, Inc., 66 SCRA 113 (1975).

32
Larga vs. Ranada, Jr., 164 SCRA 18 (1988).

33
Aboitiz Shipping Corp. vs. City of Cebu, 12 SCRA 449 (1965); and Aisporna vs. Court of Appeals, 113 SCRA 459 (1982).

Statutory Construction by E.T. Crawford, pages 604 to 605, cited in Commissioner of Internal Revenue vs. Filipinas Compania de Seguros, 107 Phil.
34

1055 (1960).

35
Luzon Stevedoring Corporation vs. Court of Tax Appeals, 163 SCRA 647 (1988).

36
Pascual vs. Director of Lands, 10 SCRA 354 (1964); Solaria vs. Buenviaje, 81 SCRA 722 (1978); La Suerte Cigar and Cigarette Factory vs. Court
of Tax Appeals, 134 SCRA 29 (1985).

37
Annexes 7, 8, T, V, W and 17.

38
Annex N; emphasis supplied.

39
Annex O to the Petition.

40
Annex K to the Petition; page 176, Rollo.

41
Annex Q to petition, citing University of the East vs. U.E. Faculty Association, 117 SCRA 554, 572 (1982).

42
35 SCRA 481 (1970).

43
112 SCRA 294 (1982).

44
68 Phil. 328 (1939).

45
70 Phil. 726 (1940).
46
91 Phil. 359 (1952).

47
Hirabayashi vs. United States, 320 U.S. 99.

48
Araneta vs. Gatmaitan, 101 Phil. 328 (1957); see also Justice Isagani A. Cruz, Philippine Political Law, 1984 Ed., pages 105 to 106.

49
Annex M to the Petition.

50
Pages 82 to 83, Philippine Political Law, Isagani A. Cruz, 1989 ed.

51
152 SCRA 730 (1987).

52
Victoriano vs. Elizalde Rope Workers Union, 59 SCRA 54, 66 (1974).

53
Supra.

54
Supra.

P.D. No. 1955 was issued effective October 15, 1984 providing for the withdrawal of tax exemptions of private business enterprises and/or persons
55

engaged in any economic activity. It is not relevant to this case which involves a government corporation.

See March 5, 1991 issue of the Philippine Daily Inquirer and other newspapers of same day as well as the March 10, 1991 issue of the Manila
56

Bulletin.

Please see Sec. 5 of P.D. No. 1931 which provide that all other laws, decrees, etc. inconsistent with the same decree are "thereby repealed,
57

amended or modified accordingly."

58
See letter opinion of Secretary of Finance Vicente Jayme dated May 20, 1988.

59
NPC Vice-President Cris Herrera said the average rate increase to be passed to consumers is P0.23 per year. (Please see Daily Inquirer of March
5, 1991; "Napocor wants new power rate increase").

SARMIENTO, J., dissenting:

1
No. L-19707, August 17, 1967, 20 SCRA 1056.

2
G.R. No. 87479, June 4, 1990.

3
Supra, 7.

4
Supra, 5.

5
Under Presidential Decree No. 1931, the Minister of Finance could restore exemptions.

6
Decision, 42.

7
Please note that under the 1987 Constitution, tax exemptions may be granted alone by Congress (CONST., art. VI, sec. 28, par. 4.) Unless and until
Congress, however, repeals Executive Order No. 93, the President may continue to grant exemptions.

8
At 1063.

9
See Comm. on Accountability of Public Officers and Investigations, S. Rpt. 474, lst Cong., 2nd Sess. (1989),4-5; also 13; also 25; also 29; emphasis
in the original.

10
Id., 4; also 15; also 25; also 39, 40; emphasis in the original.

11
Id., 16; emphasis in the original,

12
Id., 24; also BIR Ruling No. 068-79 (1979), Id., involving specific taxes.

13
Id., 31.

14
Pres. Decree No. 938, sec. 13: emphasis supplied.

15
At 1064.
16
Supra, fn. 15.

17
Comm. on Accountability of Public Officers and Investigations, S. Rpt 474, Id., 61.

18
Decision, 47,

19
Supra, 51.

20
Supra.

21
See Maceda vs. Energy Regulatory Board, G.R. Nos. 95203-05 and 95119-21, December 18, 1990.

22
DE LEON THE FUNDAMENTALS OF TAXATION 55 (1980 ed.)

23
CONST., art. VI, sec. 28(l).

24
Supra.

25
Pres. Decree No. 938, supra, sec. 10.