1. PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS, COURT OF TAX APPEALS

and COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION
TINGA, J.:

The changes in the reportorial requirements and payment schedules of corporate income taxes from annual to quarterly have
created problems, especially on the matter of tax refunds. [1] In this case, the Court is called to resolve the question of whether alleged
excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding
year.
Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two (2) parcels of land at Paseo de
Roxas in Makati City, seeks a review of the Decision[2]of the Court of Appeals dismissing its petition for review of the resolution[3] of the
Court of Tax Appeals (CTA) which, in turn, denied its claim for refund.
The factual antecedents[4] are as follows:

On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring a gross income of P1,855,000.00, deductions
of P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00, and
creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.

On November 14, 1991, petitioner filed with respondent a claim for the refund of excess creditable withholding and income taxes for the years 1989
and 1990 in the aggregate amount of P147,036.15.

On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire on December 30, 1991 and that it was necessary to
interrupt the prescriptive period, petitioner filed with the respondent Court of Tax Appeals a petition for review praying for the refund of P54,104.00
representing creditable taxes withheld from income payments of petitioner for the calendar year ending December 31, 1989.

On February 25, 1992, respondent Commissioner filed an Answer and by way of special and/or affirmative defenses averred the following: a) the
petition states no cause of action for failure to allege the dates when the taxes sought to be refunded were paid; b) petitioners claim for refund is still
under investigation by respondent Commissioner; c) the taxes claimed are deemed to have been paid and collected in accordance with law and
existing pertinent rules and regulations; d) petitioner failed to allege that it is entitled to the refund or deductions claimed; e) petitioners contention
that it has available tax credit for the current and prior year is gratuitous and does not ipso facto warrant the refund; f) petitioner failed to show that it
has complied with the provision of Section 230 in relation to Section 204 of the Tax Code.

After trial, the respondent Court rendered a decision ordering respondent Commissioner to refund in favor of petitioner the amount of P54,104.00,
representing excess creditable withholding taxes paid for January to July1989.

Respondent Commissioner moved for reconsideration of the decision, alleging that the P54,104.00 ordered to be refunded has already been included
and is part and parcel of the P172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable year 1990.

In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that
it has overlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of
petitioners claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit
for the succeeding taxable year 1990.

Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10, 1994. [5]

Petitioner filed a Petition for Review[6] dated April 3, 1994 with the Court of Appeals. Resolving the twin issues of whether
petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such
creditable taxes withheld to its 1990 income tax liability, the appellate court held that petitioner is not entitled to a refund because it had
already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability
for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claim for refund, thus:

In the instant case, it appears that when petitioner filed its income tax return for the year 1989, it filled up the box stating that the total amount
of P172,477.00 shall be applied against its income tax liabilities for the succeeding taxable year.

Petitioner did not specify in its return the amount to be refunded and the amount to be applied as tax credit to the succeeding taxable year, but merely
marked an x to the box indicating to be applied as tax credit to the succeeding taxable year. Unlike what petitioner had done when it filed its income
tax return for the year 1988, it specifically stated that out of the P146,026.00 the entire refundable amount, only P64,623.00 will be made available as
tax credit, while the amount of P81,403.00 will be refunded.
In its 1989 income tax return, petitioner filled up the box to be applied as tax credit to succeeding taxable year, which signified that instead of refund,
petitioner will apply the total amount of P172,447.00, which includes the amount of P54,104.00 sought to be refunded, as tax credit for its tax
liabilities in 1990. Thus, there is really nothing left to be refunded to petitioner for the year 1989. To grant petitioners claim for refund is tantamount
to granting twice the refund herein sought to be refunded, to the prejudice of the Government.

The Court of Appeals denied petitioners Motion for Reconsideration[7] dated November 8, 1994 in its Resolution[8] dated February
21, 1995 because the motion merely restated the grounds which have already been considered and passed upon in its Decision.[9]
Petitioner thus filed the instant Petition for Review[10] dated April 14, 1995 arguing that the evidence presented before the lower
courts conclusively shows that it did not apply the P54,104.00 to its 1990 income tax liability; that the Decision subject of the instant
petition is inconsistent with a final decision[11] of the Sixteenth Division of the appellate court in C.A.-G.R. Sp. No. 32890 involving the
same parties and subject matter; and that the affirmation of the questioned Decision would lead to absurd results in the manner of
claiming refunds or in the application of prior years excess tax credits.
The Office of the Solicitor General (OSG) filed a Comment[12] dated May 16, 1996 on behalf of respondents asserting that the
claimed refund of P54,104.00 was, by petitioners election in its Corporate Annual Income Tax Return for 1989, to be applied against its
tax liability for 1990. Not having submitted its tax return for 1990 to show whether the said amount was indeed applied against its tax
liability for 1990, petitioners election in its tax return stands. The OSG also contends that petitioners election to apply its overpaid
income tax as tax credit against its tax liabilities for the succeeding taxable year is mandatory and irrevocable.
On September 2, 1997, petitioner filed a Reply[13] dated August 31, 1996 insisting that the issue in this case is not whether the
amount of P54,104.00 was included as tax credit to be applied against its 1990 income tax liability but whether the same amount was
actually applied as tax credit for 1990. Petitioner claims that there is no need to show that the amount of P54,104.00 had not been
automatically applied against its 1990 income tax liability because the appellate courts decision in C.A.-G.R. Sp. No. 32890 clearly held
that petitioner charged its 1990 income tax liability against its tax credit for 1988 and not 1989. Petitioner also disputes the OSGs
assertion that the taxpayers election as to the application of excess taxes is irrevocable averring that there is nothing in the law that
prohibits a taxpayer from changing its mind especially if subsequent events leave the latter no choice but to change its election.
The OSG filed a Rejoinder[14] dated March 5, 1997 stating that petitioners 1988 tax return shows a prior years excess credit
of P81,403.00, creditable tax withheld of P92,750.00 and tax due of P27,127.00. Petitioner indicated that the prior years excess credit
of P81,403.00 was to be refunded, while the remaining amount of P64,623.00 (P92,750.00 - P27,127.00) shall be considered as tax
credit for 1989. However, in its 1989 tax return, petitioner included the P81,403.00 which had already been segregated for refund in the
computation of its excess credit, and specified that the full amount of P172,479.00 (P81,403.00 + P64,623.00 + P54,104.00** -
P27,653.00***) be considered as its tax credit for 1990. Considering that it had obtained a favorable ruling for the refund of its excess
credit for 1988 in CA-G.R. SP. No. 32890, its remaining tax credit for 1989 should be the excess credit to be applied against its 1990
tax liability. In fine, the OSG argues that by its own election, petitioner can no longer ask for a refund of its creditable taxes withheld in
1989 as the same had been applied against its 1990 tax due.
In its Resolution[15] dated July 16, 1997, the Court gave due course to the petition and required the parties to simultaneously file
their respective memoranda within 30 days from notice. In compliance with this directive, petitioner submitted its Memorandum[16] dated
September 18, 1997 in due time, while the OSG filed its Memorandum[17] dated April 27, 1998 only on April 29, 1998 after several
extensions.
The petition must be denied.
As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an agency such as the CTA which
is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.[18]
This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the
Commissioner of Internal Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the
amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the
facts.
Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit
of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding
taxable year.[19] According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 (C.A.-G.R.
Sp. No. 32300) and CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving a balance of P54,104.00,
the amount subject of the instant claim for refund. [20] Represented mathematically, petitioner accounts for its claim in this wise:

P172,477.00 Amount indicated in petitioners 1989 tax return to be applied as tax credit for the succeeding taxable year

- 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)

P146,854.00 Balance as of April 16, 1990

- 59,510.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890)

P87,344.00 Balance as of January 2, 1991

 - 33,240.00 Income tax liability for calendar year 1990 applied as of April 15, 1991

P54,104.00 Balance as of April 15, 1991 now subject of the instant claim for refund [21]

Other than its own bare allegations, however, petitioner offers no proof to the effect that its creditable tax of P172,477.00 was
applied as claimed above. Instead, it anchors its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No.
32890[22] involving the same parties to the effect that petitioner charged its 1990 income tax liability to its tax credit for 1988 and not its
1989 tax credit. Hence, its excess creditable taxes withheld of P54,104.00 for 1989 was left untouched and may be refunded.
Note should be taken, however, that nowhere in the case referred to by petitioner did the Court of Appeals make a categorical
determination that petitioners tax liability for 1990 was applied against its 1988 tax credit. The statement adverted to by petitioner was
actually presented in the appellate courts decision in CA-G.R. Sp No. 32890 as part of petitioners own narration of facts. The pertinent
portion of the decision reads:

It would appear from petitioners submission as follows:

xxx since it has already applied to its prior years excess credit of P81,403.00 (which petitioner wanted refunded when it filed its 1988 Income Tax
Return on April 14, 1989) the income tax liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a balance
refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00 plus P28,127.00, since this second amount was already
applied to the amount refundable of P81,403.00) should be the refundable amount. But since the taxpayer again used part of it to satisfy its income
tax liability of P33,240.00 for 1990, the amount refundable was P59,510.00, which is the amount prayed for in the claim for refund and also in the
petitioner (sic) for review.

That the present claim for refund already consolidates its claims for refund for 1988, 1989, and 1990, when it filed a claim for refund of P59,510.00
in this case (CTA Case No. 4528). Hence, the present claim should be resolved together with the previous claims.[23]

The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990.
Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00
creditable taxes withheld for 1989 subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return,
or at least, whether petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims.
The return would also have shown whether there remained an excess credit refundable to petitioner after deducting its tax liability
for 1990. As it is, we only have petitioners allegation that its tax due for 1990 was P33,240.00 and that this was applied against its
remaining tax credits using its own first in, first out method of computation.
It would have been different had petitioner not included the P54,104.00 creditable taxes for 1989 in the total amount it elected to
apply against its 1990 tax liabilities. Then, all that would have been required of petitioner are: proof that it filed a claim for refund within
the two (2)-year prescriptive period provided under Section 230 of the NIRC; evidence that the income upon which the taxes were
withheld was included in its return; and to establish the fact of withholding by a copy of the statement (BIR Form No. 1743.1) issued by
the payor[24] to the payee showing the amount paid and the amount of tax withheld therefrom. However, since petitioner opted to apply
its aggregate excess credits as tax credit for 1990, it was incumbent upon it to present its tax return for 1990 to show that the claimed
refund had not been automatically credited and applied to its 1990 tax liabilities.
The grant of a refund is founded on the assumption that the tax return is valid, i.e., that the facts stated therein are true and
correct.[25] Without the tax return, it is error to grant a refund since it would be virtually impossible to determine whether the proper taxes
have been assessed and paid.
Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could very well have attached a
copy of its final adjustment return for 1990 when it filed its claim for refund on November 13, 1991. Annex B of its Petition for
Review[26] dated December 26, 1991 filed with the CTA, in fact, states that its annual tax return for 1990 was submitted in support of its
claim. Yet, petitioners tax return for 1990 is nowhere to be found in the records of this case.
Had petitioner presented its 1990 tax return in refutation of respondent Commissioners allegation that it did not present evidence
to prove that its claimed refund had already been automatically credited against its 1990 tax liability, the CTA would not have
reconsidered its earlier Decision. As it is, the absence of petitioners 1990 tax return was the principal basis of the
CTAs Resolution reconsidering its earlier Decision to grant petitioners claim for refund.
Petitioner could even still have attached a copy of its 1990 tax return to its petition for review before the Court of Appeals. The
appellate court, being a trier of facts, is authorized to receive it in evidence and would likely have taken it into account in its disposition
of the petition.
In BPI-Family Savings Bank v. Court of Appeals,[27] although petitioner failed to present its 1990 tax return, it presented other
evidence to prove its claim that it did not apply and could not have applied the amount in dispute as tax credit. Importantly, petitioner
therein attached a copy of its final adjustment return for 1990 to its motion for reconsideration before the CTA buttressing its claim that it
incurred a net loss and is thus entitled to refund. Considering this fact, the Court held that there is no reason for the BIR to withhold the
tax refund.
In this case, petitioners failure to present sufficient evidence to prove its claim for refund is fatal to its cause. After all, it is
axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds,
like tax exemptions, are construed strictly against the taxpayer. [28]
 Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines (NIRC) provides:

Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for
the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on
the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable
year. [Emphasis supplied]

Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies:

SEC. 7. Filing of final or adjustment return and final payment of income tax. A final or an adjustment return on B.I.R. Form No. 1702 covering the
total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15 th day of the fourth month following
the close of the calendar or fiscal year. The return shall include all the items of gross income and deductions for the taxable year. The amount of
income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly
income taxes paid during the preceding first three quarters of the same calendar or fiscal year.

Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return
shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year. The corporation must signify in its annual corporate adjustment return its intention whether to request for refund of
the overpaid income tax or claim for automatic credit to be applied against its income tax liabilities for the quarters of the succeeding
taxable year by filling up the appropriate box on the corporate tax return (B.I.R. Form No. 1702). [Emphasis supplied]

As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income
tax for a given taxable year is limited to the succeeding taxable year only.
In the recent case of AB Leasing and Finance Corporation v. Commissioner of Internal Revenue,[29] where the Court declared that
[T]he carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year
only, we ruled that since the case involved a claim for refund of overpaid taxes for 1993, petitioner could only have applied the 1993
excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of Section 69 of
the NIRC.
In this case, petitioner included its 1988 excess credit of P146,026.00 in the computation of its total excess credit for 1989. It
indicated this amount, plus the 1989 creditable taxes withheld of P54,104.00 or a total of P172,477.00, as its total excess credit to be
applied as tax credit for 1990. By its own disclosure, petitioner effectively combined its 1988 and 1989 tax credits and applied its 1990
tax due of P33,240.00 against the total, and not against its creditable taxes for 1989 only as allowed by Section 69. This is a clear
admission that petitioners 1988 tax credit was incorrectly and illegally applied against its 1990 tax liabilities.
Parenthetically, while a taxpayer is given the choice whether to claim for refund or have its excess taxes applied as tax credit for
the succeeding taxable year, such election is not final. Prior verification and approval by the Commissioner of Internal Revenue is
required. The availment of the remedy of tax credit is not absolute and mandatory. It does not confer an absolute right on the taxpayer
to avail of the tax credit scheme if it so chooses. Neither does it impose a duty on the part of the government to sit back and allow an
important facet of tax collection to be at the sole control and discretion of the taxpayer.[30]
Contrary to petitioners assertion however, the taxpayers election, signified by the ticking of boxes in Item 10 of BIR Form No.
1702, is not a mere technical exercise. It aids in the proper management of claims for refund or tax credit by leading tax authorities to
the direction they should take in addressing the claim.
The amendment of Section 69 by what is now Section 76 of Republic Act No. 8424[31] emphasizes that it is imperative to indicate
in the tax return or the final adjustment return whether a tax credit or refund is sought by making the taxpayers choice irrevocable.
Section 76 provides:

SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of the tax still due; or

(B) Carry-over the excess credit; or

 (C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefore. [Emphasis supplied]

As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during
the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or
(c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or
refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. However, once the taxpayer has exercised the option to carry-over
and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such
option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed.
Had this provision been in effect when the present claim for refund was filed, petitioners excess credits for 1988 could have been
properly applied to its 1990 tax liabilities. Unfortunately for petitioner, this is not the case.
Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion
of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly
shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception.[32]
WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

2. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.

HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of
the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU,
represented by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B.
CESA, respondents.

DECISION
DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the
decision of 22 March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch 20,
dismissing the petition for declaratory relief in Civil Case No. CEB-16900, entitled Mactan
Cebu International Airport Authority vs. City of Cebu, and its order of 4 May 1995[2]denying
the motion to reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the
scope of the taxing power of local government units and the limits of tax exemption
privileges of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as
follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective
control, management and supervision of the Mactan International Airport in the Province of Cebu
and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the
Province of Cebu x x x (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and domestic air traffic in the Central Visayas and
Mindanao regions as a means of making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and communication in the country;
and,

b) upgrade the services and facilities of the airports and to formulate internationally acceptable
standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment
of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer
of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the
petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F,
941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug,
Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor
the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of
local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:

a) x x x

xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect
on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. 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 RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code. (underscoring
supplied)

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

xxx

(e) x x x

Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the
latter was compelled to pay its tax account under protest and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29,
1994. MCIAA basically contended that the taxing powers of local government units do not extend
to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national government by the very nature of its powers
and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the government but
merely a government-owned corporation performing proprietary functions. As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as provided under Sections
193 and 234 of the Local Government Code when it took effect on January 1, 1992.[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of its
findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government-owned and controlled
corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to
quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are
exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the
same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city charters, decrees
[sic], executive orders, proclamations and administrative regulations, or part of parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly. (/f/, Section 534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided
for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local
Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall objectives of the
New Local Government Code of 1991, RA 7160. It is hereby declared the policy of the State that
the territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals. Toward this end, the State shall
provide for a more responsive and accountable local government structure instituted through a
system of decentralization whereby local government units shall be given more powers, authority,
responsibilities, and resources. The process of decentralization shall proceed from the national
government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995
order, the petitioner filed the instant petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH
GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS
AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-
owned or controlled corporation, it is mandated to perform functions in the same category
as an instrumentality of Government. An instrumentality of Government is one created to
perform governmental functions primarily to promote certain aspects of the economic life
of the people.[6]Considering its task not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly, to carry out the Government
policies of promoting and developing the Central Visayas and Mindanao regions as
centers of international trade and tourism, and accelerating the development of the means
of transportation and communication in the country,[7] and that it is an attached agency of
the Department of Transportation and Communication (DOTC),[8] the petitioner may stand
in [sic] the same footing as an agency or instrumentality of the national
government. Hence, its tax exemption privilege under Section 14 of its Charter cannot be
considered withdrawn with the passage of the Local Government Code of 1991
(hereinafter LGC) because Section 133 thereof specifically states that the `taxing powers
of local government units shall not extend to the levy of taxes or fees or charges of any
kind on the national government, its agencies and instrumentalities.
As to the second assigned error, the petitioner contends that being an instrumentality
of the National Government, respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as
explained in Basco vs. Philippine Amusement and Gaming Corporation:[9]

Local governments have no power to tax instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with an original charter, PD 1869. All of its shares
of stock are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the powers
vested in the federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern
Constitutional Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as a tool
for regulation (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall
as the power to destroy (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to wield
it. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a government
corporation performing governmental functions as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said Code would
apply to all government corporations. For it is clear from Section 133, in relation to Section
234, of the LGC that the legislature meant to exclude instrumentalities of the national
government from the taxing powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local government unit and a
political subdivision, it has the power to impose, levy, assess, and collect taxes within its
jurisdiction. Such power is guaranteed by the Constitution[10] and enhanced further by the
LGC. While it may be true that under its Charter the petitioner was exempt from the
payment of realty taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioners claim that such exemption was not repealed because being an
instrumentality of the National Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of any kind on it, respondent City
of Cebu points out that the petitioner is likewise a government-owned corporation, and
Section 234 thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary functions. Respondent City
of Cebu urges this Court to apply by analogy its ruling that the Manila International Airport
Authority is a government-owned corporation,[12]and to reject the application
of Basco because it was promulgated . . . before the enactment and the signing into law of
R.A. No. 7160, and was not, therefore, decided in the light of the spirit and intention of the
framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed
by the people through their Constitutions.[13] Our Constitution, for instance, provides that
the rule of taxation shall be uniform and equitable and Congress shall evolve a
progressive system of taxation.[14] So potent indeed is the power that it was once opined
that the power to tax involves the power to destroy.[15] Verily, taxation is a destructive
power which interferes with the personal and property rights of the people and takes from
them a portion of their property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in favor of the
taxpayer.[16] But since taxes are what we pay for civilized society,[17] or are the lifeblood of
the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor
of the taxing authority.[18] A claim of exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken.[19] Elsewise stated, taxation is
the rule, exemption therefrom is the exception.[20] However, if the grantee of the exemption
is a political subdivision or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the amount of money
that has to be handled by the government in the course of its operations.[21]
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 by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X of
the Constitution.[22] 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.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or any of
its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is
the rule and exemption therefrom the exception, the exemption may thus be withdrawn at
the pleasure of the taxing authority. The only exception to this rule is where the exemption
was granted to private parties based on material consideration of a mutual nature, which
then becomes contractual and is thus covered by the non-impairment clause of the
Constitution.[23]
 The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the
exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of
local government units as follows:

SEC. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained
by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for wharfage,
tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such
goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer
for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except as
provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the Cooperatives Code of the Philippines respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS
AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis
supplied)

Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges
referred to are of any kind; hence, they include all of these, unless otherwise provided by
the LGC.The term taxes is well understood so as to need no further elaboration, especially
in light of the above enumeration. The term fees means charges fixed by law or ordinance
for the regulation or inspection of business or activity,[24] while charges are pecuniary
liabilities such as rents or fees against persons or property.[25]
Among the taxes enumerated in the LGC is real property tax, which is governed by
Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvements not hereafter specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled corporations, except as provided
therein. It provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable
person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit
or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of the
property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay,
and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are
actually directly and exclusively used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively used by local water districts or by
 government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all machinery and equipment used
for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all
machinery and equipment for pollution control and environmental protection may not be taxed by
local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical
persons including government-owned or controlled corporations are withdrawn upon the effectivity
of the Code.[26]

Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:

SEC. 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.

On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of
local government units and the exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions or provisos in these
sections, as shown by the following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section 133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in Section 133 seems to be inaccurately worded. Instead of the clause unless
otherwise provided herein, with the herein to mean, of course, the section, it should have
used the clause unless otherwise provided in this Code. The former results in absurdity
since the section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions are explicitly
indicated in the next. For instance, in item (a) which excepts income taxes when levied on
banks and other financial institutions; item (d) which excepts wharfage on wharves
constructed and maintained by the local government unit concerned; and item (1) which
excepts taxes, fees and charges for the registration and issuance of licenses or permits
for the driving of tricycles. It may also be observed that within the body itself of the section,
there are exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause except as otherwise provided herein as in items
(c) and (i), or the clause except as provided in this Code in item (j). These clauses would
be obviously unnecessary or mere surplusages if the opening clause of the section were
Unless otherwise provided in this Code instead of Unless otherwise provided herein. In
any event, even if the latter is used, since under Section 232 local government units have
the power to levy real property tax, except those exempted therefrom under Section 234,
then Section 232 must be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the National
Government, its agencies and instrumentalities, and local government units; however,
pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila
Area may impose the real property tax except on, inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person, as
provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government-owned and controlled corporations, Section 193 of
the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the
LGC, except those granted to local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last paragraph of
Section 234 further qualifies the retention of the exemption insofar as real property taxes
are concerned by limiting the retention only to those enumerated therein; all others not
included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover,
even as to real property owned by the Republic of the Philippines or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is
withdrawn if the beneficial use of such property has been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of
the LGC, exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in
the said section, and the petitioner is, undoubtedly, a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above, the said section is qualified
by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the
taxing powers of the local government units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National Government, its agencies or instrumentalities,
and local government units.

It must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property.Most likely, it could only be the first, but not under any explicit provision of the
said section, for none exists. In light of the petitioners theory that it is an instrumentality of
the Government, it could only be within the first item of the first paragraph of the section
by expanding the scope of the term Republic of the Philippines to embrace its
instrumentalities and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person.

This view does not persuade us. In the first place, the petitioners claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly mentions
the word instrumentalities; and, in the second place, it fails to consider the fact that the
legislature used the phrase National Government, its agencies and instrumentalities in
Section 133(o), but only the phrase Republic of the Philippines or any of its political
subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the Republic
of the Philippines which the Administrative Code of 1987 defines as the corporate
governmental entity through which the functions of government are exercised throughout
the Philippines, including, save as the contrary appears from the context, the various arms
through which political authority is made affective in the Philippines, whether pertaining to
the autonomous regions, the provincial, city, municipal or barangay subdivisions or other
forms of local government.[27] These autonomous regions, provincial, city, municipal or
barangay subdivisions are the political subdivisions.[28]
On the other hand, National Government refers to the entire machinery of the central
government, as distinguished from the different forms of local governments.[29] The
National Government then is composed of the three great departments: the executive, the
legislative and the judicial.[30]
An agency of the Government refers to any of the various units of the Government,
including a department, bureau, office, instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit therein;[31] while an instrumentality
refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. This term includes regulatory agencies, chartered institutions
and government-owned and controlled corporations.[32]
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said section
to the agencies and instrumentalities of the National Government mentioned in Section
133(o), then it should have restated the wording of the latter. Yet, it did not. Moreover, that
Congress did not wish to expand the scope of the exemption in Section 234(a) to include
real property owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact that the
source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real
Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and
any government-owned or controlled corporation so exempt by its charter: Provided, however, That
this exemption shall not apply to real property of the above-mentioned entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments[33] and the objective of the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals.[34] The power to tax
is the most effective instrument to raise needed revenues to finance and support myriad
activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity
of the people. It may also be relevant to recall that the original reasons for the withdrawal
of tax exemption privileges granted to government-owned and controlled corporations and
all other units of government were that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated enterprises, and there was a need
for these entities to share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them.[35]
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has been granted
to the petitioner, and (b) whether the petitioner is a taxable person.
Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and privileges relating on
airport works or air operations, including all equipment which are necessary for the operations of
air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to
the Authority: Provided, however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the approach control office, and
the area control center shall be retained by the Air Transportation Office. No equipment, however,
shall be removed by the Air Transportation Office from Mactan without the concurrence of the
Authority. The Authority may assist in the maintenance of the Air Transportation Office
equipment.

The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,[36] which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).[37]
It may be reasonable to assume that the term lands refer to lands in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City of
Cebu seeks to levy on for real property taxes. This section involves a transfer of the lands,
among other things, to the petitioner and not just the transfer of the beneficial use thereof,
with the ownership being retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership thereof because the
petitioners authorized capital stock consists of, inter alia, the value of such real estate
owned and/or administered by the airports.[38] Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person under its
Charter. It was only exempted from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real
property tax, in light of the foregoing disquisitions, it had already become, even if it be
conceded to be an agency or instrumentality of the Government, a taxable person for such
purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from
the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs.
Philippine Amusement and Gaming Corporation[39] is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing
that even instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order of
the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
3. G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General
Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the
power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended,
June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan,
Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both
Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein
are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte,
as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce
compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects
"from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft
drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked
during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on
soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due,
the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal
Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?
 2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes?

3. — Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative
and which the central legislative body cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers. The exception, however, lies in the case of
municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By necessary
implication, the legislative power to create political corporations for purposes of local self-government carries with it
the power to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to levy taxes.
Section 5, Article XI provides: "Each local government unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to
invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact
measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as
when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or
property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection
of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually violated where the
tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will
result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to
the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the
amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of
law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of
double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes
over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for
its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have
not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and
some states of the Union.14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No.
23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a
tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the bottle used.
When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still
pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962,
imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16
of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus
clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking
to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962
is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in
his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of
the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied
under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same
comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in
cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles
subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the
nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the
volume of sales and the amount of the tax.21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as
distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1-½ centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local governments in matters of local taxation, an
aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should
not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen
local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers
of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41,
series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27.
Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No.
27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,
Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma, Aquino and Concepcion, Jr., JJ.,
concur.
Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement.
If I limit myself to concurrence in the result, it is primarily because with the article on Local Autonomy found in the
present Constitution, I feel a sense of reluctance in restating doctrines that arose from a different basic premise as
to the scope of such power in accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so
as I am unable to share fully what for me are the nuances and implications that could arise from the approach taken
by my brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit
myself to what has been set forth in City of Baguio v. De Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It
is therein specifically provided: "Each local government unit shall have the power to create its own sources of
revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not the case under the
1935 Charter. The only limitation then on the authority, plenary in character of the national government, was that
while the President of the Philippines was vested with the power of control over all executive departments, bureaus,
or offices, he could only . It exercise general supervision over all local governments as may be provided by law
... 3As far as legislative power over local government was concerned, no restriction whatsoever was placed on the
Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy Act. 5 Nevertheless, as
late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice
Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule
is well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its
charter or a statute must clearly show an intent to confer that power or the municipal corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from the
terms of the grant to be resolved against the municipality."7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an attribute of
sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim
"based merely by inferences, implications and deductions, [as they have no place in the interpretation of the power
to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such grant of the
municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged double taxation, I
would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double
taxation is not violative of due process, Justice Holmes made clear in this language: 'The objection to the taxation as
double may be laid down on one side. ... The 14th Amendment [the due process clause) no more forbids double
taxation than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with
us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted
with approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.
Separate Opinions
FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement.
If I limit myself to concurrence in the result, it is primarily because with the article on Local Autonomy found in the
present Constitution, I feel a sense of reluctance in restating doctrines that arose from a different basic premise as
to the scope of such power in accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so
as I am unable to share fully what for me are the nuances and implications that could arise from the approach taken
by my brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit
myself to what has been set forth in City of Baguio v. De Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It
is therein specifically provided: "Each local government unit shall have the power to create its own sources of
revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not the case under the
1935 Charter. The only limitation then on the authority, plenary in character of the national government, was that
while the President of the Philippines was vested with the power of control over all executive departments, bureaus,
or offices, he could only . It exercise general supervision over all local governments as may be provided by law
... 3As far as legislative power over local government was concerned, no restriction whatsoever was placed on the
Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy Act. 5 Nevertheless, as
late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice
Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule
is well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its
charter or a statute must clearly show an intent to confer that power or the municipal corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from the
terms of the grant to be resolved against the municipality."7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an attribute of
sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim
"based merely by inferences, implications and deductions, [as they have no place in the interpretation of the power
to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such grant of the
municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged double taxation, I
would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double
taxation is not violative of due process, Justice Holmes made clear in this language: 'The objection to the taxation as
double may be laid down on one side. ... The 14th Amendment [the due process clause) no more forbids double
taxation than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with
us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted
with approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.

4. REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellant, v. PHILIPPINE

RABBIT BUS LINES, INC., Defendant-Appellee.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General

Pacifico P. de Castro and Solicitor Enrique M. Reyes for plaintiff-appellant. chanroblesv irt ualawli bra rychan rob les vi rtual law lib rary

Angel A. Sison for defendant-appellee.

 FERNANDO, J.:

The right of a holder of a backpay certificate to use the same in the payment
of his taxes has been recognized by law.1Necessarily, this Court, in Tirona v.
Cudiamat,2yielding obedience to such statutory prescription, saw nothing
objectionable in a taxpayer taking advantage of such a provision. That much is
clear; it is settled beyond doubt. What is involved in this appeal from a lower
court decision of November 24, 1965, dismissing a complaint by plaintiff-
appellant Republic of the Philippines, seeking the invalidation of the payment
by defendant-appellee Philippine Rabbit Bus Lines, Inc. for the registration
fees3of its motor vehicles in the sum of P78,636.17, in the form of such
negotiable backpay certificates of indebtedness, is the applicability of such a
provision to such a situation. The lower court held that it did. The Republic of
the Philippines appealed. While originally the matter was elevated to the Court
of Appeals, it was certified to us, the decisive issue being one of law. The
statute having restricted the privilege to the satisfaction of a tax, a liability for
fees under the police power being thus excluded from its benefits, we cannot
uphold the decision appealed from. We reverse. chanroblesvi rtualaw lib raryc han robles v irt ual law li bra ry

The complaint of plaintiff-appellant Republic of the Philippines was filed on

January 17, 1963 alleging that defendant-appellee, as the registered owner of
two hundred thirty eight (238) motor vehicles, paid to the Motor Vehicles
Office in Baguio the amount of P78,636.17, corresponding to the second
installment of registration fees for 1959, not in cash but in the form of
negotiable certificate of indebtedness, the defendant being merely an assignee
and not the backpay holder itself. The complaint sought the payment of such
amount with surcharges plus the legal rate of interest from the filing thereof
and a declaration of the nullity of the use of such negotiable certificate of
indebtedness to satisfy its obligation. The answer by defendant-appellee, filed
on February 18, 1963, alleged that what it did was in accordance with law,
both the Treasurer of the Philippines and the General Auditing Office having
signified their conformity to such a mode of payment. It sought the dismissal
of the complaint. chanroblesvi rt ualawlib rary chan roble s virt ual law l ibra ry

After noting the respective theories of both parties in its pleadings, the lower
court, in its decision, stated that the issue before it "is whether or not the
acceptance of the negotiable certificates of indebtedness tendered by
defendant bus firms to and accepted by the Motor Vehicles Office of Baguio
City and the corresponding issuance of official receipts therefor acknowledging
such payment by said office is valid and binding on plaintiff Republic."4 chan robl es virt ual law li bra ry

In the decision now on appeal, the lower court, after referring to a

documentary evidence introduced by plaintiff-appellant continued: "From the
evidence adduced by defendant bus firm, it appears that as early as August
28, 1958, the National Treasurer upon whom devolves the function of
administering the Back Pay Law (Republic Act 304 as amended by Republic Act
Nos. 800 and 897), in his letter to the Chief of the Motor Vehicles Office who in
turn quoted and circularized same in his Circular No. 5 dated September 1,
1958, to draw the attention thereto of all Motor Vehicle Supervisors, Registrars
and employees ..., had approved the acceptance of negotiable certificates of
indebtedness in payment of registration fees of motor vehicles with the view
that such certificates 'should be accorded with the same confidence by other
governmental instrumentalities as other evidences of public debt, such as
bonds and treasury certificates'. Significantly, the Auditor General concurred in
the said view of the National Treasurer."5 chanrobles v irt ual law l ibra ry

The argument of plaintiff-appellant that only the holders of the backpay

certificates themselves could apply the same to the payment of motor vehicle
registration fees did not find favor with the lower court. Thus, "[Plaintiff]
Republic urges that defendant bus firm being merely an assignee of the
negotiable certificates of indebtedness in question, it could not use the same in
payment of taxes. Such contention, this Court believes, runs counter to the
recitals appearing on the said certificates which states that 'the Republic of the
Philippines hereby acknowledges to (name) or assigns ...', legally allowing the
assignment of backpay rights."6 chanrobles vi rt ual law li bra ry

It therefore, as above noted, rendered judgment in favor of defendant-

appellee "upholding the validity and efficacy" of such payment made and
dismissing the complaint. Hence this appeal which, on the decisive legal issue
already set forth at the outset, we find meritorious. chanroblesv irtualawl ibra rychan rob les vi rtual law lib rary

1. If a registration fee were a tax, then what was done by defendant-appellee

was strictly in accordance with law and its nullity, as sought by plaintiff-
appellant Republic of the Philippines, cannot be decreed. But is it? The answer
to that question is decisive of this controversy. A tax refers to a financial
obligation imposed by a state on persons, whether natural or juridical, within
its jurisdiction, for property owned, income earned, business or profession
engaged in, or any such activity analogous in character for raising the
necessary revenues to take care of the responsibilities of government.7An
often-quoted definition is that of Cooley: "Taxes are the enforced proportional
contributions from persons and property levied by the state by virtue of its
sovereignty for the support of government and for all public needs."8 chanrob les vi rtual law li brary

As distinguished from other pecuniary burdens, the differentiating factor is

that the purpose to be subserved is the raising of revenue. A tax then is
neither a penalty that must be satisfied or a liability arising from
contract.9Much less can it be confused or identified with a license or a fee as a
manifestation of an exercise of the police power. It has been settled law in this
jurisdiction as far back as Cu Unjieng v. Potstone, decided in 1962, 10 that
this broad and all-encompassing governmental competence to restrict rights of
liberty and property carries with it the undeniable power to collect a regulatory
fee. Unlike a tax, it has not for its object the raising of revenue but looks
rather to the enactment of specific measures that govern the relations not only
as between individuals but also as between private parties and the political
society. To quote from Cooley anew: "Legislation for these purposes it would
seem proper to look upon as being made in the exercise of that authority ...
spoken of as the police power." 11

The registration fee which defendant-appellee had to pay was imposed by

Section 8 of the Revised Motor Vehicle Law. 12 Its heading speaks of
"registration fees." The term is repeated four times in the body thereof.
Equally so, mention is made of the "fee for registration." 13 A subsection
starts with a categorical statement "No fees shall be charged." 14 The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence
the inapplicability of the section relied upon by defendant-appellee under the
Back Pay Law. It is not held liable for a tax but for a registration fee. It
therefore cannot make use of a backpay certificate to meet such an
obligation.chanroble svirtualawl ibra ryc hanro bles vi rt ual law li bra ry

Any vestige of any doubt as to the correctness of the above conclusion should
be dissipated by Republic Act No. 5448. 15 A special science fund was thereby
created and its title expressly sets forth that a tax on privately-owned
passenger automobiles, motorcycles and scooters was imposed. The rates
thereof were provided for in its Section 3 which clearly specifies that
"additional tax" was to be paid as distinguished from the registration fee under
the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could be
stretching the point be susceptible of the interpretation that a tax rather than
a fee was levied. What is thus most apparent is that where the legislative body
relies on its authority to tax it expressly so states, and where it is enacting a
regulatory measure, it is equally explicit. chan rob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

It may further be stated that a statute is meaningful not only by what it

includes but also by what it omits. What is left out is not devoid of
significance. As observed by Frankfurter: "An omission at the time of
enactment, whether careless or calculated, cannot be judicially supplied
however much later wisdom may recommend the inclusion. 16 In the light of
this consideration, the reversal of the appealed judgment is unavoidable. c hanro blesvi rt ualawlib ra rychan roble s virtual law lib rary

2. In the brief for plaintiff-appellant Republic of the Philippines, filed by the

then Solicitor General, now Justice Antonio P. Barredo, the principal error
imputed to the trial court is its failure to hold that the Back Pay Law prohibits
an assignee, as is defendant-appellee, from using certificates of indebtedness
to pay their taxes. In view of the conclusion reached by us that the liability of
defendant-appellee under the Motor Vehicle Act does not arise under the
taxing power of the state, there is no need to pass upon this particular
question.chanroblesvi rtualaw lib raryc han robles v irt ual law l ibra ry

3. The Republic of the Philippines, in its brief, likewise assigned as error the
failure of the lower court to hold that estoppel does not lie against the
government for mistakes committed by its agents. As could be discerned from
an excerpt of the decision earlier referred to, the lower court was impressed
by the fact that the national treasurer to whom it correctly referred as being
vested with the function of administering the backpay law did in a
communication to the Motor Vehicles Office approve the acceptance of
negotiable certificate of indebtedness in payment of registration fees, a view
with which the Auditor General was in concurrence. The appealed decision
likewise noted: "By the testimonies of Pedro Flores, the then Registrar of the
Motor Vehicles Office of Baguio City and Casiano Catbagan, the Cashier of the
Bureau of Public Highways in the same city, defendant bus firm has
undisputedly shown that, after the said certificates of indebtedness were
properly indorsed in favor of the Motor Vehicles Office of Baguio City and
accepted by the Bureau of Public Highways on May 29, 1959, it was duly and
properly issued official receipts ... acknowledging full payment of its
registration fees for the second installment of 1959 of its 238 vehicles, and
that the Bureau of Public Highways, thru its collecting and disbursing officer,
was validly and regularly authorized to receive such payment." 17

Thus did the lower court, as pointed out by the then Solicitor General,
conclude that the government was bound by the mistaken interpretation
arrived at by the national treasurer and the auditor general. It would consider
estoppel as applicable. That is not the law. Estoppel does not lie. Such a
principle dates back to Aguinaldo de Romero v. Director of Lands, 18 a 1919
decision. Insofar as the taxing power is concerned, Pineda v. Court of First
Instance, a 1929 decision, speaks categorically: "The Government is never
estopped by mistake or error on the part of its agents. It follows that, in so far
as this record shows, the petitioners have not made it appear that the
additional tax claimed by the Collector is not in fact due and collectible. The
assessment of the tax by the Collector creates, it must be remembered, a
charge that is at least prima facie valid." 19 That principle has since been
subsequently followed. 20While the question here is one of the collection of a
regulatory fee under the police power, reliance on the above course of
decisions is not inappropriate. There is nothing to stand in the way, therefore,
of the collection of the registration fees from defendant-appellee. cha nrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry
WHEREFORE, the decision of November 24, 1965 is reversed and defendant-
appellee ordered to pay the sum of P78,636.17. With costs against defendant-
appellee.
5. G.R. No. L-18330 July 31, 1963

JOSE DE BORJA, petitioner-appellee,

vs.
VICENTE G. GELLA, ET AL., respondents-appellants.

David Guevara for petitioner-appellee.

Office of the Solicitor General for respondent-appellant Treasurer of the Philippines.
Assistant City Fiscal H. A. Avendano for respondent-appellant Treasurer of Pasay City.

BAUTISTA ANGELO, J.:

Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the
City of Manila and Pasay City and has offered to pay them with two negotiable, certificates of indebtedness Nos.
3064 and 3065 in the amounts of P793.40 and P717.69, respectively. Borja was, however, a mere assignee of the
aforesaid negotiable certificates, the applicants for backpay rights covered by them being respectively Rafael
Vizcaya and Pablo Batario Luna.

The offers to pay the estate taxes in question were rejected by the city treasurers of both Manila and Pasay cities on
the ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800,
and in the case of the city treasurer of Manila on the further ground that he was ordered not to accept them by the
city mayor, for which reason Borja was prompted to bring the question to the Treasurer of the Philippines who
opined, among others, that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch
as the law provides for their acceptance from their backpay holder only or the original applicant himself, but not his
assignee. In his letter of April 29, 1960 to the Treasurer of the Philippines, however, Borja entertained hope that the
certificates would be accepted for payment in view of the fact that they are already long past due and redeemable,
but his hope was frustrated. So on June 30, 1960, Borja filed an action against the treasurers of both the City of
Manila and Pasay City, as well as the Treasurer of the Philippines, to impel them to execute an act which the law
allegedly requires them to perform, to wit: to accept the above-mentioned certificates of indebtedness considering
that they were already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to
the government thru such means.

Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates, and
after the requisite trial was held, the court a quo rendered judgment the dispositive part of which reads:

WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in
their behalf are hereby enjoined from including petitioner's properties in the payment of real estate, taxes,
and to sell them at public auction and respondent Treasurer of the Philippines, and the treasurers of the City
of Manila and Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness
Nos. 3064 and 3065 in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in
the City of Manila and Pasay City, respectively, without costs.

Respondents took this appeal on purely questions of law. 1äwphï1.ñët

Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has
appellee the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities the
certificates of indebtedness he holds while appellants have the correlative legal duty to accept the certificates in
payment of said taxes?; (b) can compensation be invoked to extinguish appellee's real estate tax liability between
the latter's obligation and the credit represented by said certificates of indebtedness?

Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as
amended by Republic Act No. 800, which in part reads:
 SEC. 2. The Treasurer of the Philippines shall, upon application, and within one year from the approval of
this Act, and under such rules and regulations as may be promulgated by the Secretary of Finance,
acknowledge and file requests for the recognition of the right to the salaries and wages as provided in
section one hereof, and notice of such acknowledgment shall be issued to the applicant which shall state the
total amount of such salaries or wages due to the applicant, and certify that it shall be redeemed by the
Government of the Philippines within ten years from the date of their issuance without interest: Provided,
that upon application . . . a certificate of indebtedness may be issued by the Treasurer of the Philippines
covering the whole or part of the total salaries or wages the right to which has been duly acknowledged and
recognized, provided that the face value of such certificate of indebtedness shall not exceed the amount that
the applicant may need for the payment of (1) obligations subsisting at the time of the approval of this Act for
which the applicant may directly be liable to the Government or to any of its branches or instrumentalities, or
the corporations owned or controlled by the Government, or to any citizen of the Philippines, who may be
willing to accept the same for such settlement; (2) his taxes; . . . and Provided, also, That any person who is
not an alien, bank or other financial institution at least sixty per centum of whose capital is owned by
Filipinos may, notwithstanding any provision of its charter, articles of incorporation, by-laws, or rules and
regulations to the contrary, accept or discount at not more than three and one-half per centum per annum for
ten years a negotiable certificate of indebtedness which shall be issued by the Treasurer of the Philippines
upon application by a holder of a back pay acknowledgment. . . . .

To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not
obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It
should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent years.
The law is explicit that in order that a certificate may be used in payment of an obligation the same must be
subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be contended
that appellee can compel the government to accept the alleged certificates of indebtedness in payment of his real
estate taxes under proviso No. 2 abovequoted also for the reason that in order that such payment may be allowed
the tax must be owed by the applicant himself . This is the correct implication that may be drawn from the use by the
law of the words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to the
applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it
discounted by a Filipino citizen or corporation under certain limitations. Here appellee is not himself the applicant of
the certificate, in question. He is merely an assignee thereof, or a subsequent holder whose right is at most to have
it discounted upon maturity — or to negotiate it in the meantime. A fortiori, it may be included that, not having the
right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in
the present petition for mandamus. As a consequence, we cannot but hold that mandamus does not lie against
appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty, nor have
they unlawfully excluded appellee from the use or enjoyment of a right to which be is entitled.1

We are aware of the cases2 cited by the court a quo wherein the government banking institutions were ordered to
accept the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here in point
because in the cases mentioned the petitioners were applicants and original holders of the corresponding backpay
certificates. Here appellee is not.

With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are
concerned, Articles 1278 and 1279 of the new Civil Code provide:

ART. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other.

ART. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

 (4) That they two liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

It is clear from the above legal provisions that compensation cannot be effected with regard to the two obligations in
question. In the first place, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the
Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila and Pasay City, each one
of which having a distinct and separate personality from our Republic. With regard to the certificates, the creditor is
the appellee while the debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the
City of Manila and Pasay City while the debtor is the appellee. It appears, therefore, that each one of the obligors
concerning the two obligations is not at the same time the principal creditor of the other. It cannot also be said for
certain that the certificates are already due. Although on their faces the certificates issued to appellee state that they
are redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on June 18,
1948 but "within ten years from the date of issuance" of the certificates. There is no certainty, therefore, when the
certificates are really redeemable within the meaning of the law. Since the requisites for the accomplishment of legal
compensation cannot be fulfilled, the latter cannot take place with regard to the two obligations as found by the
court a quo.

WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The injunction
issued against respondents-appellants is hereby lifted. No costs.

6. G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special Proceedings No.
7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance
of Claim and for an Order of Payment of Taxes by the Government of the Republic of the Philippines against the
Estate of the late Luis D. Tongoy, for deficiency income taxes for the years 1963 and 1964 of the decedent in the
total amount of P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3, 1969 in the
abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in the total sum of
P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-
64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed
the motion solely on the ground that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4,
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the respondent
Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner, Regional Director
of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September
18, 1969, a motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against the estate of
Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.
 2. The lower court erred in holding that the claim for taxes of the government was already barred
under Section 5, Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of Court,
bars claim of the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332
of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance of
Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within the
time limited in they notice; otherwise they are barred forever, except that they may be set forth as
counter claims in any action that the executor or administrator may bring against the claimants.
Where the executor or administrator commence an action, or prosecutes an action already
commenced by the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has herein provided,
and mutual claims may be set off against each other in such action; and in final judgment is
rendered in favored of the decedent, the amount to determined shall be considered the true balance
against the estate, as though the claim has been presented directly before the court in the
administration proceedings. Claims not yet due, or contingent may be approved at their present
value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of the
decedent created by law, such as taxes which is entirely of different character from the claims expressly
enumerated therein, such as: "all claims for money against the decedent arising from contract, express or implied,
whether the same be due, not due or contingent, all claim for funeral expenses and expenses for the last sickness of
the decedent and judgment for money against the decedent." Under the familiar rule of statutory construction
of expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not
mentioned. Thus, if a statute enumerates the things upon which it is to operate, everything else must necessarily,
and by implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December
30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription
thereof are governed by the provisions of the National Internal revenue Code, particularly Sections 331 and 332
thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals &
Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the
provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind
of the Court as not affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes assessed
against the estate of a deceased person ... need not be submitted to the committee on claims in the ordinary course
of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the estate." The abolition of the Committee on
Claims does not alter the basic ruling laid down giving exception to the claim for taxes from being filed as the other
claims mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after the
distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of their share in the
inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception
from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and
their prompt and certain availability are imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L-
22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for
whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted
with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as
private persons may be made to suffer individually on account of his own negligence, the presumption being that
they take good care of their personal affairs. This should not hold true to government officials with respect to matters
not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from
the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177;
Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September
30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda
vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-
18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA
77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown,
taxes may be collected even after the distribution of the estate of the decedent among his heirs (Government of the
Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of Section
315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the Philippines from the
time the assessment was made by the Commissioner of Internal Revenue until paid with interests, penalties, etc. By
virtue of such lien, this court held that the property of the estate already in the hands of an heir or transferee may be
subject to the payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the unpaid
taxes due the decedent may be collected, even without its having been presented under Section 2 of Rule 86 of the
Rules of Court. It may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such taxes as
would be collectible from the estate even after his death. Thus in the case above cited, the income taxes sought to
be collected were due from the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of
the Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed therein, as
may be gleaned from the italicized portion of the Rule herein cited which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section,
the court shall state the time for the filing of claims against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the date of the first publication of the notice. However,
at any time before an order of distribution is entered, on application of a creditor who has failed to file
his claim within the time previously limited the court may, for cause shown and on such terms as are
equitable, allow such claim to be flied within a time not exceeding one (1) month. (Emphasis
supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment of
Taxes) which, though filed after the expiration of the time previously limited but before an order of the distribution is
entered, should have been granted by the respondent court, in the absence of any valid ground, as none was
shown, justifying denial of the motion, specially considering that it was for allowance Of claim for taxes due from the
estate, which in effect represents a claim of the people at large, the only reason given for the denial that the claim
was filed out of the previously limited period, sustaining thereby private respondents' contention, erroneously as has
been demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total amount
of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final one and the
respondent estate's sole defense of prescription has been herein overruled, the Motion for Allowance of Claim is
herein granted and respondent estate is ordered to pay and discharge the same, subject only to the limitation of the
interest collectible thereon as provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.

7. REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL

COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner, vs. COCOFED et
al. and BALLARES et al.,[1] EDUARDO M. COJUANGCO JR. and the
SANDIGANBAYAN (First Division) respondents.
 DECISION
PANGANIBAN, J.:

The right to vote sequestered shares of stock registered in the names of private individuals or
entities and alleged to have been acquired with ill-gotten wealth shall, as a rule, be exercised by the registered
owner. The PCGG may, however, be granted such voting right provided it can (1) show prima facie evidence
that the wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent danger of dissipation of
the assets, thus necessitating their continued sequestration and voting by the government until a decision, ruling
with finality on their ownership, is promulgated by the proper court.
However, the foregoing two-tiered test does not apply when the sequestered stocks are acquired with funds
that are prima facie public in character or, at least, are affected with public interest. Inasmuch as the subject
UCPB shares in the present case were undisputably acquired with coco levy funds which are public in character,
then the right to vote them shall be exercised by the PCGG. In sum, the public character test, not the two-tiered
one, applies in the instant controversy.

The Case

Before us is a Petition for Certiorari with a prayer for the issuance of a temporary restraining order and/or a
writ of preliminary injunction under Rule 65 of the Rules of Court, seeking to set aside the February 28, 2001
Order[2] of the First Division of the Sandiganbayan[3] in Civil Case Nos. 0033-A, 0033-B and 0033-F. The
pertinent portions of the assailed Order read as follows:

In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo Cojuangco, et
al., who were acknowledged to be registered stockholders of the UCPB are authorized, as are all
other registered stockholders of the United Coconut Planters Bank, until further orders from this
Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the
United Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on March 6, 2001 or
on any subsequent continuation or resetting thereof, and to perform such acts as will normally
follow in the exercise of these rights as registered stockholders.

Since by way of form, the pleadings herein had been labeled as praying for an injunction, the right
of the movants to exercise their right as abovementioned will be subject to the posting of a nominal
bond in the amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants
COCOFED, et al. and Ballares, et al., as well as all other registered stockholders of sequestered
shares in that bank, and FIFTY THOUSAND PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et
al., to answer for any undue damage or injury to the United Coconut Planters Bank as may be
attributed to their exercise of their rights as registered stockholders.[4]

The Antecedents

The very roots of this case are anchored on the historic events that transpired during the change of
government in 1986. Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued
Executive Order (EO) Nos. 1,[5] 2[6] and 14.[7]
On the explicit premise that vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad, the Presidential Commission on Good Government (PCGG) was created by Executive
Order No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated
whether located in the Philippines or abroad.[8]

Executive Order No. 2 states that the ill-gotten assets and properties are in the form of bank accounts,
deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences,
estates, and other kinds of real and personal properties in the Philippines and in various countries of the world.[9]
Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance of the Office of the
Solicitor General and other government agencies, inter alia, to file and prosecute all cases investigated by it
under EO Nos. 1 and 2.
Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and
provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.[10]
Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters
Bank (UCPB) registered in the names of the alleged one million coconut farmers, the so-called Coconut
Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr.
(hereinafter Cojuangco).
In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an
action for reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in the
Sandiganbayan.
On November 15, 1990, upon Motion[11] of Private Respondent COCOFED, the Sandiganbayan issued a
Resolution[12] lifting the sequestration of the subject UCPB shares on the ground that herein private respondents -
- in particular, COCOFED and the so-called CIIF companies had not been impleaded by the PCGG as parties-
defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution and
damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission was automatically
lifted for PCGGs failure to commence the corresponding judicial action within the six-month period ending on
August 2, 1987 provided under Section 26, Article XVIII of the 1987 Constitution. The anti-graft court noted
that though these entities were listed in an annex appended to the Complaint, they had not been named as
parties-respondents.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR
No. 96073 in this Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of
elections for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court a
Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order
and ordered the UCPB to proceed with the election of its board of directors. Furthermore, it allowed the
sequestered shares to be voted by their registered owners.
The victory of the registered shareholders was fleeting because the Court, acting on the solicitor generals
Motion for Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that the right of
petitioners [herein private respondents] to vote stock in their names at the meetings of the UCPB cannot be
conceded at this time. That right still has to be established by them before the Sandiganbayan. Until that is done,
they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote them. [13] The
dispositive portion of the said Resolution reads as follows:

IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated March 3,
1992 and, pending resolution on the merits of the action at bar, and until further orders, suspends
the effectivity of the lifting of the sequestration decreed by the Sandiganbayan on November 15,
1990, and directs the restoration of the status quo ante, so as to allow the PCGG to continue voting
the shares of stock under sequestration at the meetings of the United Coconut Planters Bank.[14]

On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying and setting aside
the November 15, 1990 Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of the
subject UCPB shares. The express impleading of herein Respondents COCOFED et al. was deemed
unnecessary because the judgment may simply be directed against the shares of stock shown to have been
issued in consideration of ill-gotten wealth.[15] Furthermore, the companies are simply the res in the actions for
the recovery of illegally acquired wealth, and there is, in principle, no cause of action against them and no
ground to implead them as defendants in said case.[16]
A month thereafter, the PCGG -- pursuant to an Order of the Sandiganbayan -- subdivided Case No. 0033
into eight Complaints and docketed them as Case Nos. 0033-A to 0033-H.
Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law
Office a letter written on behalf of the COCOFED and the alleged nameless one million coconut farmers,
demanding the holding of a stockholders meeting for the purpose of, among others, electing the board of
directors. In response, the board approved a Resolution calling for a stockholders meeting on March 6, 2001 at
three oclock in the afternoon.
On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the Class Action Omnibus
Motion[17] referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a
quo:
1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more
than one million coconut farmers; and
2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies
including those registered in the name of the PCGG.[18]
On February 28, 2001, respondent court, after hearing the parties on oral argument, issued the assailed
Order.
Hence, this Petition by the Republic of the Philippines represented by the PCGG.[19]
The case had initially been raffled to this Courts Third Division which, by a vote of 3-2,[20] issued a
Resolution[21] requiring the parties to maintain the status quo existing before the issuance of the questioned
Sandiganbayan Order dated February 28, 2001. On March 7, 2001, Respondent COCOFED et al. moved that
the instant Petition be heard by the Court en banc.[22] The Motion was unanimously granted by the Third
Division.
On March 13, 2001, the Court en banc resolved to accept the Third Divisions referral.[23] It heard the case
on Oral Argument in Baguio City on April 17, 2001. During the hearing, it admitted the intervention of a group
of coconut farmers and farm worker organizations, the Pambansang Koalisyon ng mga Samahang Magsasaka
at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its members have been excluded from the
benefits of the coconut levy fund. Inter alia, it joined petitioner in praying for the exclusion of private
respondents in voting the sequestered shares.

Issues

Petitioner submits the following issues for our consideration:[24]

A.
Despite the fact that the subject sequestered shares were purchased with coconut levy funds (which
were declared public in character) and the continuing effectivity of Resolution dated February 16,
1993 in G.R. No. 96073 which allows the PCGG to vote said sequestered shares, Respondent
Sandiganbayan, with grave abuse of discretion, issued its Order dated February 28, 2001 enjoining
PCGG from voting the sequestered shares of stock in UCPB.
B.

The Respondent Sandiganbayan violated petitioners right to due process by taking cognizance of
the Class Action Omnibus Motion dated 23 February 2001 despite gross lack of sufficient notice
and by issuing the writ of preliminary injunction despite the obvious fact that there was no actual
pressing necessity or urgency to do so.

In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the instant case simply
as follows:

Did the Sandiganbayan commit grave abuse of discretion when it issued the disputed Order
allowing respondents to vote UCPB shares of stock registered in the name of respondents?

This Courts Ruling

The Petition is impressed with merit.

Main Issue: Who May Vote the Sequestered Shares of Stock?

Simply stated, the gut substantive issue to be resolved in the present Petition is: Who may vote the
sequestered UCPB shares while the main case for their reversion to the State is pending in the Sandiganbayan?
This Court holds that the government should be allowed to continue voting those shares inasmuch as they
were purchased with coconut levy funds -- funds that are prima facie public in character or, at the very least, are
clearly affected with public interest.

General Rule: Sequestered Shares Are Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the registered owner of the shares of a
corporation exercises the right and the privilege of voting.[25] This principle applies even to shares
that are sequestered by the government, over which the PCGG as a mere conservator cannot, as a
general rule, exercise acts of dominion.[26] On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten
wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v.
Calpo[27] and PCGG v. Cojuangco Jr.,[28] as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting
by the PCGG, while the main issue is pending with the Sandiganbayan?
Sequestered Shares Acquired with Public Funds Are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG[29] (hereinafter Baseco) and Cojuangco
Jr. v. Roxas[30] (Cojuangco-Roxas) has provided two clear public character exceptions under which the
government is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered them in
their own names, and
(2) Where the capitalization or shares that were acquired with public funds somehow landed in private
hands.
The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public
property registered in the names of non-owners is affected with trust relations; and that the prima
facie beneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of
ownership.
In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under
sequestration by the PCGG. Explained the Court:

The facts show that the corporation known as BASECO was owned and controlled by President
Marcos during his administration, through nominees, by taking undue advantage of his public
office and/or using his powers, authority, or influence, and that it was by and through the same
means, that BASECO had taken over the business and/or assets of the National Shipyard and
Engineering Co., Inc., and other government-owned or controlled entities.[31]

Given this factual background, the Court discussed PCGGs right over BASECO in the following manner:

Now, in the special instance of a business enterprise shown by evidence to have been taken over by
the government of the Marcos Administration or by entities or persons close to former President
Marcos, the PCGG is given power and authority, as already adverted to, to provisionally take (it)
over in the public interest or to prevent * * (its) disposal or dissipation; and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something
more than mere physical custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself.[32]

Citing an earlier Resolution, it ruled further:

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this
case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to
show any right or even any shareholding in said corporation.[33] (Italics supplied)

The Court granted PCGG the right to vote the sequestered shares because they appeared to be assets
belonging to the government itself. The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in
which she was joined by Justice Florentino P. Feliciano, explained this principle as follows:
I have no objection to according the right to vote sequestered stock in case of a take-over of
business actually belonging to the government or whose capitalization comes from public funds but
which, somehow, landed in the hands of private persons, as in the case of BASECO. To my mind,
however, caution and prudence should be exercised in the case of sequestered shares of an on-going
private business enterprise, specially the sensitive ones, since the true and real ownership of said
shares is yet to be determined and proven more conclusively by the Courts.[34] (Italics supplied)

The exception was cited again by the Court in Cojuangco-Roxas[35] in this wise:

The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership
of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and
elect the members of the board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose capitalization comes from public
funds, but which landed in private hands as in BASECO.[36] (Italics supplied)

The public character test was reiterated in many subsequent cases; most recently, in Antiporda v.
Sandiganbayan.[37] Expressly citing Cojuangco-Roxas,[38] this Court said that in determining the issue of whether
the PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether these were
purchased with public funds, as follows:

It is thus important to determine first if the sequestered corporate shares came from public funds
that landed in private hands.[39]

In short, when sequestered shares registered in the names of private individuals or entities are alleged to
have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered
shares in the name of private individuals or entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered
test does not apply. Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr. v.
Roxas prevail; that is, the government shall vote the shares.

UCPB Shares Were Acquired With Coconut Levy Funds

In the present case before the Court, it is not disputed that the money used to purchase the sequestered
UCPB shares came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut
levy funds.
This fact was plainly admitted by private respondents counsel, Atty. Teresita J. Herbosa, during the Oral
Arguments held on April 17, 2001 in Baguio City, as follows:
Justice Panganiban:
In regard to the theory of the Solicitor General that the funds used to purchase [both] the original 28 million and the
subsequent 80 million came from the CCSF, Coconut Consumers Stabilization Fund, do you agree with that?
Atty. Herbosa:
Yes, Your Honor.
xxxxxxxxx
Justice Panganiban:
 So it seems that the parties [have] agreed up to that point that the funds used to purchase 72% of the former First
United Bank came from the Coconut Consumer Stabilization Fund?
Atty. Herbosa:
Yes, Your Honor.[40]
Indeed in Cocofed v. PCGG,[41] this Court categorically declared that the UCPB was acquired with the use of the
Coconut Consumers Stabilization Fund in virtue of Presidential Decree No. 755, promulgated on July 29, 1975.

Coconut Levy Funds Are Affected With Public Interest

Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold
that these funds and shares are, at the very least, affected with public interest.
The Resolution issued by the Court on February 16, 1993 in Republic v. Sandiganbayan[42] stated that
coconut levy funds were clearly affected with public interest; thus, herein private respondents even if they are
the registered shareholders cannot be accorded the right to vote them. We quote the said Resolution in part, as
follows:

The coconut levy funds being clearly affected with public interest, it follows that the corporations
formed and organized from those funds, and all assets acquired therefrom should also be regarded
as clearly affected with public interest.[43]

xxxxxxxxx

Assuming, however, for purposes of argument merely, the lifting of sequestration to be correct,
may it also be assumed that the lifting of sequestration removed the character of the coconut levy
companies of being affected with public interest, so that they and their stock and assets may now be
considered to be of private ownership? May it be assumed that the lifting of sequestration operated
to relieve the holders of stock in the coconut levy companies affected with public interest of the
obligation of proving how that stock had been legitimately transferred to private ownership, or that
those stockholders who had had some part in the collection, administration, or disposition of the
coconut levy funds are now deemed qualified to acquire said stock, and freed from any doubt or
suspicion that they had taken advantage of their special or fiduciary relation with the agencies in
charge of the coconut levies and the funds thereby accumulated? The obvious answer to each of the
questions is a negative one. It seems plain that the lifting of sequestration has no relevance to the
nature of the coconut levy companies or their stock or property, or to the legality of the acquisition
by private persons of their interest therein, or to the latters capacity or disqualification to acquire
stock in the companies or any property acquired from coconut levy funds.

This being so, the right of the [petitioners] to vote stock in their names at the meetings of the UCPB
cannot be conceded at this time. That right still has to be established by them before the
Sandiganbayan.Until that is done, they cannot be deemed legitimate owners of UCPB stock and
cannot be accorded the right to vote them.[44] (Italics supplied)

It is however contended by respondents that this Resolution was in the nature of a temporary restraining
order. As such, it was supposedly interlocutory in character and became functus oficio when this Court decided
GR No. 96073 on January 23, 1995.
 This argument is aptly answered by petitioner in its Memorandum, which we quote:

The ruling made in the Resolution dated 16 February 1993 confirming the public nature of the
coconut levy funds and denying claimants their purported right to vote is an affirmation of
doctrines laid down in the cases of COCOFED v. PCGG supra, Baseco v. PCGG, supra,
and Cojuangco v. Roxas, supra. Therefore it is of no moment that the Resolution dated 16 February
1993 has not been ratified. Its jurisprudential bases remain. [45] (Italics supplied)

Granting arguendo that the Resolution is interlocutory, the truth remains: the coconut levy funds are still
clearly affected with public interest. That was the truth in 1989 as quoted by this Court in its February 16, 1993
Resolution, and so it is today. Said the Court in 1989:

The utilization and proper management of the coconut levy funds, raised as they were by the States
police and taxing powers, are certainly the concern of the Government. It cannot be denied that it
was the welfare of the entire nation that provided the prime moving factor for the imposition of the
levy. It cannot be denied that the coconut industry is one of the major industries supporting the
national economy. It is, therefore, the States concern to make it a strong and secure source not only
of the livelihood of a significant segment of the population but also of export earnings the sustained
growth of which is one of the imperatives of economic stability. The coconut levy funds are clearly
affected with public interest. Until it is demonstrated satisfactorily that they have legitimately
become private funds, they must prima facie and by reason of the circumstances in which they were
raised and accumulated be accounted subject to the measures prescribed in E.O. Nos. 1, 2, and 14
to prevent their concealment, dissipation, etc., which measures include the sequestration and other
orders of the PCGG complained of.[46] (Italics supplied)

To repeat, the foregoing juridical situation has not changed. It is still the truth today: the coconut levy funds
are clearly affected with public interest. Private respondents have not demonstrated satisfactorily that they have
legitimately become private funds.
If private respondents really and sincerely believed that the final Decision of the Court in Republic v.
Sandiganbayan (GR No. 96073, promulgated on January 23, 1995) granted them the right to vote, why did they
wait for the lapse of six long years before definitively asserting it (1) through their letter dated February 13,
2001, addressed to the UCPB Board of Directors, demanding the holding of a shareholders meeting on March 6,
2001; and (2) through their Omnibus Motion dated February 23, 2001 filed in the court a quo, seeking to enjoin
PCGG from voting the subject sequestered shares during the said stockholders meeting? Certainly, if they even
half believed their submission now -- that they already had such right in 1995 -- why are they suddenly and
imperiously claiming it only now?
It should be stressed at this point that the assailed Sandiganbayan Order dated February 28, 2001 --
allowing private respondents to vote the sequestered shares -- is not based on any finding that the coconut levies
and the shares have legitimately become private funds. Neither is it based on the alleged lifting of the TRO
issued by this Court on February 16, 1993. Rather, it is anchored on the grossly mistaken application of the two-
tiered test mentioned earlier in this Decision.
To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private person is
alleged to have been acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco,[47] we allowed Eduardo
Cojuangco Jr. to vote the sequestered shares of the San Miguel Corporation (SMC) registered in his name but
alleged to have been acquired with ill-gotten wealth. We did so on his representation that he had acquired them
with borrowed funds and upon failure of the PCGG to satisfy the two-tiered test. This test was, however, not
applied to sequestered SMC shares that were purchased with coco levy funds.
 In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies, not
with alleged ill-gotten wealth. Hence, by parity of reasoning, the right to vote them is not subject to the two-
tiered test but to the public character of their acquisition, which per Antiporda v. Sandiganbayan cited earlier,
must first be determined.

Coconut Levy Funds Are Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its
earlier pronouncements: the coconut levy funds are not only affected with public interest; they are, in
fact, prima facie public funds.
Public funds are those moneys belonging to the State or to any political subdivision of the State; more
specifically, taxes, customs duties and moneys raised by operation of law for the support of the government or
for the discharge of its obligations.[48] Undeniably, coconut levy funds satisfy this general definition of public
funds, because of the following reasons:
1. Coconut levy funds are raised with the use of the police and taxing powers of the State.
2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.
4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated them as
public funds.
6. The very laws governing coconut levies recognize their public character.
We shall now discuss each of the foregoing reasons, any one of which is enough to show their public
character.

1. Coconut Levy Funds Are Raised Through the States Police and Taxing Powers.

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of
government and for all public needs.[49]
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the
support of the government. The coconut levy funds fall squarely into these elements for the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the
payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer Stabilization Fund
(CCSF), mandated the following:

a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut
products, shall be imposed on every first sale, in accordance with the mechanics established under
RA 6260, effective at the start of business hours on August 10, 1973.

The proceeds from the levy shall be deposited with the Philippine National Bank or any other
government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust
fund which shall not form part of the general fund of the government. [50]
 The coco levies were further clarified in amendatory laws, specifically PD No. 961[51] and PD No. 1468[52] --
in this wise:

The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy,
to be known as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of
copra resecada, or its equivalent in other coconut products delivered to, and/or purchased by, copra
exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut
products. The levy shall be paid by such copra exporters, oil millers, desiccators and other end-
users of copra or its equivalent in other coconut products under such rules and regulations as the
Authority may prescribe.Until otherwise prescribed by the Authority, the current levy being
collected shall be continued.[53]

Like other tax measures, they were not voluntary payments or donations by the people. They were enforced
contributions exacted on pain of penal sanctions, as provided under PD No. 276:

3. Any person or firm who violates any provision of this Decree or the rules and regulations
promulgated thereunder, shall, in addition to penalties already prescribed under existing
administrative and special law, pay a fine of not less than P2,500 or more than P10,000, or suffer
cancellation of licenses to operate, or both, at the discretion of the Court.[54]

Such penalties were later amended thus:

Whenever any person or entity willfully and deliberately violates any of the provisions of this Act,
or any rule or regulation legally promulgated hereunder by the Authority, the person or persons
responsible for such violation shall be punished by a fine of not more than P20,000.00 and by
imprisonment of not more than five years. If the offender be a corporation, partnership or a juridical
person, the penalty shall be imposed on the officer or officers authorizing, permitting or tolerating
the violation. Aliens found guilty of any offenses shall, after having served his sentence, be
immediately deported and, in the case of a naturalized citizen, his certificate of naturalization shall
be cancelled.[55]

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of
the State. Indeed, the CCSF was collected under PD No. 276, issued by former President Ferdinand E. Marcos
who was then exercising legislative powers.[56]
(c) They were clearly imposed for a public purpose. There is absolutely no question that they were
collected to advance the governments avowed policy of protecting the coconut industry. This Court takes
judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and
coconuts and their byproducts occupy a leading position among the countrys export products; that it gives
employment to thousands of Filipinos; that it is a great source of the States wealth; and that it is one of the
important sources of foreign exchange needed by our country and, thus, pivotal in the plans of a government
committed to a policy of currency stability.
Taxation is done not merely to raise revenues to support the government, but also to provide means for the
rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be
within the police power of the State, as held in Caltex Philippines v. COA[57] and Osmea v. Orbos.[58]
Even if the money is allocated for a special purpose and raised by special means, it is still public in
character. In the case before us, the funds were even used to organize and finance State offices. In Cocofed v.
PCGG,[59] the Court observed that certain agencies or enterprises were organized and financed with revenues
derived from coconut levies imposed under a succession of laws of the late dictatorship x x x with deposed
Ferdinand Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting coconut
industry monopoly.[60] The Court continued: x x x. It cannot be denied that the coconut industry is one of the
major industries supporting the national economy. It is, therefore, the States concern to make it a strong and
secure source not only of the livelihood of a significant segment of the population, but also of export earnings
the sustained growth of which is one of the imperatives of economic stability. x x x.[61]

2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its Farmers.

Just like the sugar levy funds, the coconut levy funds constitute state funds even though they may be held
for a special public purpose.
In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy funds to the sugar
levy funds, both being special public funds acquired through the taxing and police powers of the
State. The sugar levy funds, which are strikingly similar to the coconut levies in their imposition and purpose,
were declared public funds by this Court in Gaston v. Republic Planters Bank,[62] from which we quote:

The stabilization fees collected are in the nature of a tax which is within the power of the State to
impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute
sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a Special Fund, a
Development and Stabilization Fund, almost identical to the Sugar Adjustment and Stabilization
Fund created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise
of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of
the sugar industry. The levy is primarily in the exercise of the police power of the State. (Lutz vs.
Araneta, supra.).[63]

The Court further explained:[64]

The stabilization fees in question are levied by the State upon sugar millers, planters and producers
for a special purpose that of financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market. The fact that the
State has taken possession of moneys pursuant to law is sufficient to constitute them as state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co., 263 Mich 586.
294 ALR 535, cited in 42 Am. Jur., Sec. 2., p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the language of the statute,
administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned,
the balance, if any, is to be transferred to the general funds of the Government. That is the essence
of the trust intended (see 1987 Constitution, Art. VI, Sec. 29[3], lifted from the 1935 Constitution,
Article VI, Sec. 23[1]. (Italics supplied)

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds
are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from
which may be paid out only in pursuance of an appropriation made by law (1987 Constitution,
Article VI, Sec. 29[1], 1973 Constitution, Article VIII, Sec. 18[1]).

That the fees were collected from sugar producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a
trust fund for their benefit nor make them the beneficial owners of the shares so purchased. It is but
rational that the fees be collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien
to the purpose intended because of the Banks character as a commodity bank for sugar conceived
for the industrys growth and development. Furthermore, of note is the fact that one-half (1/2)
or P0.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the payment of
salaries and wages of personnel, fringe benefits and allowances of officers and employees of
PHILSUCOM thereby immediately negating the claim that the entire amount levied is in trust for
sugar, producers, planters and millers.

To rule in petitioners favor would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the entire sugar industry, and all its
components, stabilization of the domestic market including the foreign market, the industry being
of vital importance to the countrys economy and to national interest.

In the same manner, this Court has also ruled that the oil stabilization funds were public in character and
subject to audit by COA. It ruled in this wise:

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain
from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it
is placed in what the law refers to as a trust liability account, the fund nonetheless remains subject
to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a special fund. Indeed, the practice is not without precedent.[65]

In his Concurring Opinion in Kilosbayan v. Guingona,[66] Justice Florentino P. Feliciano explained that the
funds raised by the On-line Lottery System were also public in nature. In his words:

x x x. In the case presently before the Court, the funds involved are clearly public in nature. The
funds to be generated by the proposed lottery are to be raised from the population at large. Should
the proposed operation be as successful as its proponents project, those funds will come from well-
nigh every town and barrio of Luzon. The funds here involved are public in another very real sense:
they will belong to the PCSO, a government owned or controlled corporation and an
instrumentality of the government and are destined for utilization in social development projects
which, at least in principle, are designed to benefit the general public. x x x. The interest of a
private citizen in seeing to it that public funds, from whatever source they may have been derived,
go only to the uses directed and permitted by law is as real and personal and substantial as the
interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the
public treasury or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to
note that the more successful the government is in raising revenues by non-traditional methods such
as PAGCOR operations and privatization measures, the lesser will be the pressure upon the
traditional sources of public revenues, i.e., the pocket books of individual taxpayers and
importers.[67]

Thus, the coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies
generated by the On-line Lottery System -- are funds exacted by the State. Being enforced contributions, they
are prima facie public funds.
3. Respondents Judicially Admit That the Levies Are Government Funds.

Equally important as the fact that the coconut levy funds were raised through the taxing and police powers
of the State is respondents effective judicial admission that these levies are government funds.As shown by the
attachments to their pleadings,[68] respondents concede that the Coconut Consumers Stabilization Fund (CCSF)
and the Coconut Investment Development Fund constitute government funds x x x for the benefit of coconut
farmers.

Collections on both levies constitute government funds. However, unlike other taxes that the
Government levies and collects such as income tax, tariff and customs duties, etc., the collections
on the CCSF and CIDF are, by express provision of the laws imposing them, for a definite purpose,
not just for any governmental purpose. As stated above part of the collections on the CCSF levy
should be spent for the benefit of the coconut farmers. And in respect of the collections on the
CIDF levy, P.D. 582 mandatorily requires that the same should be spent exclusively for the
establishment, operation and maintenance of a hybrid coconut seed garden and the distribution, for
free, to the coconut farmers of the hybrid coconut seednuts produced from that seed garden.

On the other hand, the laws which impose special levies on specific industries, for example on the
mining industry, sugar industry, timber industry, etc., do not, by their terms, expressly require that
the collections on those levies be spent exclusively for the benefit of the industry concerned. And if
the enabling law thus so provide, the fact remains that the governmental agency entrusted with the
duty of implementing the purpose for which the levy is imposed is vested with the discretionary
power to determine when and how the collections should be appropriated.[69]

4. The COA Audit Shows the Public Nature of the Funds.

Under COA Office Order No. 86-9470 dated April 15, 1986,[70] the COA reviewed the expenditure and use
of the coconut levies allocated for the acquisition of the UCPB. The audit was aimed at ascertaining whether
these were utilized for the purpose for which they had been intended.[71] Under the 1987 Constitution, the
powers of the COA are as follows:

The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities x x x.[72]

Because these funds have been subjected to COA audit, there can be no other conclusion than that they
are prima facie public in character.

5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.

In response to a query posed by the administrator of the Philippine Coconut Authority regarding the
character of the coconut levy funds, the Bureau of Internal Revenue has affirmed that these funds are public in
character. It held as follows: [T]he coconut levy is not a public trust fund for the benefit of the coconut farmers,
but is in the nature of a tax and, therefore, x x x public funds that are subject to government administration and
disposition.[73]
Furthermore, the executive branch treats the coconut levies as public funds. Thus, Executive Order No.
277, issued on September 24, 1995, directed the mode of treatment, utilization, administration and management
of the coconut levy funds. It provided as follows:

(a) The coconut levy funds, which include all income, interests, proceeds or profits derived
therefrom, as well as all assets, properties and shares of stocks procured or obtained with the use of
such funds, shall be treated, utilized, administered and managed as public funds consistent with the
uses and purposes under the laws which constituted them and the development priorities of the
government, including the governments coconut productivity, rehabilitation, research extension,
farmers organizations, and market promotions programs, which are designed to advance the
development of the coconut industry and the welfare of the coconut farmers.[74] (Italics supplied)

Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared unconstitutional
or contrary to law.

6. Laws Governing Coconut Levies Recognize Their Public Nature.

Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus, the
third Whereas clause of PD No. 276 treats them as special funds for a specific public purpose.Furthermore, PD
No. 711 transferred to the general funds of the State all existing special and fiduciary funds including the
CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as a special fund for a special purpose,
which should be treated as a special account in the National Treasury.
Moreover, even President Marcos himself, as the sole legislative/executive authority during the martial law
years, struck off the phrase which is a private fund of the coconut farmers from the original copy of Executive
Order No. 504 dated May 31, 1978, and we quote:

WHEREAS, by means of the Coconut Consumers Stabilization Fund (CCSF), which is the private
fund of the coconut farmers (deleted), essential coconut-based products are made available to
household consumers at socialized prices. (Emphasis supplied)

The phrase in bold face -- which is the private fund of the coconut farmers -- was crossed out and duly
initialed by its author, former President Marcos. This deletion, clearly visible in Attachment C of petitioners
Memorandum,[75] was a categorical legislative intent to regard the CCSF as public, not private, funds.

Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie, to the Government

Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima
facie public funds, this Court believes that the government should be allowed to vote the questioned shares,
because they belong to it as the prima facie beneficial and true owner.
As stated at the beginning, voting is an act of dominion that should be exercised by the share owner. One of
the recognized rights of an owner is the right to vote at meetings of the corporation. The right to vote is
classified as the right to control.[76] Voting rights may be for the purpose of, among others, electing or removing
directors, amending a charter, or making or amending bylaws.[77] Because the subject UCPB shares were
acquired with government funds, the government becomes their prima facie beneficial and true owner.
Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other
than those established by law or by the owner.[78] Ownership has been aptly described as the most
comprehensive of all real rights.[79] And the right to vote shares is a mere incident of ownership. In the present
case, the government has been shown to be the prima facie owner of the funds used to purchase the
shares. Hence, it should be allowed the rights and privileges flowing from such fact.
And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should continue to vote those
shares until and unless private respondents are able to demonstrate, in the main cases pending before the
Sandiganbayan, that they [the sequestered UCPB shares] have legitimately become private.

Procedural and Incidental Issues: Grave Abuse of Discretion, Improper Arguments and Intervenors Relief

Procedurally, respondents argue that petitioner has failed to demonstrate that the Sandiganbayan committed
grave abuse of discretion, a demonstration required in every petition under Rule 65.[80]
We disagree. We hold that the Sandiganbayan gravely abused its discretion when it contravened the rulings
of this Court in Baseco and Cojuangco-Roxas -- thereby unlawfully, capriciously and arbitrarily depriving the
government of its right to vote sequestered shares purchased with coconut levy funds which are prima
facie public funds.
Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the
Constitution, the law or existing jurisprudence. In one case,[81] this Court ruled that the lower courts resolution
was tantamount to overruling a judicial pronouncement of the highest Court x x x and unmistakably a very
grave abuse of discretion.[82]

The Public Character of Shares Is a Valid Issue

Private respondents also contend that the public nature of the coconut levy funds was not raised as an issue
before the Sandiganbayan. Hence, it could not be taken up before this Court.
Again we disagree. By ruling that the two-tiered test should be applied in evaluating private respondents
claim of exercising voting rights over the sequestered shares, the Sandiganbayan effectively held that the
subject assets were private in character. Thus, to meet this issue, the Office of the Solicitor General countered
that the shares were not private in character, and that quite the contrary, they were and are public in nature
because they were acquired with coco levy funds which are public in character. In short, the main issue of who
may vote the shares cannot be determined without passing upon the question of the public/private character of
the shares and the funds used to acquire them. The latter issue, although not specifically raised in the Court a
quo, should still be resolved in order to fully adjudicate the main issue.
Indeed, this Court has the authority to waive the lack of proper assignment of errors if the unassigned errors
closely relate to errors properly pinpointed out or if the unassigned errors refer to matters upon which the
determination of the questions raised by the errors properly assigned depend.[83]
Therefore, where the issues already raised also rest on other issues not specifically presented as long as the
latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the
Court has the authority to include them in its discussion of the controversy as well as to pass upon them.[84]

No Positive Relief For Intervenors

 Intervenors anchor their interest in this case on an alleged right that they are trying to enforce in another
Sandiganbayan case docketed as SB Case No. 0187.[85] In that case, they seek the recovery of the subject UCPB
shares from herein private respondents and the corporations controlled by them. Therefore, the rights sought to
be protected and the reliefs prayed for by intervenors are still being litigated in the said case. The purported
rights they are invoking are mere expectancies wholly dependent on the outcome of that case in the
Sandiganbayan.
Clearly, we cannot rule on intervenors alleged right to vote at this time and in this case. That right is
dependent upon the Sandiganbayans resolution of their action for the recovery of said sequestered shares. Given
the patent fact that intervenors are not registered stockholders of UCPB as of the moment, their asserted rights
cannot be ruled upon in the present proceedings. Hence, no positive relief can be given them now, except
insofar as they join petitioner in barring private respondents from voting the subject shares.

Epilogue

In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting and
effectively reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered
UCPB shares which are prima facie public in character.
In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the
final judgment it may promulgate in Civil Case Nos. 0033-A, 0033-B and 0033-F. Our determination here is
merely prima facie, and should not bar the anti-graft court from making a final ruling, after proper trial and
hearing, on the issues and prayers in the said civil cases, particularly in reference to the ownership of the subject
shares.
We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we
are not ruling in any final manner on their classification -- whether they are general or trust or special funds --
since such classification is not at issue here. Suffice it to say that the public nature of the coco levy funds is
decreed by the Court only for the purpose of determining the right to vote the shares, pending the final outcome
of the said civil cases.
Neither are we resolving in the present case the question of whether the shares held by Respondent
Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken up in the
final decision in the cited cases that are pending in the court a quo. Again suffice it to say that the only issue
settled here is the right of PCGG to vote the sequestered shares, pending the final outcome of said cases.
This matter involving the coconut levy funds and the sequestered UCPB shares has been straddling the
courts for about 15 years. What we are discussing in the present Petition, we stress, is just an incident of the
main cases which are pending in the anti-graft court -- the cases for the reconveyance, reversion and restitution
to the State of these UCPB shares.
The resolution of the main cases has indeed been long overdue. Every effort, both by the parties and the
Sandiganbayan, should be exerted to finally settle this controversy.
WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall
continue voting the sequestered shares until Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are
finally and completely resolved. Furthermore, the Sandiganbayan is ORDERED to decide with finality the
aforesaid civil cases within a period of six (6) months from notice. It shall report to this Court on the progress of
the said cases every three (3) months, on pain of contempt. The Petition in Intervention
is DISMISSED inasmuch as the reliefs prayed for are not covered by the main issues in this case. No costs.
SO ORDERED.
 8. PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS, respondents.

DECISION
QUISUMBING, J.:

This petition for review assails the Resolution[1] of the Court of Appeals dated September 22,
1993, affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of the
petitioner for tax refund and tax credits, and disposing as follows:

IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The
Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993,
are hereby AFFIRMED in toto.

SO ORDERED.[4]

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the
amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary
period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has
opted and in all likelihood automatically credited the same to the succeeding year. The petition for
review is dismissed for lack of merit.

SO ORDERED.[5]

The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985,
reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying
PBComs tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos.
0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the
year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax
liability. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss
of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax
credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees
from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed
as CTA Case No. 4309 entitled: Philippine Bank of Communications vs. Commissioner of Internal Revenue.
 The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit for 1985
and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax
Payments Made 5,016,954.00 ---
Tax Withheld at Source 282,795.50 234,077.69
Excess Tax Payments P5,299,749.50*=========== P234,077.69===========
=== ===

*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo
difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of
petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond
the two-year reglementary period provided for by law. The petitioners claim for refund in 1986 amounting
to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its
tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs decision but the same was
denied due course for lack of merit.[6]
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTAs resolution dated
July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal assurances of BIR in RMC No.
7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit
of its 1985-86 excess quarterly income tax payments -- can be prejudiced by the subsequent BIR
rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for
the refund/tax credit of excess quarterly income tax payments is not two years but ten (10).[7]
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBComs
claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without
proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax
refund or tax credits on the ground of prescription, despite petitioners reliance on RMC No. 7-85, changing the
prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the
applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that
overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that
taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years
under Article 1144 of the Civil Code. The pertinent portions of the circular reads:

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE

INCOME TAX RESULTING FROM THE FILING OF THE FINAL
ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned

Sections 85 and 86 of the National Internal Revenue Code provide:

xxxxxxxxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which
provide:

xxxxxxxxx

It has been observed, however, that because of the excess tax payments, corporations file claims for
recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the
date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue
Code. It is obvious that the filing of the case in court is to preserve the judicial right of the
corporation to claim the refund or tax credit.

It should be noted, however, that this is not a case of erroneously or illegally paid tax under the
provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual
income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this
Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing
the procedure in processing said returns. Under these procedures, the returns are merely pre-audited
which consist mainly of checking mathematical accuracy of the figures of the return. After which,
the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on
cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax
Appeals in order to preserve the right to claim refund or tax credit within the two-year
period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-
audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal
Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10
years from the date of payment considering that it is an obligation created by law (Article 1144 of
the Civil Code).[9] (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if
it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax
Appeals[10] petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue
have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one previously taken where injustice would
result therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rule as
follows:

Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayers except in the following
cases:

a) where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue;

b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based;

c) where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-year
prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned
from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the
close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle,
to wit: ACCRA Investments Corp. vs. Court of Appeals, et al.,[11] and Commissioner of Internal Revenue vs. TMX
Sales, Inc., et al..[12] Respondent Commissioner also states that since the Final Adjusted Income Tax Return of
the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until
April 15, 1988 to seek relief from the court.Further, respondent Commissioner stresses that when the petitioner
filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and
such failure is fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the
petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the
two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate funds for
the State to finance the needs of the citizenry and to advance the common weal.[13] Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon
taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered
with as little as possible.[14]
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally
collected, viz.:

Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment; Provided however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Italics supplied)

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,[15] this Court explained
the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present case,
this date is April 16, 1984, and two years from this date would be April 16, 1986. x x x As we have earlier said
in the TMX Sales case, Sections 68,[16] 69,[17] and 70[18] on Quarterly Corporate Income Tax Payment and Section
321 should be considered in conjunction with it.[19]

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of
two years to ten years on claims of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense
of more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts.Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous.[20] Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement.[21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by administrative officials to
implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with
but is contrary to the provisions and spirit of Act. No. 4003 as amended, because whereas the
prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five
years duration, FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all
time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight
on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy,
the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot
go beyond the terms and provisions of the latter. x x x In this connection, the attention of the
technical men in the offices of Department Heads who draft rules and regulation is called to the
importance and necessity of closely following the terms and provisions of the law which they
intended to implement, this to avoid any possible misunderstanding or confusion as in the present
case.[23]

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents.[24] As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the
Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec.
230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not
be given weight for to do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-
85, is estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10
years from date of payment because this is an obligation created by law, was issued by the Acting
Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding petition for review within
the two-year prescription period, and that the lengthening of the period of limitation on refund from
two to ten years would be adverse to public policy and run counter to the positive mandate of Sec.
230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has
no application in the case at bar because it was not the Commissioner of Internal Revenue who
denied petitioners claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied
(albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner
of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to
the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for
to do so would in effect amend the statute.[25]

Article 8 of the Civil Code[26] recognizes judicial decisions, applying or interpreting statutes as part of the
legal system of the country. But administrative decisions do not enjoy that level of recognition.A memorandum-
circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are
no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such
wrong interpretation could not place the Government in estoppel to correct or overrule the same.[27] Moreover,
the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because
the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal
Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a
claim for exemption and should be construed in strictissimi juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTAs
decision denying its claim for refund of P 234,077.69 (tax overpaid in 1986), based on mere speculation,
without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly
payments over the actual income tax computed in the adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided
in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the
succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and
the choice of one precludes the other.
As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out
that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that
the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in
concluding that petitioner had indeed availed of and applied the automatic tax credit to the
succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and
tax credit are alternative.[30]

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as
specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect.Moreover,
the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. Thus,
we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on
their part to disturb our reliance thereon.[31]
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.
SO ORDERED.

9. Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al vs. Tan, etc GR 81311, June 30, 1988

The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show
justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest,
personal and substantial, of the party raising the constitutional questions; (3) the constitutional question should be
raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a
justiciable controversy and its resolution is essential to the protection of the rights of the parties. According to the
Solicitor General, only the third requisite — that the constitutional question should be raised at the earliest
opportunity — has been complied with. He also questions the legal standing of the petitioners who, he contends, are
merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution.

Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main
procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept
themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to
them, the Court has brushed aside technicalities of procedure and has taken cognizance of these petitions.

But, before resolving the issues raised, a brief look into the tax law in question is in order.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with
aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross
receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more
equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out
by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single
stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was
imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent
sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a
3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December
1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but
on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or
exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue
EO 273 on 25 July 1987.

The contention is without merit.

It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative
authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall
continue to exercise legislative powers.

On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the
Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution,
hereafter referred to as the 1987 Constitution, provides:

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress
is convened.

It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected
under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two
(2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority
to legislate.

Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He
contends that the word "convene" is synonymous with "the date when the elected members of Congress assumed
office."

The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to
assemble, or convoke," 1 is clearly different from assumption of office by the individual members of Congress or their
taking the oath of office. As an example, we call to mind the interim National Assembly created under the 1973
Constitution, which had not been "convened" but some members of the body, more particularly the delegates to the
1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of said
Constitution, had taken their oath of office.

To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It
would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other
provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress to convene once
every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would already
be deemed to be in session after the individual members have taken their oath of office. A portion of the provisions
of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law calling for a special election to
elect a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The
portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict
between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the
President can re-assume the powers and duties of his office, would also be redundant. The same is true with the
portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) hours following the
declaration of martial law or the suspension of the privilage of the writ of habeas corpus.

The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of
said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of
the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal
terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of
discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows:
 Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other
words, where the power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna,
Inc. vs. Nable, 38 Off. Gaz. 62). 2

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government agencies involved in its implementation, even under the
past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in
the exercise of her legislative powers. The legislative process started long before the signing when the data were
gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized.
Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it
convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the
provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions.
They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely
upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law.
there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs.
De Leon, 5 said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated:
"A tax is considered uniform when it operates with the same force and effect in every place where
the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation; . . ." About two
years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. de la
Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and continued; "Taking
everything into account, the differentiation against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory within the meaning of the
Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later,
(Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally
to all persons, firms and corporations placed in similar situation." This Court is on record as
accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US
495) that "inequalities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the
general public. 6

The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the
Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested provision states:

Sec. 103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the
occupation tax under the Local Tax Code, and professional services performed by registered
general professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec.
103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject
to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the
payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read:

Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and collected, a
value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the
sale of services. The phrase sale of services" means the performance of all kinds of services for
others for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of personal property; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others; and similar services
regardless of whether or not the performance thereof call for the exercise or use of the physical or
mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the
two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax
under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of
stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus
subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by
EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not
protest the classification of customs brokers then, the Court sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed
by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services,
as well as mass actions and demonstrations against the VAT should by now be evident. The fact that nothing of the
sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than real.
It would seem that the VAT is not as bad as we are made to believe.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to
the general welfare or the interests of the majority of the people, they should seek recourse and relief from the
political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot
substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT.
The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the
manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of
discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its
application or continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

SO ORDERED.

10. G.R. No. L-17725 February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants.

Office of the Solicitor General for plaintiff-appellee.

Arthur Tordesillas for defendants-appellants.

BARRERA, J.:

From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay to plaintiff
Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from the date of the filing of the complaint
until fully paid, plus costs, defendant Mambulao Lumber Company interposed the present appeal.1

The facts of the case are briefly stated in the decision of the trial court, to wit: .

The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause
of action, for forest charges covering the period from September 10, 1952 to May 24, 1953, defendants
admitted that they have a liability of P587.37, which liability is covered by a bond executed by defendant
General Insurance & Surety Corporation for Mambulao Lumber Company, jointly and severally in character,
on July 29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both defendants admitted
a joint and several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated
November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint and several
liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities
aggregate to P4,802.37. If the liability of defendants in favor of plaintiff in the amount already mentioned is
admitted, then what is the defense interposed by the defendants? The defense presented by the defendants
is quite unusual in more ways than one. It appears from Exh. 3 that from July 31, 1948 to December 29,
1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for
'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant
paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to
the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in
addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the
National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed
from any public forest for commercial purposes. The amount collected shall be expended by the director of
forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of
watersheds, denuded areas ... and other public forest lands, which upon investigation, are found needing
reforestation or afforestation .... The total amount of the reforestation charges paid by Mambulao Lumber
Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that since the
Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting
the denuded area of the land covered by its license, the Republic of the Philippines should refund said
amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber
Company owed the Republic of the Philippines for reforestation charges. In line with this thought, defendant
Mambulao Lumber Company wrote the director of forestry, on February 21, 1957 letter Exh. 1, in paragraph
4 of which said defendant requested "that our account with your bureau be credited with all the reforestation
charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62
...". This letter of defendant Mambulao Lumber Company was answered by the director of forestry on March
12, 1957, marked Exh. 2, in which the director of forestry quoted an opinion of the secretary of justice, to the
effect that he has no discretion to extend the time for paying the reforestation charges and also explained
why not all denuded areas are being reforested.

The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-appellant company
to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum
of P4,802.37 as forest charges due and owing from appellant to appellee. It is appellant's contention that said sum
of P9,127.50, not having been used in the reforestation of the area covered by its license, the same is refundable to
it or may be applied in compensation of said sum of P4,802.37 due from it as forest charges. 1äw phï1.ñët

We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:

SECTION 1. There shall be collected, in addition to the regular forest charges provided for under Section
two hundred and sixty-four of Commonwealth Act Numbered Four Hundred Sixty-six, known as the National
Internal Revenue Code, the amount of fifty centavos on each cubic meter of timber for the first and second
groups and forty centavos for the third and fourth groups cut out and removed from any public forest for
commercial purposes. The amount collected shall be expended by the Director of Forestry, with the approval
of the Secretary of Agriculture and Natural Resources (commerce), for reforestation and afforestation of
watersheds, denuded areas and cogon and open lands within forest reserves, communal forest, national
parks, timber lands, sand dunes, and other public forest lands, which upon investigation, are found needing
reforestation or afforestation, or needing to be under forest cover for the growing of economic trees for
timber, tanning, oils, gums, and other minor forest products or medicinal plants, or for watersheds protection,
or for prevention of erosion and floods and preparation of necessary plans and estimate of costs and for
reconnaisance survey of public forest lands and for such other expenses as may be deemed necessary for
the proper carrying out of the purposes of this Act.

All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the
sale of barks, medical plants and other products derived from plantations as herein provided shall constitute
a fund to be known as Reforestation Fund, to be expended exclusively in carrying out the purposes provided
for under this Act. All provincial or city treasurers and their deputies shall act as agents of the Director of
Forestry for the collection of the revenues or incomes derived from the provisions of this Act. (Emphasis
supplied.)

Under this provision, it seems quite clear that the amount collected as reforestation charges from a timber licenses
or concessionaire shall constitute a fund to be known as the Reforestation Fund, and that the same shall be
expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for
the reforestation or afforestation, among others, of denuded areas which, upon investigation, are found to be
needing reforestation or afforestation. Note that there is nothing in the law which requires that the amount collected
as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a
licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the
licensee's area may or may not be reforested at all, depending on whether the investigation thereof by the Director
of Forestry shows that said area needs reforestation. The conclusion seems to be that the amount paid by a
licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by
him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly
provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or
afforestation, among others, of denuded areas needing reforestation or afforestation.

Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code2 is applicable, such
that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the
sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually
creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this point, the trial
court correctly observed: .

Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors
and debtors of each other. With respect to the forest charges which the defendant Mambulao Lumber
Company has paid to the government, they are in the coffers of the government as taxes collected, and the
government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao
Lumber Company are not creditors and debtors of each other, because compensation refers to mutual
debts. ..

And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be
the subject of set-off or compensation.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an
 action or any indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S. 73-74. ) .

The general rule, based on grounds of public policy is well-settled that no set-off is admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the general rule
is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty
to, and are the positive acts of the government, to the making and enforcing of which, the personal consent
of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon
by the Collector, because he has a claim against the governmental body which is not included in the tax
levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is
disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial
affairs of the government will be thrown into great confusion. (47 Am. Jur. 766-767.)

WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with costs against the
defendant-appellant. So ordered.

11. G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R.
SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering
it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd
quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of
the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd,
3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52
computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

————— ————— —————— ——————

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

————— ————— —————— ——————

 1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

————— ————— —————— ——————

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

————— ————— —————— ——————

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

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

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can take
place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the
receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to
the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to
P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact amount has already been determined (PARAS, Civil
Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of
the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court
(C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot,
therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compañia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil.
34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for
taxes is not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is
hereby ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax
liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as
amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The
pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision
dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence,
legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors
of each other. 17 There is a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to
deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot
be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on
Audit, 20which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein
we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner, 21 is no longer without any support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of
the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the
same provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory
that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to
countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no
support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax
claim for refund or credit against the government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not
depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense
that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A
taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover,
Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise
to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset
their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for
the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection
thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its
non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT
input credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the
required documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since
taxpayers owe honestly to government it is but just that government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid
taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could
have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's
discharge of its function. As aptly held in Roxas v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order
to maintain the general public's trust and confidence in the Government this power must be used
justly and not treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in
the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere
is this more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed
that the same is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees,
especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR
takes time in acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of duty,
then recourse under the Civil Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance
of duty or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of
official duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render
service to the people with utmost diligence and efficiency. Insolence and delay have no place in government
service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic
and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's
development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up
to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot
justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should
have guided Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the
Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

12. G.R. No. 103379 November 23, 1993

SAN CARLOS MILLING, CO., INCORPORATED, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

Valdes, Valdes & Associates for petitioner.

The Solicitor General for respondent Commissioner of Internal Revenue.

PADILLA, J.:

Assailed in this petition for review on certiorari is the decision * of the Court of Appeals in CA-G.R. Sp. No. 22346,
dated 23 December 1991, the dispositive part of which reads:

WHEREFORE, in view of the foregoing consideration, the petition is hereby DISMISSED, without
pronouncement as to costs.1

The undisputed facts, as succinctly stated by the Court of Tax Appeals and adopted by the Court of Appeals in its
decision under review, are as follows:
 Petitioner domestic corporation had for the taxable year 1982 a total income tax overpayment of
P781,393.00 reflected as creditable income tax in its annual final adjustment return. The application
of the amount for the 1983 tax liabilities remained unutilized in view of petitioner's net loss for the
year and still yet had a credible income tax of P4,470.00 representing the 3% of 15% withholding tax
on storage credits. Accordingly the final adjustment income tax return for the taxable year 1983
reflected the amount of P781,393.00 carried over as tax credit and P4,470.00 creditable income tax.

In a May 17, 1984 letter to the respondent, petitioner signified its intention to apply the total
creditable amount of P785,863.00 against its 1984 tax dues consistent with the provision of Section
86, ibid, coupled with a comforting alternative request for a refund or tax credit of the same.

Respondent disallowed the proffered automatic credit scheme but treated the request as an ordinary
claim for refund/tax credit under Section 292 in relation to Section 295 of the Tax Code and
accordingly subjected the same for verification/investigation.

No sooner than the respondent could act on the claim, petitioner filed a petition for review on July
18, 1984. And before this Court could formally hear the case, petitioner filed a supplemental petition
on March 11, 1986, after having unilaterally effected a set-off of its credible income tax vis a
vis income tax liabilities, earlier denied by the respondent.2

On 28 February 1990, the Court of Tax Appeals dismissed the petition and held that prior investigation by and
authority from the Commissioner of Internal Revenue were necessary before a taxpayer could avail of the provisions
of Section 86 (now Section 69) of the Tax Code. 3 A motion for reconsideration was then filed but was denied in a
resolution dated 25 June 1990 without prejudice, however, to any administrative claim for tax refund or tax credit.

Thereafter, petitioner appealed the adverse decision of the Court of Tax Appeals to the Court of Appeals. On 23
December 1991, respondent Court dismissed the appeal.

Hence, this recourse.

The main issue to be resolved in the petition at bench is whether or not prior authority from the Commissioner of
Internal Revenue is necessary before a corporate taxpayer can credit excess estimated quarterly income taxes paid
against the estimated quarterly income tax liabilities for the succeeding taxable year, under Section 86 (now Section
69) of the Tax Code.

It is the contention of the petitioner, among others, that in the aforecited provision of the Tax Code, nowhere is it
stated that the "imprimatur" or approval of the Commissioner of Internal Revenue must be secured prior to crediting
a refundable tax amount. Petitioner further posits that neither does Revenue Regulation No. 10-77 implementing the
Tax Code provision require prior approval of the Commissioner of Internal Revenue to avail of the automatic tax
credit scheme.

After a careful study of the records of the present petition, we find the petition to be devoid of merit.

We begin with the subject Tax Code provision under scrutiny, thus:

Sec. 86. Final Adjustment Return. — Every corporation liable to tax under Section 24 shall file a final
adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum
of the quarterly tax payments made during the said taxable year is not equal to the total tax due on
the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to refund of the excess estimated quarterly income tax paid, the
refundable amount shown on its final adjustment return may be credited against the estimated
 quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. (Emphasis
supplied)

On 7 October 1977, the Commissioner of Internal Revenue issued the implementing rules and regulations pertaining
to the subject provision. The procedure laid out in said rules is found in Revenue Regulation No. 10-77, section 7
thereof, which reads:

Sec. 7. Any excess of the total quarterly payments over the actual income tax computed and shown
in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation,
or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year. The corporation must signify in its annual corporate adjustment return its
intention whether to request for the refund of the overpaid income tax or claim for automatic tax
credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year,
by filling up the appropriate box on the corporate tax return, BIR Form No. 1702.

The case of Commissioner of Internal Revenue vs. ESSO Standard Eastern, Inc., et al., 4 cited by petitioner, while
not squarely in point, has touched on a significant aspect directly related to the issue at hand. There it was said:

The Commissioner's position is that income taxes are determined and paid on an annual basis, and
that such determination and payment of annual taxes are separate and independent transactions;
and that a tax credit could not be so considered until it has been finally approved and the taxpayer
duly notified thereof . . . . (Emphasis supplied)

In other words, far from bolstering its position, petitioner's citation of the above case only serves to weaken the
same. What petitioner obviously seeks is judicial sanction of its act of unilaterally declaring as tax credit its excess
estimated quarterly income taxes paid in a given year against its tax liabilities for the quarters of the succeeding
taxable year. If petitioner's theory were to be sustained, this could wreak havoc and confusion in the tax system.

The respondent Court held that the choice of a corporate taxpayer for an automatic tax credit does not ipso
facto confer on it the right to immediately avail of the same. Respondent court went on to emphasize the need for an
investigation to ascertain the correctness of the corporate returns and the amount sought to be credited. We agree.

It is difficult to see by what process of ratiocination petitioner insists on the literal interpretation of the word
"automatic." Such literal interpretation has been discussed and precluded by the respondent court in its decision of
23 December 1991 where, as aforestated, it ruled that "once a taxpayer opts for either a refund or the automatic tax
credit scheme, and signified his option in accordance with the regulation, this does not ipso facto confer on him the
right to avail of the same immediately. An investigation, as a matter of procedure, is necessary to enable the
Commissioner to determine the correctness of the petitioner's returns, and the tax amount to be credited.5

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

Petitioner points out that the automatic tax credit scheme under the law refers to the amount "shown" in the final
adjustment return of the corporate taxpayer and not as determined by the Commissioner, thereby recognizing the
computation made by the taxpayer. This contention is not impressed with merit. To reiterate, Section 7 of Revenue
Regulation No. 10-77 provides that "(a)ny excess . . . computed and shown . . . shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities. . . ."

The above rule is clear. It does not mean that reference to the amount "shown" in the final adjustment return
prepared by the taxpayer implies that the taxpayer need not seek approval of the Commissioner prior to its effective
availment of the tax credit scheme, it simply cannot credit an amount it deems as correct. Rather, it provides two (2)
remedies, that is, the excess may either be refunded or credited, and insofar as the option of tax credit is concerned,
this right should not be construed as an absolute right which is available to the taxpayer at his sole option. It is our
view that tax credit under the cited provision should be construed as an alternative remedy (to a refund) subject to
the fulfillment of certain requirements, i.e., prior verification and approval by the Commissioner of Internal Revenue.

Further, the cited legal provision itself employs the word "may" in the phrase "may be credited", implying that the
availability of the remedy of tax credit is not absolute and mandatory; it does not confer an absolute right on the
taxpayer to avail of the tax credit scheme if it so chooses; neither does it impose a duty on the part of the
government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the
taxpayer.

As aptly held by this Court in In re Guarina:6

Whether the word "may" in the statute is to be construed as mandatory and imposing a duty, or
merely permissive and conferring discretion, is to be determined in each case from the apparent
intention of the statute as gathered from the context, as well as from the language of the particular
provision. The question in each case is whether, taken as a whole and viewed in the light of
surrounding circumstances, it can be said that a purpose existed on the part of the legislator to enact
a law mandatory in character. If it can, then it should be given a mandatory effect; if not, then it
should be given its ordinary permissive effect. . . .

Anent the issue on petitioner's entitlement to a refund/credit under Sections 292 and 295 (now Sections 230 and
204 of the Tax Code) — since automatic tax credit without prior approval of the Commission of Internal Revenue
under then Section 86 would not be available to the taxpayer — it must be stressed that the remedy of a
refund/credit has never been denied the petitioner. On the contrary, the Commissioner of Internal Revenue has long
informed petitioner that its request for automatic tax credit has been treated as an ordinary claim for refund/tax credit
under Section 292 in relation to Section 295 of the Tax Code, and that the same has been referred for investigation,
report and recommendation to the Chief, Agriculture and Natural Resources Division of the Bureau of Internal
Revenue. All that petitioner had to do, therefore, is to inquire regarding the status of its claim for refund/credit and
await the decision in regard thereto.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is AFFIRMED
with costs against the petitioner.

SO ORDERED.

13. Gascon, et al v. arroyo, etc., et al, GR 78389, Oct 16, 1989

1. CIVIL PROCEDURE; DECISION THOUGH RENDERED ON THE MERITS CONSIDERED NOT RENDERED IN A PROPER
JUSTICIABLE CASE WHERE PETITIONERS DO NOT HAVE LEGAL STANDING. — A decision on the merits rendered in a case
where the petitioners do not have the necessary legal standing, would in essence be a decision not rendered in a proper,
justiciable controversy or case. Such a decision appears to me to be very close to a decision rendered in a petition for
declaratory relief or for an advisory opinion. The Court, of course, has no jurisdiction ratione materiae over declaratory relief
cases or petitions for advisory opinion. It seems to me that disregard of the requirement of legal standing, where such
requirement is applicable, would in effect amount to the Court acting in cases where it has no subject matter jurisdiction.

2. ID.; SUBSTANTIVE ISSUE; NEED TO BE TRIED IN A PROPER CASE BETWEEN THE PROPER PARTIES. — The statements
made by the Court in respect of the substantive issue raised — that is, the validity of the agreement to arbitrate said to have
been entered into between the Government of the Republic of the Philippines and the ABS-CBN Broadcasting Corporation —
are, I submit with respect, unnecessary and therefore obiter. That substantive issue is important; it, among other things,
would presumably affect the validity and enforceability of any award rendered by the arbitral tribunal. But it should be
litigated in a proper case or controversy, between parties who have legal standing to file the case and legal interest in the
subject matter of the case if only for the reason that then the Court might hope to have the benefit of thorough analysis by
counsel of the substantive issues raised.

DECISION

In this petition for certiorari and prohibition, with prayer for issuance of writ of preliminary injunction or temporary
restraining order, petitioners seek to annul and set aside the "Agreement to Arbitrate" entered into by and between the
Republic of the Philippines, represented by Executive Secretary Joker T. Arroyo, and ABS-CBN Broadcasting Corporation,
represented by its President, Eugenio Lopez, Jr., dated 6 January 1987, to settle the claims of ABS-CBN for the return of
radio and television stations (TV Station Channel 4), and to enjoin the Arbitration Committee created under the aforesaid
agreement from adjudicating the claims of ABS-CBN. chanrobles law lib rary : re d

The record discloses the following facts: chanrob 1es vi rtual 1aw lib rary

The Lopez family is the owner of two (2) television stations, namely: Channels 2 and 4 which they have operated through the
ABS-CBN Broadcasting Corporation.

When martial law was declared on 21 September 1972, TV Channel 4 was closed by the military; thereafter, its facilities were
taken over by the Kanlaon Broadcasting System which operated it as a commercial TV station.

In 1978, the said TV station and its facilities were taken over by the National Media Production Center (NMPC), which
operated it as the Maharlika Broadcasting System TV 4 (MBS-4).

After the February 1986 EDSA revolution, the Presidential Commission on Good Government (PCGG) sequestered the
aforementioned TV Stations, and, thereafter, the Office of Media Affairs took over the operation of TV Channel 4.

On 17 April 1986, the Lopez family, through counsel, ex-Senator Lorenzo Tañada, requested President Aquino to order the
return to the Lopez family of TV Stations 2 and 4. 1

On 13 June 1987, the Lopez family made a written request to the PCGG for the return of TV Station Channel 2. On 18 June
1986, the PCGG approved the return of TV Station Channel 2 to the Lopez family. 2 The return was made on 18 October
1986.

Thereafter, the Lopez family requested for the return of TV Station Channel 4. Acting upon the request, respondent Executive
Secretary, by authority of the President, entered into with the ABS-CBN Broadcasting Corporation, represented by its
President, Eugenio Lopez, Jr., an "Agreement to Arbitrate", 3 pursuant to which an Arbitration Committee was created,
composed of Atty. Catalino Macaraig, Jr., for the Republic of the Philippines, Atty. Pastor del Rosario, for ABS-CBN, and
retired Justice Vicente Abad Santos, as Chairman.

Thereupon, Petitioners, as taxpayers, filed the instant petition.

Before discussing the issues raised in the present petition, the Court will first resolve the question of whether or not the
herein petitioners have the legal personality or standing to file the instant case.

There have been several cases wherein the Court recognized the right of a taxpayer to file an action questioning the validity
or constitutionality of a statute or law, on the theory that the expenditure of public funds by an officer of the government for
the purpose of administering or implementing an unconstitutional or invalid law, constitutes a misapplication of such funds.
4

The present case, however, is not an action to question the constitutionality or validity of a statute or law. It is an action to
annul and set aside the "Agreement to Arbitrate", which, as between the parties, is contractual in character. Petitioners have
not shown that they have a legal interest in TV Station Channel 4 and that they will be adversely affected if and when the
said television station is returned to the Lopez family. Petitioners, therefore, have no legal standing to file the present
petition.
cha nrob lesvi rtua lawlib rary

In addition, the petition is devoid of merit.

Under the Provisional Constitution of the Republic of the Philippines (also known as the Freedom Constitution), which was in
force and effect when the "Agreement to Arbitrate" was signed by the parties thereto on 6 January 1987, the President
exercised both the legislative and executive powers of the Government. As Chief Executive, the President was (and even
now) "assisted by a Cabinet" composed of Ministers (now Secretaries), who were appointed by and accountable to the
President. 5 In other words, the Members of the cabinet, as heads of the various departments, are the assistants and agents
of the Chief Executive, and, except in cases where the Chief Executive is required by the Constitution or the law to act in
person, or where the exigencies of the situation demand that he act personally, the multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive departments, and the acts of the heads of such
departments, performed in the regular course of business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. 6

Respondent Executive Secretary had, therefore, the power and authority to enter into the "Agreement to Arbitrate" with the
ABS-CBN Broadcasting Corporation, as he acted for and in behalf of the President when he signed it; hence, the aforesaid
agreement is valid and binding upon the Republic of the Philippines, as a party thereto.

Moreover, the settlement of controversies is not vested in the courts of justice alone to the exclusion of other agencies or
bodies. Whenever a controversy arises, either or both parties to the controversy may file the proper action in court.
However, the parties may also resort to arbitration under RA 876 which is a much faster way of settling their controversy,
compared to how long it would take if they were to go to court. In entering into the "Agreement to Arbitrate", the Executive
branch of the government merely opted to avail itself of an alternative mode of settling the claim of the private respondent
ABS-CBN Broadcasting Corporation for the return of TV Station Channel 4.

Nor can the immunity of the state from suit be invoked against the claim of the Lopez family for the return of TV Station
Channel 4. In Amigable v. Cuenca, 7 the Court held that where the government takes property from a private landowner for
public use without going through the legal process of expropriation or negotiated sale, the aggrieved party may properly
maintain a suit against the government without thereby violating the doctrine of governmental immunity from suit without its
consent. That is, as it should be, for the doctrine of governmental immunity from suit cannot serve as an instrument for
perpetrating an injustice to a citizen. 8

Finally, neither the "convening of Congress" nor the "recent declaration of the President that PTV-4 shall remain as the
information arm of the government" can render "ineffective and unenforceable" the "Agreement to Arbitrate" because at the
time of the signing of the said agreement, the President was exercising both the legislative and executive powers of the
Government, and since the "Agreement to Arbitrate" is valid, it is "enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract." 9

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

14. G.R. No. L-28972 October 31, 1972

City Councilor of Cebu City v. Cuizon, etc.etal, Oct. 31, 1972

Appeal on pure questions of law from an order of the Court of First Instance of Cebu, dismissing plaintiffs' complaint upon the ground of their lack of legal capacity
to institute the action.

The seven above-named plaintiffs-appellants "by themselves and representing the City Council of Cebu, as majority
members thereof"1 filed on May 31, 1966 their complaint in the court of first instance of Cebu against defendants-
appellees Carlos J. Cuizon, as mayor of Cebu City, Jesus E. Zabate, as acting Cebu City treasurer, Philippine
National Bank (hereinafter referred to as the bank) and Tropical Commercial Company, Inc. (hereinafter referred to
as Tropical), praying inter alia that the contract entered into on February 5, 1966 by and between defendant Mayor
Cuizon on behalf of the city for the purchase of road construction equipment from Tropical (for $520,912.00 on a
cash basis or $687,767.30 on a deferred payment basis) be declared as null and void ab initio. (The contract, as
eventually annexed by defendant Tropical with its answer, shows that its total was for $685,767.30 on a five-year
deferred payment plan.)2

Among the grounds invoked by plaintiffs-appellants for the nullity of the said contract and the complementary
transactions with the bank arising therefrom such as the corresponding letters of credit opened therefor, were that
the same were entered into without the necessary authority and approval of the city council, and that the city
treasurer had not certified to the city mayor, as required by section 607 of the Revised Administrative Code that
funds have been duly appropriated for the said contract and that the amount necessary to cover the contract was
available for expenditure on account thereof, and that accordingly, the purported contract entered into by the city
mayor was "wholly void" under the provisions of section 608 of the same code, which make "the officer assuming to
make such contract ... liable to the government or other contracting party for any consequent damage to the same
extent as if the transaction had been wholly between private parties." As summarized by plaintiffs-appellants, the
background facts that led to their filing of their complaint were as follows:

a) On November 20, 1965, the City Council approved Resolution No. 1648, quoted as follows:

RESOLUTION NO. 1648

The City Council, on motion of City Councilor Borres, seconded by City Councilor
Tudtud,

RESOLVED, to authorize His Honor, the City Mayor, for and in behalf of the City of
Cebu, to negotiate and to contract for, by public bidding, on deferred payment plan
and by lot bid, U.S. or European made road construction equipments for the City of
Cebu and authorizing him for this purposes, to sign the corresponding contract and
other pertinent papers.

RESOLVED FURTHER, to request the City Mayor to call soon a public bidding for
the early acquisition of said equipments.
CARRIED UNANIMOUSLY

b) On December 23, 1965, the City Council of Cebu approved Resolution No. 1831, which also
reads as follows:

RESOLUTION NO. 1831

The City Council, on motion of City Councilor Llanos, seconded by City Councilor
Veloso,

RESOLVED, to authorize the City Mayor, in connection with the authority granted
him under Resolution No. 1648, current series, to utilize the Time Deposit of the City
of Cebu with the Philippine National Bank, as Bond guarantee in the opening of a
Letter of Credit in connection with the City of Cebu's application to directly purchase
road construction equipments from abroad, to the extent of the amount that the Letter
of Credit may require.

CARRIED UNANIMOUSLY

c) By reason of the fact that the call to bid by the defendant City Mayor Carlos J. Cuizon were for
bidders who should be exclusive distributors of the equipments being bidded and the said supplier
must have a sales and service outlet in the City of Cebu, the other bidders then became disqualified
and the bid was awarded to the only bidder, the defendant Tropical Commercial Co., Inc. Hence, on
January 20, 1966, the City Council approved Resolution No. 122, which we quote as follows:

RESOLUTION NO. 122

The City Council on motion of City Councilor Borres, seconded by Councilor

Osmeña,

RESOLVED, to request the Award Committee to forward to this Body the pertinent
papers in connection with the bidding for two (2) complements of light and heavy
equipments to be used by the City Engineering Department for ratification by this
Body.

CARRIED UNANIMOUSLY

d) Notwithstanding the request contained in Resolution No. 122, the defendant City Mayor, Carlos J.
Cuizon, without having been duly authorized thru proper resolution of the City Council, and without
compliance with Resolution No. 122, signed a contract with the Tropical Commercial Co., Inc. for the
acquisition of the heavy equipments on February 5, 1966.3

e) On February 14, 1966, the City Council, without knowledge that the contract had already been
signed by defendant City Mayor Carlos J. Cuizon and the Tropical Commercial Co., Inc. — since the
same was signed in the City of Manila — approved Resolution No. 292, which we quote as follows:

RESOLUTION NO. 292

The City Council, on motion of City Councilor Osmeña, seconded by City Councilor
Tudtud,

RESOLVED, to reiterate this City Council's request embodied in its Resolution No.
122, current series, addressed to the Award Committee to forward to this body the
pertinent papers in connection with the bidding for two (2) complements of light and
heavy equipments to be used by the City Engineering Department for ratification by
this Body.
CARRIED UNANIMOUSLY

f) On March 10, 1966, in view of the fact that the defendant City Mayor ignored the requests of the
City Council, the said City Council approved Resolution No. 473, which we quote as follows:

RESOLUTION NO. 473

The City Council, on motion of City Councilor Crystal, seconded by City Councilor
Duterte,

RESOLVED, to revoke Resolution No. 1648 dated November 29, 1965 and
Resolution No. 1831, dated December 23, 1965, authorizing His Honor, the City
Mayor, to negotiate and to contract for, by public bidding, on deferred payment plan
and by lot bid, U.S. or European made road construction equipments for the City of
Cebu and authorizing him for this purpose, to sign the corresponding contract and
other pertinent papers and authorizing the City Mayor to utilize the Time Deposit of
the City of Cebu with the Philippine National Bank, as bond guarantee in the opening
of a Letter of Credit in connection with the City of Cebu's application to directly
purchase road construction equipments from abroad, to the extent of the amount that
the Letter of Credit may require, respectively.

RESOLVED FURTHER, to inform His Honor the City Mayor, that the City Council,
after careful deliberation, has decided to discontinue with the purchase of road
construction equipments.

RESOLVED FINALLY, to advise all bidders of the action of the City Council and to
reject their bids on the basis thereof.

CARRIED BY MAJORITY VOTES

Voting in favor: City Councilors Crystal, Duterte, Tudtud, Borres, Osmeña, Veloso
and Zamora (Presiding Officer Urot voted in favor)

Voting against: City Councilor Llanos.

g) On March 18, 1966, the presiding officer of the City Council, City Councilor Florencio S. Urot, sent
a telegram to the Manager of the Philippine National Bank, which we quote as follows:

TELEGRAM

MANAGER
PHILNABANK
MANILA

BEEN INFORMED BY MANAGER DIKITANAN CEBU BRANCH THAT MAYOR

CUIZON CEBU CITY OPENED LETTER OF CREDIT FOR PURCHASE OF HEAVY
EQUIPMENT STOP PLEASE BE INFORMED THAT CEBU CITY COUNCIL HAS
REVOKED MAYOR'S AUTHORITY ON THIS PARTICULAR MATTER LAST
MARCH TEN THEREBY SUSPENDING FURTHER NEGOTIATIONS ON THIS
TRANSACTION END.

PRESIDING OFFICER
UROT

h) On March 18, 1966, the defendant Acting City Treasurer, Jesus E. Zabate, sent a reply to the
Asst. Vice-President of the defendant Philippine National Bank in Cebu City refusing the request of
the Philippine National Bank (to withhold P3,000,000.00 from the time deposit of the City of Cebu)
 on the ground that no appropriation for the purchase of heavy equipments was made by the City
Council.

i) That notwithstanding the knowledge of the revocation by Resolution No. 473 of Resolution No.
1648 and Resolution No. 1831, series of 1965 of the City Council of Cebu City, the said City Mayor,
Carlos J. Cuizon, continued with the transaction by placing the order with the Equipment Division of
the Continental Ore Corporation of New York U.S.A. for the purchase of the said heavy equipments.4

Hence, plaintiffs-appellants filed their complaint against defendants-appellees, incorporating the foregoing
antecedents and averments, and praying for judgment of the court

(a) to declare null and void ab initio the contract entered into by and between the City Mayor, Carlos
J. Cuizon and the defendant Tropical Commercial Company, Inc., for the purchase of the
equipments referred to in paragraph VII of this complaint;

(b) to declare null and void ab initio and without any effect the Letters of Credit opened with the
defendant Philippine National Bank by the defendant City Mayor of Cebu, Carlos J. Cuizon;

(c) to exempt the City of Cebu and to hold the same not liable for any and all obligations to the
defendant Philippine National Bank which may result from the unauthorized opening of the Letters of
Credit by the defendant City Mayor of Cebu;

(d) to exempt and hold not liable the City Government of the City of Cebu from any obligation
regarding the contract specified in paragraph (a) hereof;

(e) to enjoin and order the defendant City Mayor of Cebu, the defendant City Treasurer of Cebu, the
City Auditor, City Engineer and any and all public officials and employees of the City of Cebu not to
receive the equipments if they were already ordered and in the event that they will arrive for delivery;

(f) to grant any and other remedies to which the plaintiffs may be entitled under the law.5

Defendants City Mayor and Tropical filed in due course their respective answers to the Complaint, with
counterclaims and traversed the allegations of the complaint.

Defendant mayor's counterclaim, contending that the suit was unfounded and intended to harass and embarrass
him prayed for judgment against plaintiffs for actual and temperate damages as may be ascertained by the trial
court, P1-million moral damages, P50,000. — exemplary damages, P50,000. — attorney's fees and expenses of
litigation with costs.6

Defendant Tropical's counterclaim, prayed for judgment "in the event that this Honorable Court should hold that the
plaintiffs have the capacity or interest to bring this suit in behalf of the City of Cebu,"7 in the total sum of P242,939.90
with legal interest, representing bank charges in the sums of P86,267.76 and P156,672.14 which it had as seller
advanced in cash for two letters of credit opened by the bank to cover the price of the equipment contracted for by
the city mayor on behalf of the city. Defendant Tropical averred that "said advances were actually cash payments
made by (it) to the Philippine National Bank upon request of the city mayor and upon the representation of the city
mayor that (he) was acting for and in behalf of the City of Cebu."8

Defendant acting city treasurer filed his separate answer in effect affirming the nullity ab initio of the questioned
contract for the reasons and circumstances averred in plaintiffs' complaint. He further set up special defenses
averring that the assignment by way of guaranty by the city mayor of P3-million of the city's time deposit with the
defendant bank was null and void and done without his consent nor knowledge as the official responsible for said
fund, and prayed for the dismissal of the case against him alone.

Defendant bank in its turn filed a motion to dismiss the plaintiffs' complaint on the grounds of plaintiffs' lack of legal
capacity to sue and failure of the complaint to state a cause of action against it. The first stated ground of plaintiffs'
alleged lack of legal capacity to bring the suit had also been alleged as an affirmative defense by defendants mayor
and Tropical in their respective answers, with defendant mayor asking for a preliminary hearing on his affirmative
defenses as if a motion to dismiss had been filed.9

Plaintiffs on their part filed their responsive pleadings. In their answer to the mayor's counterclaim, they averred that
"the present complaint was filed with no other purpose than to secure the annulment of a contract which had
beenentered into by defendant mayor in violation of his authority from the City Council of Cebu City, to the great
prejudice and detriment of the City of Cebu and accordingly, well within the concern of the plaintiffs to pursue, not
only as majority members of the City Council but also as individual taxpayers and citizens of this community which is
the City of Cebu." 10

In their opposition to the motion to dismiss, 11 plaintiffs asserted inter alia their right as city officials and taxpayers to
question the validity of the contract entered into by the defendant city mayor and to contest the expenditures of the
city's funds therefor beyond the mayor's authority or the disposition thereof in an unlawful or prohibited manner.

Plaintiffs also filed a separate reply to the mayor's affirmative defenses, 12 refuting the mayor's claim of estoppel by
citing the principle that estoppel cannot be founded upon an illegal act and submitting therewith the Auditor
General's endorsement of June 16, 1966 affirming the city auditor's prior endorsement of nullity ab initio of the
questioned contract for non-compliance with the requirements of sections 607 and 608 of the Revised
Administrative Code. Pertinent excerpts of Auditor-General Ismael Mathay, Sr.'s endorsement read:

xxx xxx xxx

Opinion of this Office is being requested on the validity of the herein contract for the purchase of
heavy equipment and machineries entered into by and between Mayor Carlos J. Cuizon of Cebu
City for and in behalf of the City Government of Cebu by virtue of Resolution No. 1648, series of
1965, of the City Council, and Tropical Commercial Co., Inc.

xxx xxx xxx

It appearing from the within papers that the City Council of Cebu has not appropriated funds for
purposes of the contract in question, for which reason the City Treasurer could not have certified,
even if he wanted to, as in fact he did not make the certification required under the aforequoted
provisions of law, which is a condition precedent to the validity of the contract, this Office concurs in
view of the City Auditor in the preceding second indorsement that the said contract is null and
void ab initio.

In view of the nullity of the herein contract, all claims arising therefrom may not be allowed. 13

Defendant mayor, in turn, in his motion for immediate resolution of pending motion to dismiss dated October 5,
1966, 14 contended that "the General Auditing Office, through the Auditor General, has already withdrawn or recalled
its ruling declaring the said contract null and void ab initio."

On October 6, 1966, the lower court issued the order of dismissal appealed from. In ordering the dismissal of
plaintiffs' complaint on the ground of their lack of legal capacity to sue and their not being the "real party in interest,"
the lower court reasoned as follows:

It is uncontroverted that the contract now sought to be annulled was signed by the City Mayor in
behalf of the contracting party, the City of Cebu, by virtue of the authority granted him by Resolution
No. 1648 of the city council. Now, the majority members of this council who have given authority to
the City Mayor to execute the contract are filing this complaint and seek to annul the said contract.
Their power to file the action either as such councilors or as private citizens is being questioned.

Article 1397 of the New Civil Code provides that action for annulment of contracts may be instituted
by all who are thereby obliged principally or subsidiarily. In other words, the plaintiffs must have an
interest in the contract. In the instant case the plaintiffs, in their capacity as city councilors or tax
payers are not parties to the contract executed by the City of Cebu and there is no evidence to show
that because of the contract they may be prejudiced or may suffer injury different from that of the
 public in general. The City of Cebu being the party to the contract, any action brought regarding the
said contract must be instituted in the name of the City of Cebu and by the person authorized to do
so. Section 20(c) of the Revised Charter of Cebu City (Republic Act No. 3857) empowers the City
Mayor to "cause to be instituted judicial proceedings to recover properties and funds of the city
wherever found and cause to be defended all suits against the City." There is no provision in the said
Charter which authorizes expressly or impliedly the city council or its members to bring an action in
behalf of the City.

Section 2, Rule 3 of the new Rules of Court provides that every action must be prosecuted in the
name of the real party in interest. "The real party in interest is the party who would be benefited or
injured by the judgment, or the party entitled to the avails of the suit" (Salonga vs. Warner Barnes &
Co. Ltd., L-2246, Jan. 1, 1951). As stated above, the plaintiffs acting either as members of the city
council or as private citizens are not bound by the contract in question and cannot maintain an action
to annul the same since they will not be benefited or prejudiced by the judgment of the case. They
have no right to the contract and they will not suffer injuries different from that of the public in
general. They are not, therefore, the real party in interest. In the same way as the plaintiffs are not
the real party in interest, the defendant Carlos Cuizon may not be bound by the judgment herein and
he cannot be sued as party defendant.

Hence this appeal. Plaintiffs-appellants and defendant-appellee Philippine National Bank filed their respective briefs
in due course. The other defendants-appellees, the city mayor, the city treasurer and Tropical failed to file their
briefs, with Tropical's extended period to do so having expired on January 4, 1969, and the case was deemed
submitted for decision on March 17, 1969.

1. It seems clearly self-evident from the foregoing recitation of the undisputed antecedents and factual background
that the lower court gravely erred in issuing its dismissal order on the ground of plaintiffs' alleged lack of interest or
legal standing as city councilors or as taxpayers to maintain the case at bar. The lower court founded its erroneous
conclusion on the equally erroneous premise of citing and applying Article 1397 of the Civil Code that "the action for
the annulment of contracts may be instituted (only) by all who are thereby obliged principally or subsidiarily." 15

The lower court's fundamental error was in treating plaintiffs' complaint as a personal suit on their own behalf and
applying the test in such cases that plaintiffs should show personal interest as parties who would be benefited or
injured by the judgment sought. Plaintiffs' suit is patently not a personal suit. Plaintiffs clearly and by the express
terms of their complaint filed the suit as a representative suit on behalf and for the benefit of the city of Cebu.

Without passing upon or prejudging the merits of the complaint, it is not disputed that taken by themselves without
considering the contrary evidence or defenses that might properly be set up by defendants at the trial, the
allegations of the complaint state a sufficient cause of action on the basis of which judgment could be validly
rendered by the lower court declaring the nullity of the questioned contract and letters of credit and declaring the
City of Cebu exempt and free from any and all liability on account thereof, as prayed for by plaintiffs. Defendant
bank in its brief concedes that "we find no ruling that the complaint was dismissed for lack of cause of action against
the appellee Philippine National Bank." 16

The appeal at bar must therefore be granted and the case ordered remanded to the lower court where the parties
may be properly given the opportunity at the trial to present evidence in support of their respective contentions for
disposition and judgment on the merits.

2. The lower court entirely missed the point that the action filed by plaintiffs-appellants as city councilors (composing
practically the entire city council, at that) and as city taxpayers is to declare null and void the P3-million contract
executed by defendant city mayor for the purchase of road construction equipment purportedly on behalf of the city
from its co-defendant Tropical and to declare equally null and void the corresponding letters of credit opened with
the bank by defendant mayor and to prevent the disbursement of any city funds therefor and to exempt the City of
Cebu and hold it not liable for any obligation arising from such contract and letters of credit specifically and precisely
questioned in the complaint filed by plaintiffs on behalf of the City as having been executed without authority and
contrary to law.

Plaintiffs' suit is clearly not one brought by them in their personal capacity for the annulment of a particular contract
entered into between two other contracting parties, in which situation Article 1397 of the Civil Code may rightfully be
invoked to question their legal capacity or interest to file the action, since they are not in such case in anyway
obliged thereby principally or subsidiarily.

On the contrary, plaintiffs' suit is one filed on behalf of the City of Cebu, instituted by them in pursuance of their
prerogative and duty as city councilors and taxpayers, in order to question and declare null and void a contract
which according to their complaint was executed by defendant city mayor purportedly on behalf of the city without
valid authority and which had been expressly declared by the Auditor-General to be null and void ab initio and
therefore could not give rise to any valid or allowable monetary claims against the city.

3. Plaintiffs' right and legal interest as taxpayers to file the suit below and seek judicial assistance to prevent what
they believe to be an attempt to unlawfully disburse public funds of the city and to contest the expenditure of public
funds under contracts and commitments with defendants bank and Tropical which they assert to have been entered
into by the mayor without legal authority and against the express prohibition of law have long received the Court's
sanction and recognition. In Gonzales vs. Hechanova, 17 the Court through the now Chief Justice dismissed the
challenge against the sufficiency of therein petitioner's interest to file the action, stating that "since the purchase of
said commodity will have to be effected with public funds mainly raised by taxation, and as a rice producer and
landowner petitioner must necessarily be a taxpayer, it follows that he has sufficient personality and interest to seek
judicial assistance with a view to restraining what he believes to be an attempt to unlawfully disburse said funds."

Even defendant Tropical so understood that plaintiffs' suit was a representative suit in behalf of the City of Cebu,
hence their counterclaim in their answer, should the lower court uphold plaintiffs' "capacity or interest to bring this
suit in behalf of the City of Cebu," for judgment against the City of Cebu for the repayment with legal interest of bank
charges in the total sum of P242,939.90 which it had advanced on the letters of credit opened by the defendant
bank at the mayor's instance in favor of its U.S. supplier, supra." 18

Parenthetically, it may be noted with reference to said letters of credit opened by the bank at the mayor's instance,
that the same were caused by the mayor to be established, according to the allegations of the complaint,
notwithstanding the mayor's knowledge and notice of the city council having revoked by its resolution No. 473
on March 10, 1966 its previous resolutions authorizing him to enter into the transaction, supra. 19

4. Plaintiffs' right and legal interest as city councilors to file the suit below and to prevent what they believe to be
unlawful disbursements of city funds by virtue of the questioned contracts and commitments entered into by the
defendant city mayor notwithstanding the city council's revocation of his authority with due notice thereof to
defendant bank must likewise be recognized.

The lower court's narrow construction of the city charter, Republic Act No. 3857, that under section 20 (c) thereof, it
is only the city mayor who is empowered "to cause to be instituted judicial proceedings to recover properties and
funds of the city wherever found and cause to be defended all suits against the city," and that plaintiffs' suit must
therefore fail since "there is no provision in the said charter which authorizes expressly or impliedly the city council
or its members to bring an action in behalf of the city" cannot receive the Court's sanction.

The case at bar shows the manifest untenability of such a narrow construction. Here where the defendant city
mayor's acts and contracts purportedly entered into on behalf of the city are precisely questioned as unlawful, ultra
vires and beyond the scope of his authority, and the city should therefore not be bound thereby nor incur any liability
on account thereof, the city mayor would be the last person to file such a suit on behalf of the city, since he precisely
maintains the contrary position that his acts have been lawful and duly bind the city.

To adhere to the lower court's narrow and unrealistic interpretation would mean that no action against a city mayor's
actuations and contract in the name and on behalf of the city could ever be questioned in court and subjected to
judicial action for a declaration of nullity and invalidity, since no city mayor would file such an action on behalf of the
city to question, much less nullify, contracts executed by him on behalf of the city and which he naturally believes to
be valid and within his authority.

5. Section 20 (c) of the city charter invoked by the lower court, however, has no applicability to the present suit,
which is not one to recover properties and funds of the city or a suit against the city, but rather a representative suit
on behalf of and purportedly for the benefit of the city, which the city mayor is however loath to institute.
Under such circumstances, in the same manner that a stockholder of a corporation is permitted to institute derivative
or representative suits as nominal party plaintiff for the benefit of the corporation which is the real party in
interest, 20more so may plaintiffs as city councilors exclusively empowered by the city charter to "make all
appropriations for the expenses of the government of the city" 21 and who were the very source of the authority
granted to the city mayor to enter into the questioned transactions which authority was later revoked by them, as per
the allegations of the complaint at bar, be deemed to possess the necessary authority, and interest, if not duty, to
file the present suit on behalf of the City and to prevent the disbursement of city funds under contracts impugned by
them to have been entered into by the city mayor without lawful authority and in violation of law.

ACCORDINGLY, the order appealed from is hereby set aside and the lower court is ordered to proceed with the trial
and disposition of the case below on its merits. No costs. So ordered.

15. [G.R. Nos. L-19824-26. July 9, 1966.] Republic v Bacolod – Murcia Milling Co., Inc., et al. L-19824-26, July 9,
1966

This is a joint appeal by three sugar centrals, Bacolod-Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-
Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First
Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.

Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation created for
the following purposes and objectives: jg c:chan roble s.com.p h

"(a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes that will reduce the cost of production, increase and improve
the industrialization of the by-products of sugar cane, and achieve greater efficiency in the industry;

"(b) To improve existing methods of raising sugar cane and of sugar manufacturing;

"(c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local consumption and
exportation;

"(d) To establish and maintain such balanced relation between production and consumption of sugar and its by-products, and
such marketing conditions therefor, as well insure stabilized prices at a level sufficient to cover the cost of production plus a
reasonable profit;

"(e) To promote the effective merchandising of sugar and its by- products in the domestic and foreign markets so that those
engaged in the sugar industry will be placed on a basis of economic security; and

"(f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual and effective
correction of the inequalities existing in the industry." (Section 2, Rep. Act 632)

To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide: jgc:c han robles. com.ph

"Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of this Act and the purposes of the
corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be
collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane
planters and the sugar centrals in the proportion of their corresponding milling share, and said levy shall constitute a lien on
their sugar quedans and/or warehouse receipts." cralaw vi rtua1aw l ibra ry

"Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as
the ‘Sugar Research and Stabilization Fund,’ which shall be available exclusively for the use of the corporation. All the income
and receipts derived from the special fund herein created shall accrue to, and form part of, the said fund to be available
solely for the use of the corporation." cralaw virt ua1aw lib ra ry

The specific and general powers of the Philsugin are set forth in Section 3 of the same law, to wit: jgc:chan robles. com.ph

"Sec. 3. Specific and General Powers. For carrying out the purposes mentioned in the preceding section, the PHILSUGIN shall
have the following powers: jgc:c han roble s.com.ph

"(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central experiment station
and such number of regional experiment stations in any part of the Philippines as may be necessary to undertake extensive
research in sugar cane culture and manufacture, including studies as to the feasibility of merchandising sugar cane farms,
the control and eradication of pests, the selected and propagation of high-yielding varieties of sugar cane suited to Philippine
climatic conditions, and such other pertinent studies as will be useful in adjusting the sugar industry to a position
independent of existing trade preference in the American market;

"(b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute successfully such
researches and experiment work;

"(c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual benefits to
consumers and producers and to promote and maintain a sufficient general production of sugar and its by-products by an
efficient coordination of the component elements of the sugar industry of the country;

"(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment, materials, merchant
vessels, rails, railroad lines, and any other means of transportation, warehouses, buildings, and any other equipment and
material for the production, manufacture, handling, transportation and warehousing of sugar and its by-products;

"(e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;

"(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its purposes
with any person, firm, or public or private corporation, with the Government of the Philippines or of the United States, or any
state, territory or persons therefor or with any foreign government and, in general to do everything directly or indirectly
necessary or incidental to or in furtherance of, the purposes of the corporation;

"(g) To do all such other things, transact all such business and perform such functions directly or indirectly necessary,
incidental or conducive to the attainment of the purposes of the corporation; and

"(h) Generally, to exercise all the powers of a corporation under the Corporation Law insofar as they are not inconsistent with
the provisions of this Act."
cralaw virtua1aw l i brary

The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted by the
appellants, are the following: jgc:chan roble s.com.p h

". . . during the 5 crop years mentioned in the law, namely, 1951-1952, 1952-1953, 1953-1954, 1954-1955 and 1955-1956,
defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-
ao Sugar Central Co., Inc., has paid P177,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay Milling
Company has paid P251,812.43 but left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao made a
payment of P48,897.73 but left an unpaid balance of P48,059.77. There is no question regarding the correctness of the
amounts paid and the amounts that remain unpaid.

"From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine
Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of
P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments from the proceeds of the sugar tax to
be collected under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the
years, 1954, 1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an
examination of the statements of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon
Flor Cruz, former acting general manager of PHILSUGIN and at present technical consultant of said entity, presented by the
defendants as witness, it has been shown that the operation of the Insular Sugar Refinery has consumed 70% of the thinking
time and effort of the PHILSUGIN management . . ." cralaw virtua 1aw lib rary

Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by
Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants refused
to continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to the said
Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a
revenue measure but an Act which establishes a "special assessment." Adverting to the finding of the lower court that
proceeds of the said Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its "disastrous
operation" of said refinery, the appellants herein argue that they should not only be released from their obligation to pay the
said assessment but be refunded, besides, of all that they might have previously paid thereunder.

The appellants’ thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec.
15 of Republic Act 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose
for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that
the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended
to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the
property owners, paying the assessment, or that the proceeds from the said assessment are being misapplied to the
prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment
ceases.

On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law, Republic Act 632,
upon the following considerations.

First, Subsection (d) of Section 3 of Rep. Act 632 authorizes Philsugin to buy and operate machineries, equipment, merchant
vessels, etc., and any other equipment and material for the production, manufacture, handling, transportation and
warehousing of sugar and its by products. It was, therefore, authorized to purchase and operate a sugar refinery.

Secondly, the Corporate powers of the Philsugin are vested in and exercised by a board of directors composed of 5 members,
3 of whom shall be appointed upon recommendation of the National Federation of Sugar Cane Planters and 2 upon
recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632) It has not been shown that this particular
provision was not observed in this case. Therefore, the appellants herein may not rightly claim that there had been a
misapplication of the Philsugin funds when the same was used to procure the Insular Sugar Refinery because the decision to
purchase the said refinery was made by a board in which the appellants were fully and duly represented, the appellants
being members of the Philippine Sugar Association.

Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be presumed to have
passed upon the legality and prudence of the disbursements of the Fund. Additionally, other offices of the Government
review such transactions as reflected in the annual report obliged of the Philsugin to prepare. Among those offices are the
Office of the President of the Philippines, the Administrator of Economic Coordination and the Presiding Officers of the two
chambers of Congress. With all these safeguards against any imprudent or unauthorized expenditure of Philsugin Funds, the
acquisition of the Insular Sugar Refinery must be upheld in its legality and propriety.

Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their contribution
to the Fund for that conduct is no different" from the case of an ordinary taxpayer who refuses to pay his taxes on the
ground that the money is being misappropriated by Government officials." This is taking the law into their own hands.

Against the above ruling of the trial court, the appellants contend: chanro b1es vi rtua l 1aw lib ra ry

First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been committed by Philsugin
solely because its charter incorporates so many devices or safeguards to preclude such abuse. This reasoning of the lower
court does not reconcile with what actually happened in this case.

Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when it purchased
the Insular Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at all to acquire the said
refinery. The appellants deny that Philsugin is possessed of any such authority because what it is empowered to purchase is
not a "sugar refinery" but a "central experiment station or perhaps at the most a sugar central to be used for that purpose."
(Sec 3[a] Rep. Act 632) For this distinction, the appellants cite the case of Collector v. Ledesma, G.R. No. L-12158, May 27,
1959, in which this Court ruled that —

"We are of the opinion that a ‘sugar central,’ as that term is used in Section 189, applies to ‘a large mill that makes sugar out
of the cane brought from a wide surrounding territory,’ or a sugar mill which manufactures sugar for a number of plantations.
The term ‘sugar central’ could not have been intended by Congress to refer to all sugar mills or sugar factories as contended
by Respondent. If respondent’s interpretation is to be followed, even sugar mills run by animal power (trapiche) would be
considered sugar central. We do not think Congress ever intended to place owners of ‘trapiches’ in the same category as
operators of sugar centrals.

"That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470 (Assessment
Law). In prescribing the principle governing valuation and assessment of read property, Section 4 of said Act provides —

‘Machinery permanently used or installed in sugar centrals, mills, or refineries shall be assessed.’

This clearly indicates that ‘sugar centrals’ are not the same as ‘sugar mills’ or ‘sugar refineries.’

Second. The appellants’ refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a
taxpayer’s refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special
assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the
benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an
ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus,
while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government
functions, the same would not hold true in the case of a refusal to comply with a special assessment.

Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special assessment upon
property owners who receive no benefit from such assessment amounts to a denial of due process. Thus, in the case of
Norwood v. Baker, 172 US 269, the ruling was laid down that —

"As already indicated, the principle underlying special assessments to meet the cost of public improvements is that the
property upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in fact, pay anything in
excess of what they received by reason of such improvement." cralaw virtua 1aw lib rary

unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would be "manifestly
unfair" (Seattle v. Kelleher, 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment Co. v. Schneider
Granite Co., 240 U.S. 57). In other words, the assessment is violative of the due process guarantee of the constitution
(Memphis v. Charlestou Ry. v. Pace, 282 U.S. 241)
We find for the appellee.

The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the
case of Lutz v. Araneta, 98 Phil, 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar
Adjustment Act, "levies on owners or persons in control of lands devoted to the cultivation of sugarcane and ceded to others
for a consideration, on lease or otherwise —

"a tax equivalent to the difference between the money value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land.’ (Sec. 3)." cralaw virt ua1aw lib rary

Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in
the Philippine Treasury, to be known as the ‘Sugar Adjustment and Stabilization Fund,’ and shall be paid out only for any or
all of the following purposes or to attain any or all of the following objectives, as may be provided by law." It then proceeds
to enumerate the said purposes, among which are "to place the sugar industry in a position to maintain itself; . . . to
readjust the benefits derived from the sugar industry . . . so that all might continue profitably to engage therein; to limit the
production of sugar to areas more economically suited to the production thereof; and to afford laborers employed in the
industry a living wage and to improve their living and working conditions." cralaw vi rtua 1aw lib rary

The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was
unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore, not for
a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said: jgc:c hanro bles. com.ph

"The basic defect in the plaintiff’s position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.

"This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar
occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and
factories; that it is a great source of the state’s wealth, is one of the important source of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection
and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that
the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power,
the law-making body could provide that the distribution of benefits therefrom be readjusted among its components to enable
it to resist the added strain of the increase in taxes that it had to sustain (Sligh v. Kirkwood, 237 U.S. 52, 59 L. Ed. 835;
Johnson v. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. v. Moyo, 103 Fla. 552, 139 So. 121)

"As stated in Johnson v. State ex rel. Marey, with reference to the citrus industry in Florida —

‘The protection of a large industry constituting one of the great source of the state’s wealth and therefore directly or
indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public
interests as to be within the police power of the sovereign.’ (128 So. 857)

"Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern, it
follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for
its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is
not contended that the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or
are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state’s police
power. (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. v. Butler, 237 U.S. 1, 30 L. Ed. 477;
M’callock v. Maryland, 4 Wheat. 316, 4 L. Ed. 579)." cralaw virt ua1aw lib ra ry

On the authority of the above case, then, We hold that the special assessment at bar may be considered similarly as the
above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of
a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an
exercise of a sovereign power which no private citizen may lawfully resist.

Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar industry in all
its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes
that will reduce the cost of production, . . ., and achieve greater efficiency in the industry." This provision, first of all, more
than justifies the acquisition of the refinery in question. The case dispute that the operation of a sugar refinery is a phase of
sugar production and that from such operation may be learned methods of reducing the cost of sugar manufacture no less
than it may afford the opportunity to discover the more effective means of achieving progress in the industry? Philsugin’s
experience alone of running a refinery is a gain to the entire industry. That the operation resulted in a financial loss is by no
means an index that the industry did not profit therefrom, as other gains of a different nature may have been realized. Thus,
from its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems of
management faced by sugar centrals. It could have understood more clearly the difficulties of marketing sugar products. It
could have known with better intimacy the precise area of the industry in need of the most help from the government. The
view of the appellants herein, therefore, that they were not benefited by the unsuccessful operation of the refinery in
question is not entirely accurate.

Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save through the actual
operation of a refinery. Quite obviously, the most practical or realistic approach to the problem of what "practices or
processes" might most effectively cut the cost of production is to experiment on production itself. And yet, how can such an
experiment be carried out without the tools, which is all that a refinery is?

In view of all the foregoing, the decision appealed from, is hereby affirmed, with costs.

16. G.R. No. L-16254 February 21, 1922

Cuunjieng v. pastone, 42 Phil 818

This is a for a writ of mandamus to compel the city engineer of Manila to issue a building permit. There is no dispute
as to the facts. The plaintiff desires a erect a warehouse on Azcarraga Street but is denied a building permit until be
shall have made provision fopr the construction of an arcade over the side walk in front of the building and until he
shall have further complied with section 1 of Ordinance No.301 of the city of Manila, with reads as follow:

Whenever the owner,, preson in charge, or any other person or entering having a right in any property
located of the principal streets and avenues of the city of Manila, such as Legarda,R. Hidalgo, Carriedo,
Echague, Moriones, Azcarraga, Rizal, Taft, San Miguel, and others which may, by ordinance, hereafter be
desiganted by the Municipal Board, desires to erect to reconstruct a building or any other construction of
said property, the same shall pay, once the plan of the work has been approved by the city engineer, one-
half of the assessed value of the city land as a licence fee for the use and occupation of said land: Provided,
That the construction of arcades on streets having a width of twenty or more meters, not hereinbefore
mentioned in this section, shall be not be carriedout, until after the plan of the work has been approved by
the city of engineer, said aracadeshas been paid for by owner, person in charge or any other person or
entity having a right in the building which is to be erected or constructed, as a licence fee for the use and
occupation of said land.

The plaintiff refuses to construct the arcade and to comply with the ordinance in question on the grounds that the
arcade is unnecessary aand unsuitable for his warehouse and that the city has no power to require its constructin;
and that the ordinance in exacting the payment of a fee of one-half of the assessed value of the city of land covered
by the arcade is in eexcess of the legislative powers of the Municipal Board and, therefore, unconstitutional. It sems,
however, to be conceded that under the climatic constditions here existing , arcades are both useful and desirable
from the standpoint of public convenience and that the Municipal Board, under the general welfare of the city
charter, has power to provide for the construction of arcades on certain by assignment of error and the discussion
may, therefore, properly be limited to two points: First, whether the question of the constitutionality of statutes or city
ordinance may be raised in mandamus proceedings and second, whether under the charter, the city of Manila may,
under the guise of a licence fee and as a prerequisite for the issuance for a building permit, exact the payment of
one-half of the assessed value of the portion of the sidewalk covered by the arcade.

Upon the first point th authorities are not entirely in harmony, but in modern practice it has been generally held by
the writ will lie where, as in the present generally the question of constitutionally is raised by the petitioner.
(SeeState ex rel., Fooshe vs. Burley, 16 L. A. [N.S.], 266, with its case note.) The rule is different where the
respondent relies on the unconstitutionality of a statute as a defense in mandamus proceedings. In such cases the
courts have generally declined to consider questions of costitutionality. (See State ex rel., New Orleans Canal &
Banking Co. vs.Heaard, 47 L.R.A., 512, and the case note thereto.) The reason fir this is obvious: It might seriously
hinder the transanction of public business if ministerial constitutionality of statutes and ordinances imposing duties
upon them and which have not judicially beem declared uncostitutional. The same reasons do not exist where the
validity of the statutes is attacked by the petitioner.

There being no other adequate remedy and there appearing to be no reason in principlee why we should not in
mandamus proceedings, we are of the opinion, and so hold, that the present action has been properly brought.
The second point above-mentioned merits a more extended consideration. In discussing it we must bear in mind
that legislative powers in regard to taxes and licences are not inherent in municipal corporations but must be
granted by statute either expressly or by necessary implication. Like other delegated powers, theyare subject to
scrict construction.

That the city does not possses such an extraordinary power as that of compelling property holders to lease the
portions of the public sidewalks which adkoin their lands requires no argument. The charge of one-half of the
assessed value imposed on applicants for building permits can therefore, not beconsidered as rent, and to be valid
must either be a tax or a licence fe.. The legislative powers of the city in regard to taxes and licence fee are
enumerated in the following subsections of section 2444 of the Administrative Code, as amended ny section 8 of Act
No. 2774, and in section 2507 of the Administrative Code:

SEC. 2444. General powers and duties of the Baord. — Except as otherwise provided by law, and subject to
the shall have the following legislative powers:

(a) To provide for the levy and collection of taxes for general and special purposes in accordance with law.

(b) To fix the tartiff of fees and charges for all services rendered by the city or any of its departments,
branches, or officials.

xxx xxx xxx

(h) To established fire limits, determine the kinds of buildings or structures that may be eracted within siad
limits, regulate the manner of constructing and repairing the same, and fix fees for permits for the
construction, repair, or demolition of building and structures.

xxx xxx xxx

( j ) To regulate the use of lights in stavbles, shops, and other buildings and places, to regulate and restrict
the issuance of permits for the building of bonfires and the use of fircrackers, fireworks torpedoes, candles,
skyrockets, and other pyrotechnic displays, and to fix the fees for such permits.

xxx xxx xxx

(l) To regulate and fix the amount of the licence fees for the following: Hawkers, peddlers, hucksters, not
including huckster or peddlers who sell only native vegetables, fruit, of foods, personally by the huckstersor
peddlers; auctioneers, plumbers, barbers, embamers, collecting agencies, mercantile agencies, shipping
and intelligence offices, private detective agencies, advertising agencies, massagist, tatooers, judglers,
acroboats, hotels, clubs, restaurants, cafe, lodging houses, boarding houses, livery garages, livery stables,
boarding stables, dealers in large cattle, public billiard tables, laundries, cleaning and dyeing
establishements, public warehouse, dance halls, cabarets, circus and othe similar parades, public vehicles,
race tracks, house races, bowling alleys, shooting galleries, slot machines, merry-go-arounds, pawshops,
dealers in second-hand merchandise, junk dealers, brewers,distillers rectifyers, money changers and
brokers, public ferries, theatrs, theatrical performances, cimnematographs, public exhibitions, circuses and
all othe perfermances, and place of amusement, and the keeping, preparation, and sale of meat, poultry,
fish, game, butter, cheese, lard, vegetables, bread, and other provisions.

(m) To tax, fix the licence fee for, regulate the business, and fix the location of match factories, blacksmith
shops, foundaries, steam biolers, lumber yards, ship tards, the storage and sale of gunpowder, tar, pitch,
resin, coal, oil, gasoline, benzine, turpentine, hemp, cotton, nitroglycerin, petroleum, or any products thereof,
and of all other highly combustible or explosive materials, and other tablishment likelyto endanger the public
safety or give rise to conflagrations, or explosions, and, subject to the provisions of ordinance with alw,
tenneries, renderies, tallow chandleries, bone factories, and soap factories, and soap factories.

(n) To tax motor and other vehicles and draft animals not paying the public vehicles licence fee or any other
Isular tax.
(o) To regulate the method of using steam engines and boilers, other than marine or belonging to the
Federal or Insular Governments; to provide for th inspection thereof, and for a reasonable fee for such
inspection, and to regulate, and to fix the fees for the licence of the engineers engaged in operaating the
same.

xxx xxx xxx

(q) To probit, or regulate and fix the licence fees for, the keeping of dogs, and authorized their impounding
and destruction when running at large contrary to ordinanaces, and to tax and reguate the keeping or
training of fighting cocks.

xxx xxx xxx

(u) Subject to the provisions of sections nineteen hundred and for nineteen hundred and five of this Code, to
provide for laying out, construction, and improvement, and to regulate the use, of streets avenues, alleys,
sidewalks, wharves, piers, parks, cemeteries, and othe public places; to provide for lighting, cleaning and
sprinkling of streets and public places; to reegulate, fix licence fees for and prohibit the use of the same for
processions, signs, signspost, awnings, awning post, the carrying or displaying of banners, placards,
advertisements, or hand bills, or the flying of signs, flags, or banners, whether along, across ovr, or from
buildings along the same; to prohibit the placing, throwing, depositing, or leaving of obstacles of any kind,
offal, garbage, refuse, or other offensive matter or matter liable to cause damage, in the streets and other
public places, and to provide for the collection and disposition thereof; to provide for the inspection of, fix the
license fees for, and regulate the openings in the same for the laying of gas, water, sewer, and other pipes,
the building and repair of tunnels, sewers, and drains, and all structures in an under the same, and the
erecting of poles and the strining of wires therein; to provides for and regulate crosswalks, curbs, and gutters
therein; to name streets without a name and provide for a regulate the numbering of houses and lots fronting
thereon or in the interior of the blocks; to regulate traffic and sales upon the streets and other public places;
to provide for the abatement of nuisances in the same and punish the authors or owners thereof; to provide
for the construction and maintenance, and regulate the use, of bridges, viaducts, and culverts; to prohibit
and regulate ball playing, kite flying, hoop rolling, and other amusements which may annoy persons using
the street and public places, or frighten horses or other animals; to regulate the speed of horses and other
animals, motor and other vehicles, cars, and locomotives with the limits of the city; to regulate the lights use
on all such vehicles, cars, and locomotives; to regulate the locating, constructing and laying of the track of
horse, electric, and other forms of railroad in the streets or othre public places of the city authorized by law;
to provide for and change the location, grade, and crossings of railroads, and to compel any such railroad to
rais or lower its tracks to conform to such provisions or changes; and to require railroad to raise or lower its
tracks to conform to such provisions or changes; and to require railroad companies to fence their property,
or any part thereof, to provide suitable protection against injury to persons or property, and to construct and
repair ditches, drains, sewer, and culvertes along and under their tracts, so that the natural drainage of the
streets and adjacent property shall not be obstructed.

xxx xxx xxx

(w) To fix the charges to be paid by all water craft landing at or using public wharves, docks, levees, or
landing places: Provided, That the provisions of this subsection shall not apply to the public wharves, docks,
levees, or landing places constructed with the breakwater, on the bndks of the canal connecting the Pasig
River with the inner basin, and on both sides of said river below the Jones Bridge.

xxx xxx xxx

(z) Subject to the provisions of ordinances issued by the Philippine Health Service in accordance with law, to
provide for the establishement and maintenance and fix the fees for the use of , and regulate public stables,
laundries, and baths, and public markets and slautherhouses, and prohibit the establishmet or operation
within the city limits of public markets and slaughterhouses by any person, entity, association, or corporation
other than the city.

(aa) To regulate, inspect, and provide measures preventing any discrimination the exclusion of any race or
races in or from any institution, establishment, or service open to the public within the city limits, or in the
 sale and supply of gas or electricity, or in the telephone and street-railway service; to fix and regulate
charges therefor where the same have not been fixed by Act of Congress or of the Philippine Legislature; to
regulate and provide for the inspection of all gas, electric, telephone, and street-railway conduits, mains,
meters, and other apparatus, and provide for the condemnation, substitution or removal of the same when
defective or dangerous.

xxx xxx xxx

(ee) To enact all ordinances it may deem necessary and proper for the sanitation and safey , the furtherance
of the prosperity, and the promotion of the morality, peace, good order, comfort, convenience, and general
welfare of the city and its inhabitants, and such others as may be necessary to carry into effect and
discharge the powers and duties conferred by the chapter; and to fix penalities for the violation of ordinances
which shall not exceed a two hundred peso fine or sx month's imprisonment, or both such fine and
imprisonment, for a single offense.

SEC. 2507. Power to levy special assessments for certain purposes. — The Municipal Board may, by
ordinance duly approved, provide for the levying and collection, by special assessment of the real estate
comprised within the district or section of the city especially benefited, of a part not to exceed sixty per
centum of the cost of laying out, not to exceed sixty per centrum of the cost of laying out, opening,
cconstructing, straightening, widening, extending, grading, paving, curbing, walling, deepening, or otherwise
establishing, repairin, enlarging, or improving public avenues, roads, streets, alleys, sidewalks, prks, plazas,
bridges, landing places, wharves, piers, docks, levees, reservoirs, waterworks, water mains, water courses,
esteros, canals, drains, and swers, including the cost of acquiring the necessary land. Within the meaning of
this article, all real estate comprised withn the district benefited, except lands or buildings owned by the
United States of America, the Govenment of the Philippine Islands, or the city of Manila, shall be subject to
the payment of the special assessment, based upon the valuation of such real estate as shown by the books
of the city assessor and collector, or its present value as fixed by said officer in the first instance if the
property does not appear of record in his books according to the valuation whereof the special tax has to be
made, computed, and assessed.

Conceivably, there may be other instances where the police power to regulate carries with it impliedly the power to
prescribe fees, but they have no relation to the issues here involved.

Examining the provisions quoted, it is clear that the only one which can possibly by applied to the present case is
subsection (h) of section 2444 authorizing the fixing of fees for building permits and that if the charge in question
possesses any validity whatever it must be as a license fee under that subsection.

The allowable amount of a license fee or tax depends so much on the special circumstances of each particular case
that it is difficult to harmonize the numerous decisions on the subject and to formulate definite rules; but, generally
speaking, the adjudications appear to recognize three classes been taken into consideration in determining the
reasonableness of the license fee: First, license for the regulation of useful occupation or enterprises; secondly,
license for the regulation or restriction of non-useful occupation or enterprises, and thirdly, license for revenue only.

(1) The first two of these classes is based on the exercise of the police power and, though there is some conflict of
authority on this point, the better rule seems to be that the conferred power to regulate and to issue such liscenses
carries with it the right to fix a lcense fee. It is well settled that in the absence of special authority to impose a tax for
revenue the fee for this class of licenses may be only be of a sufficient amount to include the expense of issuing the
license and the cost of the necessary inspection or police surveillance, taking into account not only the expense of
direct regulation but also incidetnal consequences.

Cooley on Constitutional Limitations, 6th ed., at page 242, says:

A right to license an employment does not imply a right to charge a license fee therefore with a view to
revenue, unless such seems to be the manifest purpose of the power; but the authority of the corporation
will be limited to such a charge for the license as will cover the necessary expenses of issuing it, and the
additional labor of officers and other expenses thereby imposed. (Davis vs. Petrinovich, 112 Al., 654; 21 So.,
344; 36 L.R.A., 615; Ft. Smith vs. Hunt, 72 Ark., 556; 82 S.W., 163; 105 A.S.R., 51; 66 L.R.A., 238; Waters-
Pierce Oil Co. vs. Hot Springs, 85 Arl, 509; 109 S.W., 293 16 L.R.A [N.S.], 1035; Ex parte Dickey, 144 Cal.,
 234; 77 Pac., 924; 103 A.S.R., 82; 1 Ann. Cas., 428 and note; 66 L.R.A., 928; Morton vs. Macon, 111 Ga.,
162; 36 S.E., 627; 50 L.R.A., 485; State vs. Ashbrook, 154 Mo., 375; 55 S.W., 627; 77 A.S.R., 765; 48
LR.A., 265; St. Louis vs. Grafeman Dairy Co., 190 Mo., 492; 89 S.W., 617; 1 L.R.A. [N.S.], 936;
Johnson vs. Great Falls, 38 Mont., 369; 99 Pac., 1059; 16 Ann. Cas., 974; Rosenbloom vs. State, 64 Neb.,
342; ;89 N.W., 1053; 57 L.R.A., 922; State vs. Boyd, 63 Neb., 829; 89 N.W., 417; 58 L.R.A., 108;
Hughes vs. Snell, 28 Okla., 828; 115 Pac., 1105, Ann. Cas. [1912D] 374; 34 L.R.A. [N.S.], 1133;
Ellis vs. Frazier, 38 Ore., 462; 63 Pac., 642; 53 L.R.A. 454; lAURENS VS. aNDERSON, 75 S.C., 62; 55
S.E., 136; 117 A.S.R., 885; 9 Ann. Cas., 1003; Seattle vs. Dencker, 58 Wash., 501; 108 Pac., 1086; 137
A.S.R., 1076; 28 L.R.A. [N.S.], 446.)

(2) Licenses for non-useful occupations are also incidental to the police power and the right to exact a fee may be
implied from the power to license regulate, but in fixing the amount of the license fees the municipal corporations are
allowed a much wider discretion in this class of cases than in the former, and aside from applying the well-known
legal principle that muncipal ordinances must not be unreasonable, oppressive, or tyrannical, courts have, as a
general rule, declined to interfere with such discretion. The desirability of imposing restraint upon the number of
persons who might otherwise engage in non-useful enterprises is, of course, generally an important factor in the
determination of the amount of this kind of license fee. Hence license fees clearly in the nature of privilege taxes for
revenue have frequently been upheld, especially in cases of licenses for the sale of liquors. In fact, in the latter
cases the fees have rarely been declared unreasonable. (Swarth vs. Peoplle, 109 Ill.., 621; Dennehy vs. City of
Chicago, 120 Ill., 6278 N.E., 227; United States Distilling Co. vs. City of Chicago, 112 Ill., 19; Drew
Country vs.Bennett, 43 Ark., 364; Merced County vs. Fleming, 111 Cal., 46; 43 Pac., 392; Williams vs. City Council
of West Point, 68 Ga., 816; Cheny vs. Shellbyvile, 19 Ind., 84; Wiley vs.Owens, 39 Ind., 429; Sweet vs. City of
Wabash, 41 Ind., 7; Jones vs. Grady, 25 La. Ann., 646; People ex rel., Cramer vs. Medberry, 39 N.Y.S., 207; 17
Misc. Rep.., 8; McGuigan vs. Town of Belmont, 89 Wis., 637; 62 N.W., 421; Ex parte Burnett, 30 Ala,, 461;
Craig vs. Burnett, 32 Ala., 728, and Muhlenbrinck vs. Long Branch Commissioners, 42 N.J.L., 364; 36 Am. Rep.,
518.)

(3) The fee in the third class of cases, those for revenue purposes, is, perhaps, not a license fee properly speaking
but is generally so termed. It rests upon the taxing power as distinguished from the police power, and the power of
the municipality to exact such fees must be expressly granted by character or statute and is not to be implied from
the conferred power to license and regulate merely. Judge Cooley, citing numerous authorities, says:

A license is issued under the police power; but the exaction of a license fee with a view to revenue would be
an exercise of the power of taxation; and the character must plainly show an intent to confer that power, or
the municipal corporation cannot assume it. (Cooley, Constitutional Limitations, 6th ed., pp. 242-243. See
also Mayor vs. Beasly, 34 Am. Dec., 646, and Ki vs. City of Paterson, 26 N.J.L., 298.)

License taxes for revenue on useful occupations fall within this class.

When the power to license for revenue has been clearly granted, the rule as to the amount of the tax or fee laid
down in Fire Department vs. Stanton (159 N.Y., 225), is applicable to the municipality as much as to the state:

The legislature of the state is not without power to impose a tax on a business in the form of a license fee,
when it deems such to be warranted by considerations of public interest and for the general welfare, and the
only limitation upon its exercise of power, in tha respect, is that there shall be no discrimination or
oppression, and that the burden shall be equally charged upon all person in similar circumstanes.

Applying the legal principles above stated to the case at bar, we are constrained to hold that in imposing a fee equal
to one-half of the assessed value of the portion of the sidwalk covered by the arcade in question, the Municipal
Board of the city of Manila exceeded its powers. The construction of buildings is a useful enterprises and the
amount of the license fee should therefore be limited to the cost of licensing, regulating, and suverveillance. It
appears that without the arcade the normal fee for the building permit would have been about P31, with the arcade
the fee exacted is P525.60. It does not appear tha the cost of licensing, regulaitng, and surveillance would be
materially increased through the construction of the arcade, and it is therefore clear that the excess fee is imposed
for the purpose of revenue

Theree is nothing in the character of the city of Manila indicating an intention on the part of the Legislature to confer
power on the Municipal Board to impose a license tax for revenue on the construction of buildings. The power
conferred in relation to such construction is considered merely as police power from which, as we have seen, taxing
power is not inferred. Under the circumstances, to hold the fee in this case valid would amount to judicial legislation,
particularly undesirable in the present instance where the Legislature, upon its attention being called to the matter,
would no doubt willingly grant as much power as could wisely be placed in the hands of the municipality.

The judgment of the Court of First Instance holding that the city of Manila has the power to require the construction
of arcades in certain circumstances but that the license fee prescribed by city Ordinance No. 301 is ilegal, is
therefore hereby affirmed. No costs will be allowed. So ordered.

17. CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,

vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY, THE
TARIFF COMMISSION, THE SECRETARY OF FINANCE, and THE ENERGY REGULATORY BOARD, respondents.

FELICIANO, J.:

On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any other duties, taxes and charges imposed by law on all
articles imported into the Philippines, an additional duty of five percent (5%) ad valorem. This additional duty was imposed across the board on all imported
articles, including crude oil and other oil products imported into the Philippines. This additional duty was subsequently increased from five percent (5%) ad
valorem to nine percent (9%) ad valorem by the promulgation of Executive Order No. 443, dated 3 January 1991.

On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process required by the Tariff and Customs Code for the imposition of
a specific levy on crude oil and other petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and Customs Code as
amended. Accordingly, the Tariff Commission, following the procedure set forth in Section 401 of the Tariff and Customs Code, scheduled a public hearing to give
interested parties an opportunity to be heard and to present evidence in support of their respective positions.

Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of additional duty on all imported articles from nine percent
(9%) to five percent (5%) ad valorem, except in the cases of crude oil and other oil products which continued to be subject to the additional duty of nine percent
(9%) ad valorem.

Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on Special Duty on Crude Oil and Oil Products" dated 16
August 1991, for consideration and appropriate action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which levied (in
addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other existing ad valorem duties) a special duty of P0.95 per liter or P151.05
per barrel of imported crude oil and P1.00 per liter of imported oil products.

In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive Orders Nos. 475 and 478. He argues that Executive
Orders Nos. 475 and 478 are violative of Section 24, Article VI of the 1987 Constitution which provides as follows:

Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.

He contends that since the Constitution vests the authority to enact revenue bills in Congress, the President may not assume such power by issuing
Executive Orders Nos. 475 and 478 which are in the nature of revenue-generating measures.

Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and Customs Code, which Section authorizes the President,
according to petitioner, to increase, reduce or remove tariff duties or to impose additional duties only when necessary to protect local industries or products
but not for the purpose of raising additional revenue for the government.

Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475 and 478, and asks us to restrain the implementation of
those Executive Orders. We will examine these questions in that order.

Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did not render the instant Petition moot and academic.
Executive Order No. 517 which is dated 30 April 1992 provides as follows:

Sec. 1. Lifting of the Additional Duty. — The additional duty in the nature of ad valorem imposed on all imported articles prescribed by the
provisions of Executive Order No. 443, as amended, is hereby lifted; Provided, however, that the selected articles covered by HS Heading
Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs Code, as amended, subject of Annex "A" hereof, shall continue to be subject
to the additional duty of nine (9%) percent ad valorem.

Under the above quoted provision, crude oil and other oil products continue to be subject to the additional duty of nine percent (9%) ad valorem under
Executive Order No. 475 and to the special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under Executive
Order No. 478.

Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff bills, like all other
bills is, of course, within the province of the Legislative rather than the Executive Department. It does not follow, however, that therefore Executive Orders Nos.
475 and 478, assuming they may be characterized as revenue measures, are prohibited to the President, that they must be enacted instead by the Congress of
the Philippines. Section 28(2) of Article VI of the Constitution provides as follows:

(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government. (Emphasis supplied)

There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such limitations and restrictions is [Congress] may impose" to
fix "within specific limits" "tariff rates . . . and other duties or imposts . . ."

The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104 and 401, the pertinent provisions thereof. These are the
provisions which the President explicitly invoked in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code provides in
relevant part:

Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import duty under Section 104 of Presidential Decree No.
34 and all subsequent amendments issued under Executive Orders and Presidential Decrees are hereby adopted and form part of this Code.

There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the Section under this section except as
otherwise specifically provided for in this Code: Provided, that, the maximum rate shall not exceed one hundred per cent ad valorem.

The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this Code shall be subject to periodic
investigation by the Tariff Commission and may be revised by the President upon recommendation of the National Economic and
Development Authority.

xxx xxx xxx

(Emphasis supplied)

Section 401 of the same Code needs to be quoted in full:

Sec. 401. Flexible Clause. —

a. In the interest of national economy, general welfare and/or national security, and subject to the limitations herein prescribed, the President,
upon recommendation of the National Economic and Development Authority (hereinafter referred to as NEDA), is hereby empowered: (1) to
increase, reduce or remove existing protective rates of import duty (including any necessary change in classification). The existing rates may
be increased or decreased but in no case shall the reduced rate of import duty be lower than the basic rate of ten (10) per cent ad valorem,
nor shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota
or to ban imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports not exceeding ten (10) per
cent ad valorem, whenever necessary; Provided, That upon periodic investigations by the Tariff Commission and recommendation of the
NEDA, the President may cause a gradual reduction of protection levels granted in Section One hundred and four of this Code, including
those subsequently granted pursuant to this section.

b. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this section, except in the imposition
of an additional duty not exceeding ten (10) per cent ad valorem, the Commission shall conduct an investigation in the course of which they
shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, produce evidence and to be
heard. The Commission shall also hear the views and recommendations of any government office, agency or instrumentality concerned. The
Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings.

c. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority
to modify the form of duty. In modifying the form of duty, the corresponding ad valorem or specific equivalents of the duty with respect to
imports from the principal competing foreign country for the most recent representative period shall be used as bases.

d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as filed in the Bureau of
Customs. The Commission or its duly authorized representatives shall have access to, and the right to copy all liquidated customs import
entries and other documents appended thereto as finally filed in the Commission on Audit.

e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section.

f. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (30) days after promulgation, except in
the imposition of additional duty not exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the President.
(Emphasis supplied)

Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and 401 of the Tariff and Customs Code, by contending that
the President is authorized to act under the Tariff and Customs Code only "to protect local industries and products for the sake of the national economy, general
welfare and/or national security." 2 He goes on to claim that:

E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local industries and products for the sake of national economy,
general welfare and/or national security. On the contrary, they work in reverse, especially as to crude oil, an essential product which we do
not have to protect, since we produce only minimal quantities and have to import the rest of what we need.
 These Executive Orders are avowedly solely to enable the government to raise government finances, contrary to Sections 24 and 28 (2) of
Article VI of the Constitution, as well as to Section 401 of the Tariff and Customs Code. 3 (Emphasis in the original)

The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of 401 of the Tariff and Customs Code that suggest such a
sharp and absolute limitation of authority. The entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1):
"existing protective rates of import duty," and the second in the proviso found at the end of Section 401 (a): "protection levels granted in Section 104 of this Code . .
. . " We believe that the words "protective" and ''protection" are simply not enough to support the very broad and encompassing limitation which petitioner seeks to
rest on those two (2) words.

In the second place, petitioner's singular theory collides with a very practical fact of which this Court may take judicial notice — that the Bureau of Customs which
administers the Tariff and Customs Code, is one of the two (2) principal traditional generators or producers of governmental revenue, the other being the Bureau of
Internal Revenue. (There is a third agency, non-traditional in character, that generates lower but still comparable levels of revenue for the government — The
Philippine Amusement and Games Corporation [PAGCOR].)

In the third place, customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising
and for regulatory purposes. 4 Thus, it has been held that "customs duties" is "the name given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign country." 5 The levying of customs duties on imported goods may have in some
measure the effect of protecting local industries — where such local industries actually exist and are producing comparable goods. Simultaneously, however, the
very same customs duties inevitably have the effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed
to achieve one policy objective only. Most commonly, customs duties, which constitute taxes in the sense of exactions the proceeds of which become public
funds 6 — have either or both the generation of revenue and the regulation of economic or social activity as their moving purposes and frequently, it is very difficult
to say which, in a particular instance, is the dominant or principal objective. In the instant case, since the Philippines in fact produces ten (10) to fifteen percent
(15%) of the crude oil consumed here, the imposition of increased tariff rates and a special duty on imported crude oil and imported oil products may be seen to
have some "protective" impact upon indigenous oil production. For the effective, price of imported crude oil and oil products is increased. At the same time, it
cannot be gainsaid that substantial revenues for the government are raised by the imposition of such increased tariff rates or special duty.

In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law, is a stiflingly narrow one. Section 401 of the Tariff and
Customs Code establishes general standards with which the exercise of the authority delegated by that provision to the President must be consistent: that
authority must be exercised in "the interest of national economy, general welfare and/or national security." Petitioner, however, insists that the "protection of local
industries" is the only permissible objective that can be secured by the exercise of that delegated authority, and that therefore "protection of local industries" is the
sum total or the alpha and the omega of "the national economy, general welfare and/or national security." We find it extremely difficult to take seriously such a
confined and closed view of the legislative standards and policies summed up in Section 401. We believe, for instance, that the protection of consumers, who after
all constitute the very great bulk of our population, is at the very least as important a dimension of "the national economy, general welfare and national security" as
the protection of local industries. And so customs duties may be reduced or even removed precisely for the purpose of protecting consumers from the high prices
and shoddy quality and inefficient service that tariff-protected and subsidized local manufacturers may otherwise impose upon the community.

It seems also important to note that tariff rates are commonly established and the corresponding customs duties levied and collected upon articles and goods
which are not found at all and not produced in the Philippines. The Tariff and Customs Code is replete with such articles and commodities: among the more
interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5, 5.14); Olives (Chapter 7, Notes); truffles or European fungi
growing under the soil on tree roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88,
88.0l); special diagnostic instruments and apparatus for human medicine and surgery (Chapter 90, Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed either for revenue purposes purely or perhaps, in certain
cases, to discourage any importation of the items involved. In either case, it is clear that customs duties are levied and imposed entirely apart from whether or not
there are any competing local industries to protect.

Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to be substantially moved by the desire to generate
additional public revenues, are not, for that reason alone, either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code.
Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those Executive Orders are entitled. 7

The conclusion we have reached above renders it unnecessary to deal with petitioner's additional contention that, should Executive Orders Nos. 475 and 478 be
declared unconstitutional and illegal, there should be a roll back of prices of petroleum products equivalent to the "resulting excess money not be needed to
adequately maintain the Oil Price Stabilization Fund (OPSF)." 8

WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby DISMISSED for lack of merit. Costs against petitioner.

SO ORDERED.

18. [G.R. No. 88291. June 8, 1993.]

 19. G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,

vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE
(BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.

Damasing Law Office for petitioner.

MENDOZA, J.:

This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and
enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members
of petitioner organization. 1

Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually
or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to
the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90,
copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and,
therefore, exempt from VAT at all stages of production or distribution.

Respondents represent departments of the executive branch of government charged with the generation of funds
and the assessment, levy and collection of taxes and other imposts.

The pertinent provision of the NIRC states:

Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added tax:

(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary
producer or the owner of the land where the same are produced;

(b) Sale or importation in their original state of agricultural and marine food products, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption, and
breeding stock and genetic material therefor;

Under §103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt from VAT
only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale
made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under
§103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or
distribution regardless of who the seller is.

The question is whether copra is an agricultural food or non-food product for purposes of this provision of the NIRC.
On June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in question, classifying copra
as an agricultural non-food product and declaring it "exempt from VAT only if the sale is made by the primary
producer pursuant to Section 103(a) of the Tax Code, as amended." 2

The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was
classified as an agricultural food product under §103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on
various grounds, which will be presently discussed although not in the order raised in the petition for prohibition.

First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the
competent government agency to determine the proper classification of food products. Petitioner cites the opinion of
Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be considered "food" because it
is produced from coconut which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with the
implementation and interpretation of the tax laws, is entitled to great respect.

We agree with respondents. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue
gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of copra as food was
based on "the broader definition of food which includes agricultural commodities and other components used in the
manufacture/processing of food." The full text of his letter reads:

10 April 1991

Mr. VICTOR A. DEOFERIO, JR.

Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City

Dear Mr. Deoferio:

This is to clarify a previous communication made by this Office about copra in a letter dated 05
December 1990 stating that copra is not classified as food. The statement was made in the context
of BFAD's regulatory responsibilities which focus mainly on foods that are processed and packaged,
and thereby copra is not covered.

However, in the broader definition of food which include agricultural commodities and other
components used in the manufacture/ processing of food, it is our opinion that copra should be
classified as an agricultural food product since copra is produced from coconut meat which is food
and based on available information, more than 80% of products derived from copra are edible
products.

Very truly yours,

QUINTIN L.
KINTANAR, M.D.,
Ph.D.
Director
Assistant Secretary of
Health for Standards
and Regulations

Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling
was made by the Commissioner of Internal Revenue in the exercise of his power under § 245 of the NIRC to "make
rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings
on the classification of articles for sales tax and similar purposes."

Second. Petitioner complains that it was denied due process because it was not heard before the ruling was made.
There is a distinction in administrative law between legislative rules and interpretative rules. 3 There would be force
in petitioner's argument if the circular in question were in the nature of a legislative rule. But it is not. It is a mere
interpretative rule.

The reason for this distinction is that a legislative rule is in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details thereof. In the same way that laws must have the benefit of
public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this
connection, the Administrative Code of 1987 provides:
 Public Participation. — If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to submit
their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have
been published in a newspaper of general circulation at least two (2) weeks before the first hearing
thereon.

(3) In case of opposition, the rules on contested cases shall be observed. 4

In addition such rule must be published.5 On the other hand, interpretative rules are designed to provide guidelines
to the law which the administrative agency is in charge of enforcing.

Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the
delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued
pursuant to proper procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of
the rule for the legislative body, by its delegation of administrative judgment, has committed those questions to
administrative judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the
validity but into the correctness or propriety of the rule. As a matter of power a court, when confronted with an
interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its
judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule. 6

In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an
"agricultural food product" within the meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra per
se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food." That
previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The
Commissioner of Internal Revenue is not bound by the ruling of his predecessors. 7 To the contrary, the overruling of
decisions is inherent in the interpretation of laws.

Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of
the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not,
although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT
payment of traders and dealers.

The argument has no merit. There is a material or substantial difference between coconut farmers and copra
producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the
latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a
reasonable basis for classifying them differently. 8

It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC, they are subject to 10% VAT on
the sale of services. Under § 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by
traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT
exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by
other traders and dealers, but there is no tax credit if the sale is made by the producer.

Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to
buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly diminished.

This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary
producer or owner of the land from which the same is produced, but in the case of agricultural food products their
sale in their original state is exempt at all stages of production or distribution. At any rate, the argument that the
classification of copra as agricultural non-food product is counterproductive is a question of wisdom or policy which
should be addressed to respondent officials and to Congress.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

20. Philippines Airlines, Inc. v. Secretary of Finance, et al GR115852, Oct 30, 1995

21. G.R. No. L-24813 April 28, 1969

DR. HERMENEGILDO SERAFICA, plaintiff-appellant,

vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C.
CONEJOS, as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.

Cleto P. Evangelista for plaintiff-appellant.

The City Fiscal of Ormoc City for defendant-appellees.

CONCEPCION, C.J.:

Direct appeal from a decision of the Court of First Instance of Leyte dismissing plaintiff's complaint, without
pronouncement as to costs.

Plaintiff, Dr. Hermenegildo Serafica, seeks a declaration of nullity of Ordinance No. 13, Series of 1964, of Ormoc
City, imposing a "tax of five pesos (P5.00) for every one thousand (1,000) board feet of lumber sold at Ormoc City
by any person, partnership, firm, association, corporation, or entities", pursuant to which the Treasurer of said City
levied on and collected from said plaintiff, as owner of the Serafica Sawmill, the aggregate sum of P1,837.84, as tax
on 367,568 board feet of lumber sold, in said City, during the third quarter of 1964. After appropriate proceedings,
the lower court rendered judgment upholding the validity of said ordinance and denying the relief prayed for by Dr.
Serafica. Hence, this appeal by the latter.

The contested ordinance reads:

ORDINANCE NO. 13

AN ORDINANCE IMPOSING A TAX OF FIVE PESOS (P5.00) FOR EVERY ONE THOUSAND
BOARD FEET OF LUMBER SOLD AT ORMOC CITY AND FOR OTHER PURPOSES.

BE IT ORDAINED, by authority of the Municipal Board of Ormoc City, Philippines, pursuant to the
provisions of Republic Act 179, as amended by RA 429, otherwise known as the Charter of Ormoc
City, That:

SECTION 1. City tax. — There shall be paid to the City Treasurer a city tax of five pesos (P5.00) for
every one thousand (1,000) board feet of lumber sold at Ormoc City by any person, partnership,
firm, association, corporation or entity.

SECTION 2. Time and manner of payment and penalty for delinquency. — The city tax herein
prescribed shall be payable without penalty within twenty (20) days after the close of every quarter
for which the tax is due. Failure to pay the tax within the prescribed time shall render the taxpayer
subject to a surcharge of fifty percentum (50%) for the first offense and one hundred percentum
(100%) for subsequent failures to pay within the prescribed period.

SECTION 3. Payment to be rendered by taxpayer. — The taxpayer is hereby obliged to include the
tax due in every invoice issued for the sale of lumber which tax shall be submitted for payment to the
City Treasurer within twenty (20) days after the close of every quarter.

SECTION 4. Inspection of taxpayer's books and records. — For the purpose of enforcing the
provisions of this Ordinance, the City Treasurer or any of his deputies specifically authorized in
writing for the purpose, shall have authority to examine the books and records of any person,
 partnership, firm, association, corporation or entity subject to the tax herein imposed, PROVIDED,
HOWEVER, That such examination shall be made only during regular business hours, unless the
person, partnership, firm, association, corporation or entity concerned shall consent otherwise.

SEC. 5. Penalty for violation. — Any violation of the provisions of the Ordinance shall be punishable
by a fine of not more than five hundred (P500.00) pesos and an imprisonment of not more than three
(3) months.

SEC. 6. Construction of this Ordinance. — If any part or section of this Ordinance shall be declared
unconstitutional or ultra vires, such part or section shall not invalidate any other provision hereof.

SEC. 7. Effectivity. — This Ordinance shall take effect immediately upon approval. ENACTED, June
17, 1964. lawphi1.nêt

RESOLVED, FURTHER, to authorize the City Treasurer to copies of this Ordinance for issuance to
all concerned;

RESOLVED, FINALLY, to furnish a copy of this resolution-ordinance each to the City Treasurer, the
City Auditor, the City Fiscal, the City Judge, and all concerned;

CARRIED. Six affirmative votes registered by Councilors Tugonon, Alfaro, Kierulf, Abas, Besabella,
and Du; one abstention registered by Councilor Aviles.

xxx xxx xxx

Plaintiff assails this ordinance as null and void upon the grounds that: (1) the Charter of Ormoc City (Republic Acts
Nos. 179 and 429) authorizes the same to "regulate", but not to "tax" lumber yards; (2) the ordinance in question
imposes, in effect, double taxation, because the business of lumberyard is already regulated under said Charter and
the sale of lumber is "a mere incident to the business of lumber yard"; (3) the tax imposed is "unfair, unjust, arbitrary,
unreasonable, oppressive and contrary to the principles of taxation"; and (4) "the public was not heard and given a
chance to air its views" thereon.

With respect to the first ground, We have held in Ormoc Sugar Co. v. Municipal Board of Ormoc City, 1 that the
taxing power of the City of Ormoc, under section 2 of the Local Autonomy Act 2 is "broad" and "sufficiently plenary to
cover everything, excepting those mentioned therein". 3 It should be noted that in said case of Ormoc Sugar Co., We
upheld the validity of a sales tax.

As regards the second ground, suffice it to say that regulation and taxation are two different things, the first being an
exercise of police power, whereas the latter is not, apart from the fact that double taxation is not prohibited in the
Philippines. 4

The third objection is premised upon the fact that the tax in question is imposed regardless of the class of lumber
sold, although there are several categories thereof, commanding different prices. Plaintiff has not proven, however,
or even alleged the prices corresponding to each category, so that, like the lower court, We have no means to
ascertain the accuracy of the conclusion drawn by him, and must, accordingly, rely upon the presumption that the
City Council had merely complied with its duty and that the ordinance is valid, unless and until the contrary has been
duly established. 5

The last objection is based upon Provincial Circular No. 24 of the Department of Finance, dated March 31,
1960, suggesting that, "in the enactment of tax ordinances .. under the Local Autonomy Act ... where practicable,
public hearings be held wherein the views of the public ... may be heard." This is, however, a mere suggestion,
compliance with which is not obligatory, so that failure to act in accordance therewith can not and does not affect the
validity of the tax ordinance.

Indeed, since local governments are subject, not to the control, but merely to the general supervision of the
President, it is to say the least, doubtful that the latter could have made compliance with said circular obligatory. 6
We have not overlooked the fact that, pursuant to Sec. 2 of Republic Act No. 2264 as amended "no city, municipality
or municipal district may levy or impose ...

xxx xxx xxx

(e) Taxes on forest products or forest concessions."

Although lumber is a forest product, this imitation has no application to the case at bar, the tax in question being
imposed, not upon lumber, but upon its sale. Said tax is not levied upon the lumber in plaintiff's sawmill and does
not become due until after the lumber has been sold. Hence, the case at bar is distinguishable from Golden Ribbon
Lumber Co., Inc. v. City of Butuan 7 in that the ordinance involved therein provided that "every person, association or
corporation operating a lumber mill and/or lumber yard within the territory of the City of Butuan shall pay to the City a
tax of two-fifths (P.004) centavo for every board foot of lumber sawn, manufactured and/or produced." In short, the
tax in that case was imposed upon the "lumber" — a forest product, not subject to local taxation — whether sold or
not. Similarly, Santos Lumber Co. v. City of Cebu 8 and Jose S. Johnston & Sons v. Ramon Regondola 9 cited by the
plaintiff, refer to situations arising before the enactment of Republic Act No. 2264, 10 and, hence, are inapplicable to
the present case.

Neither have We overlooked the proviso in Sec. 2 of said Act prohibiting the imposition of "any percentage tax on
sales or other taxes in any form based thereon," for this injunction is directed exclusively to "municipalities and
municipal districts," and does not apply to cities.

WHEREFORE, the decision appealed from should be, as it is hereby affirmed, with costs against plaintiff herein. It is
so ordered.

22. G.R. No. L-16315 May 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HAWAIIAN-PHILIPPINE COMPANY, respondent.

Office of the Solicitor General for petitioner.

Hilado and Hilado for respondent.

DIZON, J.:

This is a petition filed by the Commissioner of Internal Revenue for the review of the decision of the Court of Tax
Appeals in C.T.A. Case No. 598 ordering him to refund to respondent Hawaiian-Philippine Company the amount of
P8,411.99 representing fixed and percentage taxes assessed against it and which the latter had deposited with the
City Treasurer of Silay, Occidental Negros.

The undisputed facts of this ease, as found by the Court of Tax Appeals, are as follows:

The petitioner, a corporation duly organized in accordance with law, is operating a sugar central in the City
of Silay, Occidental Negros. It produces centrifugal sugar from sugarcane supplied by planters. The
processed sugar is divided between the planters and the petitioner in the proportion stipulated in the milling
contracts, and thereafter is deposited in the warehouses of the latter. (Pp. 4-5, t.s.n.) For the sugar
deposited by the planters, the petitioner issues the corresponding warehouse receipts of "quedans". It does
not collect storage charges on the sugar deposited in its warehouse during the first 90 days period counted
from the time it is extracted from the sugarcane. Upon the lapse of the first ninety days and up to the
beginning of the next milling season, it collects a fee of P0.30 per picul a month. Henceforth, if the sugar is
not yet withdrawn, a penalty of P0.25 per picul or fraction thereof a month is imposed. (Exhibits "B-1", "C-1",
"D-1", "B-2", "C-2", p. 10, t.s.n.)

The storage of sugar is carried in the books of the company under Account No. 5000, denominated
"Manufacturing Cost Ledger Control"; the storage fees under Account No. 521620; the expense accounts of
the factory under Account No. 5200; and the so-called "Sugar Bodega Operations" under Account No. 5216,
 under which is a Sub-Account No. 20, captioned, "Credits". (Pp. 16-17, t.s.n., Exhibit "F".) The collections
from storage after the lapse of the first 90 days period are entered in the company's books as debit to
CASH, and credit to Expense Account No. 2516-20 (p. 18, t.s.n.).

The credit for storage charges decreased the deductible expense resulting in the corresponding increase of
the taxable income of the petitioner. This is reflected by the entries enclosed in parenthesis in Exhibit "G",
under the heading "Storage Charges". (P. 18, t.s.n.) The alleged reason for this accounting operation is that,
inasmuch as the "Sugar Bodega Operations" is considered as an expense account, entries under it are
"debits". Similarly, since "Storage Charges" constitute "credit", the corresponding figures (see Exhibit "C")
are enclosed in parenthesis as they decrease the expenses of maintaining the sugar warehouses.

Upon investigation conducted by the Bureau, it was found that during the years 1949 to 1957, the petitioner
realized from collected storage fees a total gross receipts of P212,853.00, on the basis of which the
respondent determined the petitioner's liability for fixed and percentage taxes, 25% surcharge, and
administrative penalty in the aggregate amount of P8,411.99 (Exhibit "5", p. 11, BIR rec.)

On October 20, 1958, the petitioner deposited the amount of P8,411.99 with the Office of the City Treasurer
of Silay. (Exhibits "I" and "I-1", pp. 59-60, CTA rec.) Later, it filed its petition for review before this Court
(Exhibit "K", p. 25, CTA rec.)

After due hearing the Court of Tax Appeals rendered the appealed decision.

The only issue to be resolved in the case at bar is whether or not, upon the facts stated above, petitioner is a
warehouseman liable for the payment of the fixed and percentage taxes prescribed in Sections 182 and 191 of the
National Internal Revenue Code which read as follows:

SEC. 182. FIXED TAXES — (a) ON BUSINESS (1) PERSONS SUBJECT TO PERCENTAGE TAX. —
Unless otherwise provided every person engaging in a business on which the percentage tax is imposed
shall pay a fixed annual tax of twenty pesos. ... .

SEC. 191. PERCENTAGE TAX ON ROAD, BUILDING, IRRIGATION, ARTESIAN WELL, WATERWORKS,
AND OTHER CONSTRUCTION WORK CONTRACTORS, PROPRIETORS OR OPERATORS OF
DOCKYARD, AND OTHERS. ... warehousemen; plumbers, smiths; house or sign painters; lithographers,
publishers, except those engaged in the publication or printing and publication of any newspaper, magazine,
review or bulletin which appear at regular intervals with fixed prices for subscription and sale, and which is
not devoted principally to the publication of advertisements; printers and bookbinders, business agents and
other independent contractors, shall pay a tax equivalent to THREE PERCENTUM of their gross receipts. ...
.

Respondent disclaims liability under the provisions quoted above, alleging that it is not engaged the business of
storing its planters' sugar for profit; that the maintenance of its warehouses is merely incidental to its business of
manufacturing sugar and in compliance with its obligation to its planters. We find this to be without merit.

It is clear from the facts of the case that, after manufacturing the sugar of its planters, respondent stores it in its
warehouses and issues the corresponding "quedans" to the planters who own the sugar; that while the sugar is
stored free during the first ninety days from the date the it "quedans" are issued, the undisputed fact is that, upon
the expiration of said period, respondent charger, and collects storage fees; that for the period beginning 1949 to
1957, respondent's total gross receipts from this particular enterprise amounted to P212,853.00.

A warehouseman has been defined as one who receives and stores goods of another for compensation (44 Words
and Phrases, p. 635). For one to be considered engaged in the warehousing business, therefore, it is sufficient that
he receives goods owned by another for storage, and collects fees in connection with the same. In fact, Section 2 of
the General Bonded Warehouse Act, as amended, defines a warehouseman as "a person engaged in the business
of receiving commodity for storage."
That respondent stores its planters' sugar free of charge for the first ninety days does not exempt it from liability
under the legal provisions under consideration. Were such fact sufficient for that purpose, the law imposing the tax
would be rendered ineffectual. 1äw phï1.ñët

Neither is the fact that respondent's warehousing business is carried in addition to, or in relation with, the operation
of its sugar central sufficient to exempt it from payment of the tax prescribed in the legal provisions quoted
heretofore Under Section 178 of the National Internal Revenue Code, the tax on business is payable for every
separate or distinct establishment or place where business subject to the tax is conducted, and one line of business
or occupation does not become exempt by being conducted with some other business or occupation for which such
tax has been paid.

Lastly, respondent's contention that the imposition of the tax under consideration would amount to double taxation is
likewise without merit. As is clear from the facts, respondent's warehousing business, although carried on in relation
to the operation of its sugar central, is a distinct and separate business taxable under a different provision of the Tax
Code. There can be no double taxation where the State merely imposes a tax on every separate and distinct
business in which a party is engaged. Moreover, in Manufacturers Life insurance Co. vs. Meer, G.R. No. L-2910,
June 29, 1951; City of Manila vs. Inter-Island Gas service, G.R. L-8799, August 31, 1956, We have ruled that there
is no prohibition against double or multiple taxation in this jurisdiction.

WHEREFORE, the decision appealed from is reversed and set aside, with costs.

23. G.R. No. L-16619 June 29, 1963

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,

vs.
CITY OF MANILA, ET AL., defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.

City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-appellants.

DIZON, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund the
sum of P15,280.00 to Compania General de Tabacos de Filipinas.

Appellee Compania General de Tabacos de Filipinas — hereinafter referred to simply as Tabacalera — filed this
action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino
Sarmiento — also hereinafter referred to as the City — the sum of P15,280.00 allegedly overpaid by it as taxes on
its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957,
inclusive, under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license
fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer
of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816. 1äwphï1.ñët

In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954
to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not denied
that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the action
represents the tax corresponding to the liquor sales aforesaid.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the
license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos.
3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it — amounting
to the sum of P15,208.00 — under the three ordinances mentioned heretofore is an overpayment made by mistake,
and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or engage
in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay the license fees prescribed by Ordinance
No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; that, even assuming that
Tabacalera is not subject to the payment of the sales taxes prescribed by the said three ordinances as regards
itsliquor sales, it is not entitled to the refund demanded for the following reasons:.

(a) The said amount was paid by the plaintiff voluntarily and without protest;

(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the
plaintiff's neglect of duty; .

(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to
the consumers; and

(d) The said amount had been already expended by the defendant City for public improvements and
essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the
plaintiff.

It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under
Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No. 3420, and City Ordinance
No. 3816, amending City Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the
regulations marked Exhibit A, according to which, the term "general merchandise as used in said ordinances,
includes all articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these,
Sections 133-135 included liquor among the taxable articles. Pursuant to said regulations, Tabacalera included its
sales of liquor in its sworn quarterly declaration submitted to the City Treasurer beginning from the third quarter of
1954 to the second quarter of 1957, with a total value of P722,501.09 and correspondingly paid a wholesaler's tax
amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of P15,208.00 — the amount sought
to be recovered.

It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo
and Co., an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax
under City Ordinance No. 3358 are not subject to the wholesale and retail dealers' taxes prescribed by City
Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee stopped including its sales of liquor
in its quarterly sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and
3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged
overpayment. As the claim was disallowed, the present action was instituted.

The term "tax" applies — generally speaking — to all kinds of exactions which become public funds. The term is
often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are
commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former
is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing
power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business
of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its
charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally
manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for
purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least,
harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and
municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general
merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of
its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside from this, we
have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31, 1956, that the word
"merchandise" refers to all subjects of commerce and traffic; whatever is usually bought and sold in trade or market;
goods or wares bought and sold for gain; commodities or goods to trade; and commercial commodities in general.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is
collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in
which — it is obvious — not anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned
heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is
already settled in this connection that both a license fee and a tax may be imposed on the same business or
occupation, or for selling the same article, this not being in violation of the rule against double taxation (Bentley Gray
Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd
Edition, p. 83). This is precisely the case with the ordinances involved in the case at bar.

Appellee's contention that the City is repudiating its previous view — expressed by its Treasurer in a letter
addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 — that a liquor dealer who pays the annual license fee
under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes under the other three ordinances
mentioned heretofore is of no consequence. The government is not bound by the errors or mistakes committed by
its officers, specially on matters of law.

Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points raised by the
City.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is hereby
dismissed, with costs.

24. [ GR No. L-20312, Feb 26, 1972 ]

SAN MIGUEL BREWERY v. CITY OF CEBU +

CONCEPCION, C.J.:

The above-entitled cases are jointly disposed of in this decision owing to the common
issue therein namely, the extent of the taxing power of municipal corporations under
section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act.
In L-20312, plaintiff San Miguel Brewery, Inc. hereinafter referred to as SMB assails
the validity of Ordinance No. 298, as amended by Ordinance No. 300, both series of
1960, of the City of Cebu, providing that "(t)here shall be collected on any sale or
disposal of liquor or intoxicating beverages of any form in the City of Cebu by
manufacturers and wholesalers for purposes of a municipal tax the following rates:
"(a) On sales or disposal per bottle or container not exceeding P.50, a tax of P.03;
"(b) On sales or disposal per bottle or container over P.50, but not exceeding P1, a tax
of P.05;
"(c) On sales or disposal per bottle or container over P1, but not exceeding P2, a tax of
P.15;
"(d) On sales or disposal per bottle or container exceeding P2, the amount of tax
provided under schedule C, plus P.10 per P1, or a fraction thereof.
"PROVIDED, however, that manufacturers, who are at the same time wholesalers of
their own product, shall pay only as manufacturers under the rates specified
hereinabove."
Pursuant, to said ordinance, the SMB, which is engaged in the manufacture, bottling,
distribution and sale of beer throughout the Philippines, including the defendant Cebu
City, paid thereto, under protest, on April 20, 1961, the sum of P29,874.69, the refund
of which is prayed for in the complaint herein, upon the ground that said ordinance
is ultra vires, for imposing a sales tax, which is allegedly beyond defendant's power to
levy, apart from resulting in illegal double taxation, since SMB already pays the
defendant a business license tax of P600 per annum. The Court of First Instance of
Manila having rendered judgment dismissing the complaint, with costs, plaintiff seeks
a review by record on appeal.
In L-20496, the Cebu Portland Cement Company Cebu Portland for short seeks to
annul Ordinance No. 22, series of 1959, of the Municipality of Naga, Cebu, imposing
upon "all cement factories, corporations, or enterprises operating within" said
municipality "an annual municipal license tax payable quarterly, graduated according
to the "maximum annual output capacity" of the factory, as follows P150 if the capacity
is not more than 10.000 bags of cement P300 it over 10,000 but not more than 20.000
bags P450, if over 20,000 but not more than 30,000 bags; P600, if over 30,000 but
not more than 40,000 bags; P750 if over 40,000 but not more than 50,000 bags;
P900, if over 50,000 but not more than 60,000 bags; and P75 for every P5,000 bags or
fraction thereof of an excess of 60,000 bags.
Having failed to pay said tax for the years 1960 and 1961 and the corresponding
penalties therefor, 100,000 bags of cement of Cebu Portland were placed under
distraint and levy by the municipal treasurer of Naga. This triggered the filing by Cebu
Portland of two (2) actions, namely: 1) one to impugn the validity of the distraint and
then the sale of said 100,000 bags of cement, both of which were, in due course, upheld
by the Court of First Instance of Manila, the decision of which was, on appeal, affirmed
by Us;[1] and 2) the present case, to annul said ordinance and secure the refund of
P44,000, subsequently paid under protest by Cebu Portland, in partial satisfaction of
its tax liability, which said plaintiff contests as illegal upon the theory that it partakes of
the nature of a specific tax and that it is allegedly unjust, excessive, oppressive and
confiscatory. The defendants having obtained a favorable judgment in the Court of
First instance of Manila Cebu Portland appealed by record on appeal.
Said section 2 of Republic Act No. 2264 reads as follows:
"SEC. 2 Taxation. Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or exercising
privileges in chartered cities, municipalities or municipal districts by requiring them to
secure licenses at rates fixed by the municipal board or city council of the city, the
municipal council of the municipality, or the municipal district council of the municipal
district; to collect fees and charges for services rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being conducted within the
city, municipality or municipal district and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees; Provided, That municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or other taxes in any form
based thereon nor impose taxes on articles subject to specific tax, except gasoline,
under the provisions of the national internal revenue code: Provided,however, That no
city municipality or municipal district may levy or impose any of the following:
"(a) Residence tax;
"(b) Documentary stamp tax;
"(c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having
fixed prices for subscription and sale, and which is not published primarily for the
purpose of publishing advertisements;
"(d) Taxes on persons operating waterworks, irrigation and other public utilities except
electric light, heat and power;
"(e) Taxes on forest products and forest concessions;
"(f) Taxes on estates, inheritances, gifts, legacies, and other acquisitions mortis causa;
"(g) Taxes on income of any kind whatsoever;
"(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof;
"(i) Customs duties registration, wharfage on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and dues;
"(j) Taxes of any kind on banks, insurance companies, and persons paying franchise
tax; and
"(k) Taxes on premiums paid by owners of property who obtain insurance directly with
foreign insurance companies."
Referring to the above provision, this Court declared in Nin Bay Mining Co. vs.
Municipality of Roxas, Palawan,[2] that "Republic Act No. 2264 confers upon all
chartered cities, municipalities and municipal districts the general power to levy, not
only taxes, but, also, municipal license taxes, subject to specified exceptions, as well as
service fees." Subsequently, Luzon Surety Co., Inc. vs. City of Bacolod[3] cited with
approval the fact that this Court had consistently upheld the "doctrine that the grant of
the power to tax to chartered cities under section 2 of the Local Autonomy Act
is sufficiently plenary to cover everything excepting those which are mentioned
therein, subject only to the limitation that the tax so levied is for public purposes, just
and uniform."[4]
Appellant in L-20312 questions the conclusions reached in the decision appealed from,
to the effect that the first proviso in the above-quoted provision, prohibiting "munici-
palities and municipal districts" from imposing "any percentage tax on sales or other
taxes in any form based thereon," implies that cities, like appellee therein, are not
subject to said restriction, and that the contested ordinance is not invalid upon the
ground of double taxation.
We find no merit in this pretense, for: (a) double taxation is not prohibited by the
Constitution;[5] (b) there is double taxation when the same person is taxed by the same
jurisdiction for the same purpose,[6] which is not the case in L-20312, for the ordinance
in question imposes a tax on the sale or disposal of every "bottle or container" of
"liquor or intoxicating beverages," and, as such, is a typical tax or revenue measure,
whereas the sum of P600 it pays annually is for a "second-class wholesale liquor
license," which is a license to engage in the business of wholesale liquor in Cebu City,
and, accordingly, constitutes a regulatory measure, in the exercise of the police
power:[7] and (c) the authority of cities under the above-quoted section 2 of Rep. Act
No. 2264, to impose a sales tax has already been upheld in City of Bacolod vs.
Gruet[8] and Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. City of Butuan,[9] and
We find no plausible reason to depart from said view.
Neither is there any merit in the contention of Cebu Portland in L-20496, to the effect
that the tax involved therein partakes of the nature of a percentage or sales tax or a
specific tax, merely because the amount of the tax is dependent upon the maximum
annual capacity of the cement factory subject thereto. Settled is the rule that a
graduation of the tax based upon the taxpayer's volume of business, when the same is
considered solely for purposes of classification, and there is no set ratio between said
volume and the amount of the tax, does not render the latter invalid as a sales,
percentage or specific tax. Thus, in Northern Philippines Tobacco Corporation vs.
Municipality of Agoo, La Union[10] We held:
"The circumstance that the rate of tax payable under the ordinance is made to some
extent dependent on the minimum and maximum quantity of tobacco redried per
quarter, does not transform said tax into a percentage or sales or income tax and does
not bring the case out of the council's authorized sphere of action. It may be noted
that, as framed in the ordinance, the volume of business is merely taken into account in
classifying the taxpayer's business according to its size or extent of operations, for the
purpose of imposing the fixed graduated tax it has to pay; and that there is no set ratio
between the tax and the amount of tobacco redried."
This criterion was, also, adhered to in Nin Bay Mining Co. vs. Municipality of
Roxas,[11] Li Seng Gap vs. Municipality of Daet,[12]Standard-Vacuum Oil Co. vs.
Antigua,[13] Shell Co. of P.1 vs. Vaño,[14] Syjuco vs. Municipality of
Parañaque,[15] Marinduque Iron Mines Agents, lnc. vs. Municipal Council of
Hinabangan,[16] and Victorias Milling Co., Inc., vs. Municipality of Victorias.[17]
For the rest, Cebu Portland has not introduced any evidence in support of its claim that
the tax in question is excessive, oppressive, and confiscatory. Hence, this objection
cannot be sustained for:
"An ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitive. A rule which has
gained acceptance is that factors relevant to such an inquiry are the municipal
conditions as a whole and the nature of the business made subject to imposition."[18]
In Northern Philippines Tobacco Corporation vs. Municipality of Agoo,[19] a similar
charge was disposed of in the following language:
"We find nothing in the record, however, to support such charge. Appellant has failed
to present proof of the existing municipal conditions and the nature of its business, as
well as other factors that would have been relevant to the issue of the arbitrariness or
unreasonableness of the questioned rates. An increase in the rate of tax alone would
not support the claim that it is oppressive, unjust and confiscatory; municipal
corporations are allowed much discretion in determining the rates of imposable license
fees, even in cases of purely police power-measures."
WHEREFORE , the decisions appealed from should be and are hereby affirmed, with
costs against plaintiffs-appellants San Miguel Brewery, Inc. and Cebu Portland Cement
Company.
SO ORDERED.

25. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF

COMMERCE, respondent.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals (CA)
[1]

in CA-G.R. SP No. 52706, affirming the ruling of the Court of Tax Appeals (CTA) in CTA
[2]

Case No. 5415.

The facts of the case are undisputed.
In 1994 and 1995, the respondent Bank of Commerce derived passive income in the
form of interests or discounts from its investments in government securities and private
commercial papers. On several occasions during the said period, it paid 5% gross receipts
tax on its income, as reflected in its quarterly percentage tax returns. Included therein
were the respondent banks passive income from the said investments amounting
to P85,384,254.51, which had already been subjected to a final tax of 20%.
 Meanwhile, on January 30, 1996, the CTA rendered judgment in Asia Bank
Corporation v. Commissioner of Internal Revenue, CTA Case No. 4720, holding that the
20% final withholding tax on interest income from banks does not form part of taxable
gross receipts for Gross Receipts Tax (GRT) purposes. The CTA relied on Section 4(e) of
Revenue Regulations (Rev. Reg.) No. 12-80.
Relying on the said decision, the respondent bank filed an administrative claim for
refund with the Commissioner of Internal Revenue on July 19, 1996. It claimed that it had
overpaid its gross receipts tax for 1994 to 1995 by P853,842.54, computed as follows:

Gross receipts subjected to

Final Tax Derived from Passive
Investment P85,384,254.51
x 20%
20% Final Tax Withheld 17,076,850.90
at Source x 5%
P 853,842.54

Before the Commissioner could resolve the claim, the respondent bank filed a petition
for review with the CTA, lest it be barred by the mandatory two-year prescriptive period
under Section 230 of the Tax Code (now Section 229 of the Tax Reform Act of 1997).
In his answer to the petition, the Commissioner interposed the following special and
affirmative defenses:

5. The alleged refundable/creditable gross receipts taxes were collected and paid pursuant to law
and pertinent BIR implementing rules and regulations; hence, the same are not refundable.
Petitioner must prove that the income from which the refundable/creditable taxes were paid from,
were declared and included in its gross income during the taxable year under review;

6. Petitioners allegation that it erroneously and excessively paid its gross receipt tax during the year
under review does not ipso facto warrant the refund/credit. Petitioner must prove that the
exclusions claimed by it from its gross receipts must be an allowable exclusion under the Tax Code
and its pertinent implementing Rules and Regulations. Moreover, it must be supported by evidence;

7. Petitioner must likewise prove that the alleged refundable/creditable gross receipt taxes were
neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the
succeeding year nor included as creditable taxes declared and applied to the succeeding taxable
year/s;

8. Claims for tax refund/credit are construed in strictissimi juris against the taxpayer as it partakes
the nature of an exemption from tax and it is incumbent upon the petitioner to prove that it is
entitled thereto under the law. Failure on the part of the petitioner to prove the same is fatal to its
claim for tax refund/credit;

9. Furthermore, petitioner must prove that it has complied with the provision of Section 230 (now
Section 229) of the Tax Code, as amended. [3]
 The CTA summarized the issues to be resolved as follows: whether or not the final
income tax withheld should form part of the gross receipts of the taxpayer for GRT
[4]

purposes; and whether or not the respondent bank was entitled to a refund
of P853,842.54. [5]

The respondent bank averred that for purposes of computing the 5% gross receipts
tax, the final withholding tax does not form part of gross receipts. On the other hand,
[6]

while the Commissioner conceded that the Court defined gross receipts as all receipts of
taxpayers excluding those which have been especially earmarked by law or regulation for
the government or some person other than the taxpayer in CIR v. Manila Jockey Club,
Inc., he claimed that such definition was applicable only to a proprietor of an amusement
[7]

place, not a banking institution which is an entirely different entity altogether. As such,
according to the Commissioner, the ruling of the Court in Manila Jockey Club was
inapplicable.
In its Decision dated April 27, 1999, the CTA by a majority decision partially granted
[8]

the petition and ordered that the amount of P355,258.99 be refunded to the respondent
bank. The fallo of the decision reads:

WHEREFORE, in view of all the foregoing, respondent is hereby ORDERED to REFUND in

favor of petitioner Bank of Commerce the amount of P355,258.99 representing validly proven
erroneously withheld taxes from interest income derived from its investments in government
securities for the years 1994 and 1995.
[9]

In ruling for respondent bank, the CTA relied on the ruling of the Court in Manila
Jockey Club, and held that the term gross receipts excluded those which had been
especially earmarked by law or regulation for the government or persons other than the
taxpayer. The CTA also cited its rulings in China Banking Corporation
v. CIR and Equitable Banking Corporation v. CIR.
[10] [11]

The CTA ratiocinated that the aforesaid amount of P355,258.99 represented the claim
of the respondent bank, which was filed within the two-year mandatory prescriptive period
and was substantiated by material and relevant evidence. The CTA applied Section
204(3) of the National Internal Revenue Code (NIRC). [12]

The Commissioner then filed a petition for review under Rule 43 of the Rules of Court
before the CA, alleging that:

(1) There is no provision of law which excludes the 20% final income tax withheld under
Section 50(a) of the Tax Code in the computation of the 5% gross receipts tax.

(2) The Tax Court erred in applying the ruling in Collector of Internal Revenue vs. Manila
Jockey Club (108 Phil. 821) in the resolution of the legal issues involved in the instant
case. [13]

The Commissioner reiterated his stand that the ruling of this Court in Manila Jockey
Club, which was affirmed in Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal
Revenue, is not decisive. He averred that the factual milieu in the said case is different,
[14]

involving as it did the wager fund. The Commissioner further pointed out that in Manila
Jockey Club, the Court ruled that the race tracks commission did not form part of the
gross receipts, and as such were not subjected to the 20% amusement tax. On the other
hand, the issue in Visayan Cebu Terminal was whether or not the gross receipts
corresponding to 28% of the total gross income of the service contractor delivered to the
Bureau of Customs formed part of the gross receipts was subject to 3% of contractors tax
under Section 191 of the Tax Code. It was further pointed out that the respondent bank,
on the other hand, was a banking institution and not a contractor. The petitioner insisted
that the term gross receipts is self-evident; it includes all items of income of the
respondent bank regardless of whether or not the same were allocated or earmarked for a
specific purpose, to distinguish it from net receipts.
On August 14, 2001, the CA rendered judgment dismissing the petition. Citing
Sections 51 and 58(A) of the NIRC, Section 4(e) of Rev. Reg. No. 12-80 and the ruling of
[15]

this Court in Manila Jockey Club, the CA held that the P17,076,850.90 representing the
final withholding tax derived from passive investments subjected to final tax should not be
construed as forming part of the gross receipts of the respondent bank upon which the 5%
gross receipts tax should be imposed. The CA declared that the final withholding tax in the
amount of P17,768,509.00 was a trust fund for the government; hence, does not form part
of the respondents gross receipts. The legal ownership of the amount had already been
vested in the government. Moreover, the CA declared, the respondent did not reap any
benefit from the said amount. As such, subjecting the said amount to the 5% gross
receipts tax would result in double taxation. The appellate court further cited CIR v. Tours
Specialists, Inc., and declared that the ruling of the Court in Manila Jockey Club was
[16]

decisive of the issue.

The Commissioner now assails the said decision before this Court, contending that:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING
TAX ON BANKS INTEREST INCOME DOES NOT FORM PART OF THE TAXABLE GROSS
RECEIPTS IN COMPUTING THE 5% GROSS RECEIPTS TAX (GRT, for brevity). [17]

The petitioner avers that the reliance by the CTA and the CA on Section 4(e) of Rev.
Reg. No. 12-80 is misplaced; the said provision merely authorizes the determination of the
amount of gross receipts based on the taxpayers method of accounting under then
Section 37 (now Section 43) of the Tax Code. The petitioner asserts that the said
provision ceased to exist as of October 15, 1984, when Rev. Reg. No. 17-84 took effect.
The petitioner further points out that under paragraphs 7(a) and (c) of Rev. Reg. No. 17-
84, interest income of financial institutions (including banks) subject to withholding tax are
included as part of the gross receipts upon which the gross receipts tax is to be imposed.
Citing the ruling of the CA in Commissioner of Internal Revenue v. Asianbank
Corporation (which likewise cited Bank of America NT & SA v. Court of Appeals, ) the
[18] [19]

petitioner posits that in computing the 5% gross receipts tax, the income need not be
actually received. For income to form part of the taxable gross receipts, constructive
receipt is enough. The petitioner is, likewise, adamant in his claim that the final
withholding tax from the respondent banks income forms part of the taxable gross receipts
for purposes of computing the 5% of gross receipts tax. The petitioner posits that the
ruling of this Court in Manila Jockey Club is not decisive of the issue in this case.
 The petition is meritorious.
The issues in this case had been raised and resolved by this Court in China Banking
Corporation v. Court of Appeals, and CIR v. Solidbank Corporation.
[20] [21]

Section 27(D)(1) of the Tax Code reads:

(D) Rates of Tax on Certain Passive Incomes.

(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes
and from Trust Funds and Similar Arrangements, and Royalties. A final tax at the rate of
twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and
yield or any other monetary benefit from deposit substitutes and from trust funds and similar
arrangements received by domestic corporations, and royalties, derived from sources within the
Philippines: Provided, however, That interest income derived by a domestic corporation from a
depository bank under the expanded foreign currency deposit system shall be subject to a final
income tax at the rate of seven and one-half percent (7%) of such interest income.

On the other hand, Section 57(A)(B) of the Tax Code authorizes the withholding of
final tax on certain income creditable at source:

SEC. 57. Withholding of Tax at Source.

(A) Withholding of Final Tax on Certain Incomes. Subject to rules and regulations, the
Secretary of Finance may promulgate, upon the recommendation of the Commissioner, requiring
the filing of income tax return by certain income payees, the tax imposed or prescribed by Sections
24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1),
27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1),
28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on
specified items of income shall be withheld by payor-corporation and/or person and paid in the
same manner and subject to the same conditions as provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. The Secretary of Finance may, upon the
recommendation of the Commissioner, require the withholding of a tax on the items of income
payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons
as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for
the taxable year.

The tax deducted and withheld by withholding agents under the said provision shall be
held as a special fund in trust for the government until paid to the collecting officer. [22]

Section 121 (formerly Section 119) of the Tax Code provides that a tax on gross
receipts derived from sources within the Philippines by all banks and non-bank financial
intermediaries shall be computed in accordance with the schedules therein:

(a) On interest, commissions and discounts from lending activities as well as income from financial
leasing, on the basis of remaining maturities of instruments from which such receipts are derived:
Short-term maturity (not in excess of two (2) years) 5%

Medium-term maturity (over two (2) years but

not exceeding four (4) years) 3%

Long-term maturity

(1) Over four (4) years but not exceeding

seven (7) years 1%

(2) Over seven (7) years 0%

(b) On dividends 0%

(c) On royalties, rentals of property, real or personal,

profits from exchange and all other items treated
as gross income under Section 32 of this Code 5%

Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru
pre-termination, then the maturity period shall be reckoned to end as of the date of pre-termination
for purposes of classifying the transaction as short, medium or long-term and the correct rate of
tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided
on persons performing similar banking activities.

The Tax Code does not define gross receipts. Absent any statutory definition, the
Bureau of Internal Revenue has applied the term in its plain and ordinary meaning. [23]

In National City Bank v. CIR, the CTA held that gross receipts should be interpreted
[24]

as the whole amount received as interest, without deductions; otherwise, if deductions

were to be made from gross receipts, it would be considered as net receipts. The CTA
changed course, however, when it promulgated its decision in Asia Bank; it applied
Section 4(e) of Rev. Reg. No. 12-80 and the ruling of this Court in Manila Jockey Club,
holding that the 20% final withholding tax on the petitioner banks interest income should
not form part of its taxable gross receipts, since the final tax was not actually received by
the petitioner bank but went to the coffers of the government.
The Court agrees with the contention of the petitioner that the appellate courts reliance
on Rev. Reg. No. 12-80, the rulings of the CTA in Asia Bank, and of this Court in Manila
Jockey Club has no legal and factual bases. Indeed, the Court ruled in China Banking
Corporation v. Court of Appeals that:
[25]

In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner,
both promulgated on 16 November 2001, the tax court ruled that the final withholding tax forms
part of the banks gross receipts in computing the gross receipts tax. The tax court held that Section
4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the amount of gross
receipts but merely authorized the determination of the amount of gross receipts on the basis of the
method of accounting being used by the taxpayer.

The word gross must be used in its plain and ordinary meaning. It is defined as whole,
entire, total, without deduction. A common definition is without deduction. Gross is also
[26]

defined as taking in the whole; having no deduction or abatement; whole, total as opposed
to a sum consisting of separate or specified parts. Gross is the antithesis of
[27]

net. Indeed, in China Banking Corporation v. Court of Appeals, the Court defined the
[28] [29]

term in this wise:

As commonly understood, the term gross receipts means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts.
Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts,
unless the law itself makes an exception. As explained by the Supreme Court of Pennsylvania
in Commonwealth of Pennsylvania v. Koppers Company, Inc., -

Highly refined and technical tax concepts have been developed by the accountant and legal
technician primarily because of the impact of federal income tax legislation. However, this in no
way should affect or control the normal usage of words in the construction of our statutes; and we
see nothing that would require us not to include the proceeds here in question in the gross receipts
allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of
handling accounts, the term gross receipts, in the absence of any statutory definition of the term,
must be taken to include the whole total gross receipts without any deductions, x x x. [Citations
omitted] (Emphasis supplied)

Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:

The word gross appearing in the term gross receipts, as used in the ordinance, must have been and
was there used as the direct antithesis of the word net. In its usual and ordinary meaning gross
receipts of a business is the whole and entire amount of the receipts without deduction, x x x. On
the contrary, net receipts usually are the receipts which remain after deductions are made from the
gross amount thereof of the expenses and cost of doing business, including fixed charges and
depreciation. Gross receipts become net receipts after certain proper deductions are made from the
gross. And in the use of the words gross receipts, the instant ordinance, of course, precluded
plaintiff from first deducting its costs and expenses of doing business, etc., in arriving at the higher
base figure upon which it must pay the 5% tax under this ordinance. (Emphasis supplied)

Absent a statutory definition, the term gross receipts is understood in its plain and ordinary
meaning. Words in a statute are taken in their usual and familiar signification, with due regard to
their general and popular use. The Supreme Court of Hawaii held in Bishop Trust Company v.
Burns that -

xxx It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of
the legislature, the language used therein is to be taken in the generally accepted and usual sense.
Courts will presume that the words in a statute were used to express their meaning in common
usage. This principle is equally applicable to a tax statute. [Citations omitted] (Emphasis supplied)
 The Court, likewise, declared that Section 121 of the Tax Code expressly subjects
interest income of banks to the gross receipts tax. Such express inclusion of interest
income in taxable gross receipts creates a presumption that the entire amount of the
interest income, without any deduction, is subject to the gross receipts tax. Indeed, there
is a presumption that receipts of a person engaging in business are subject to the gross
receipts tax. Such presumption may only be overcome by pointing to a specific provision
of law allowing such deduction of the final withholding tax from the taxable gross receipts,
failing which, the claim of deduction has no leg to stand on. Moreover, where such an
exception is claimed, the statute is construed strictly in favor of the taxing authority. The
exemption must be clearly and unambiguously expressed in the statute, and must be
clearly established by the taxpayer claiming the right thereto. Thus, taxation is the rule and
the claimant must show that his demand is within the letter as well as the spirit of the
law.[30]

In this case, there is no law which allows the deduction of 20% final tax from the
respondent banks interest income for the computation of the 5% gross receipts tax. On
the other hand, Section 8(a)(c), Rev. Reg. No. 17-84 provides that interest earned on
Philippine bank deposits and yield from deposit substitutes are included as part of the tax
base upon which the gross receipts tax is imposed. Such earned interest refers to the
gross interest without deduction since the regulations do not provide for any such
deduction. The gross interest, without deduction, is the amount the borrower pays, and the
income the lender earns, for the use by the borrower of the lenders money. The amount of
the final tax plainly covers for the interest earned and is consequently part of the taxable
gross receipt of the lender. [31]

The bare fact that the final withholding tax is a special trust fund belonging to the
government and that the respondent bank did not benefit from it while in custody of the
borrower does not justify its exclusion from the computation of interest income. Such final
withholding tax covers for the respondent banks income and is the amount to be used to
pay its tax liability to the government. This tax, along with the creditable withholding tax,
constitutes payment which would extinguish the respondent banks obligation to the
government. The bank can only pay the money it owns, or the money it is authorized to
pay.[32]

In the same vein, the respondent banks reliance on Section 4(e) of Rev. Reg. No. 12-
80 and the ruling of the CTA in Asia Bank is misplaced. The Courts discussion in China
Banking Corporation is instructive on this score:
[33]

CBC also relies on the Tax Courts ruling in Asia Bank that Section 4(e) of Revenue Regulations
No. 12-80 authorizes the exclusion of the final tax from the banks taxable gross receipts. Section
4(e) provides that:

Sec. 4. x x x

(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other
non-bank financial intermediaries not performing quasi-banking functions. - The rates of taxes to
be imposed on the gross receipts of such financial institutions shall be based on all items of income
actually received. Mere accrual shall not be considered, but once payment is received on such
accrual or in cases of prepayment, then the amount actually received shall be included in the tax
base of such financial institutions, as provided hereunder: x x x. (Emphasis supplied by Tax Court)

Section 4(e) states that the gross receipts shall be based on all items of income actually received.
The tax court in Asia Bank concluded that it is but logical to infer that the final tax, not having been
received by petitioner but instead went to the coffers of the government, should no longer form part
of its gross receipts for the purpose of computing the GRT.

The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations No. 12-80.
Income may be taxable either at the time of its actual receipt or its accrual, depending on the
accounting method of the taxpayer. Section 4(e) merely provides for an exception to the rule,
making interest income taxable for gross receipts tax purposes only upon actual receipt. Interest is
accrued, and not actually received, when the interest is due and demandable but the borrower has
not actually paid and remitted the interest, whether physically or constructively. Section 4(e) does
not exclude accrued interest income from gross receipts but merely postpones its inclusion until
actual payment of the interest to the lending bank. This is clear when Section 4(e) states that [m]ere
accrual shall not be considered, but once payment is received on such accrual or in case of
prepayment, then the amount actually received shall be included in the tax base of such financial
institutions x x x.

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be
physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the
tax liability of the lending bank, there is prior to the withholding a constructive receipt by the
lending bank of the amount withheld. From the amount constructively received by the lending
bank, the depository bank deducts the final withholding tax and remits it to the government for the
account of the lending bank. Thus, the interest income actually received by the lending bank, both
physically and constructively, is the net interest plus the amount withheld as final tax.

The concept of a withholding tax on income obviously and necessarily implies that the amount of
the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax
withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the
taxpayers gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its
ownership to the government in payment of his tax liability. The amount withheld indubitably
comes from income of the taxpayer, and thus forms part of his gross receipts.

The Court went on to explain in that case that far from supporting the petitioners
contention, its ruling in Manila Jockey Club, in fact even buttressed the contention of the
Commissioner. Thus:

CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final
withholding tax on interest income does not form part of a banks gross receipts because the final
tax is earmarked by regulation for the government. CBCs reliance on the Manila Jockey Club is
misplaced. In this case, the Court stated that Republic Act No. 309 and Executive Order No. 320
apportioned the total amount of the bets in horse races as follows:
87 % as dividends to holders of winning tickets, 12 % as commission of the Manila Jockey Club, of
which % was assigned to the Board of Races and 5% was distributed as prizes for owners of
winning horses and authorized bonuses for jockeys.

A subsequent law, Republic Act No. 1933 (RA No. 1933), amended the sharing by ordering the
distribution of the bets as follows:

Sec. 19. Distribution of receipts. The total wager funds or gross receipts from the sale of pari-
mutuel tickets shall be apportioned as follows: eighty-seven and one-half per centum shall be
distributed in the form of dividends among the holders of win, place and show horses, as the case
may be, in the regular races; six and one-half per centum shall be set aside as the commission of the
person, racetrack, racing club, or any other entity conducting the races; five and one-half per
centum shall be set aside for the payment of stakes or prizes for win, place and show horses and
authorized bonuses for jockeys; and one-half per centum shall be paid to a special fund to be used
by the Games and Amusements Board to cover its expenses and such other purposes authorized
under this Act. xxx. (Emphasis supplied)

Under the distribution of receipts expressly mandated in Section 19 of RA No. 1933, the gross
receipts apportioned to Manila Jockey Club referred only to its own 6 % commission. There is no
dispute that the 5 % share of the horse-owners and jockeys, and the % share of the Games and
Amusements Board, do not form part of Manila Jockey Clubs gross receipts. RA No. 1933 took
effect on 22 June 1957, three years before the Court decided Manila Jockey Club on 30 June 1960.

Even under the earlier law, Manila Jockey Club did not own the entire 12 % commission. Manila
Jockey Club owned, and could keep and use, only 7% of the total bets. Manila Jockey Club merely
held in trust the balance of 5 % for the benefit of the Board of Races and the winning horse-owners
and jockeys, the real owners of the 5 1/2 % share.

The Court in Manila Jockey Club quoted with approval the following Opinion of the Secretary of
Justice made prior to RA No. 1933:

There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% [sic] of the bets
registered by the Totalizer. This portion represents its share or commission in the total amount of
money it handles and goes to the funds thereof as its own property which it may legally disburse for
its own purposes. The 5% [sic] does not belong to the club. It is merely held in trust for distribution
as prizes to the owners of winning horses. It is destined for no other object than the payment of
prizes and the club cannot otherwise appropriate this portion without incurring liability to the
owners of winning horses. It can not be considered as an item of expense because the sum used for
the payment of prizes is not taken from the funds of the club but from a certain portion of the total
bets especially earmarked for that purpose. (Emphasis supplied)

Consequently, the Court ruled that the 5 % balance of the commission, not being owned by Manila
Jockey Club, did not form part of its gross receipts for purposes of the amusement tax. Manila
Jockey Club correctly paid the amusement tax based only on its own 7% commission under RA
No. 309 and Executive Order No. 320.
Manila Jockey Club does not support CBCs contention but rather the Commissioners position. The
Court ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely
held by it in trust did not form part of Manila Jockey Clubs gross receipts. Conversely, receipts
owned by the Manila Jockey Club would form part of its gross receipts. [34]

We reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the
5% of gross receipts tax would result in double taxation. In CIR v. Solidbank
Corporation, we ruled, thus:
[35]

We have repeatedly said that the two taxes, subject of this litigation, are different from each other.
The basis of their imposition may be the same, but their natures are different, thus leading us to a
final point. Is there double taxation?

The Court finds none.

Double taxation means taxing the same property twice when it should be taxed only once; that is,
xxx taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious when
the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the
same taxing authority, within the same jurisdiction, during the same taxing period; and they must
be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT
is the passive income generated in the form of interest on deposits and yield on deposit substitutes,
while the subject matter of the GRT is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather
than a property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one
can be taxed for engaging in business and further taxed differently for the income derived
therefrom. Akin to our ruling in Velilla v. Posadas, these two taxes are entirely distinct and are
assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing
authority the national government under the Tax Code and operate within the same Philippine
jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different.
The FWT is deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor
withheld, but is paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority,
within the same jurisdiction, for the same purpose, in different taxing periods, some of the property
in the territory. Subjecting interest income to a 20% FWT and including it in the computation of the
5% GRT is clearly not double taxation.
 IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision of the Court
of Appeals in CA-G.R. SP No. 52706 and that of the Court of Tax Appeals in CTA Case
No. 5415 are SET ASIDE and REVERSED. The CTA is hereby ORDERED to DISMISS
the petition of respondent Bank of Commerce. No costs.
SO ORDERED.
26. [G.R. No. 100152. March 31, 2000]
Acebedo optical Company, vs. CA et al, GR100152, March 31, 2000

At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify the
dismissal by the Court of Appeals of the original petition for certiorari, prohibition and
mandamus filed by the herein petitioner against the City Mayor and City Legal Officer of
Iligan and the Samahang Optometrist sa Pilipinas - Iligan Chapter (SOPI, for brevity).

The antecedent facts leading to the filing of the instant petition are as follows:

Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After
consideration of petitioners application and the opposition interposed thereto by local
optometrists, respondent City Mayor issued Business Permit No. 5342 subject to the
following conditions:

1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a

commercial store;

2. Acebedo cannot examine and/or prescribe reading and similar optical

glasses for patients, because these are functions of optical clinics;

3. Acebedo cannot sell reading and similar eyeglasses without a prescription

having first been made by an independent optometrist (not its employee) or
independent optical clinic. Acebedo can only sell directly to the public, without
need of a prescription, Ray-Ban and similar eyeglasses;

4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise
Ray-Ban and similar glasses and frames;

5. Acebedo is allowed to grind lenses but only upon the prescription of an

independent optometrist. [1]

On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI),

Iligan Chapter, through its Acting President, Dr. Frances B. Apostol, lodged a complaint
against the petitioner before the Office of the City Mayor, alleging that Acebedo had
violated the conditions set forth in its business permit and requesting the cancellation
and/or revocation of such permit.

Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal Officer
Leo T. Cahanap to conduct an investigation on the matter. On July 12, 1989, respondent
City Legal Officer submitted a report to the City Mayor finding the herein petitioner guilty of
violating all the conditions of its business permit and recommending the disqualification of
petitioner from operating its business in Iligan City. The report further advised that no new
permit shall be granted to petitioner for the year 1989 and should only be given time to
wind up its affairs.

On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation
of Business Permit effective as of said date and giving petitioner three (3) months to wind
up its affairs.

On October 17, 1989, petitioner brought a petition for certiorari, prohibition and mandamus
with prayer for restraining order/preliminary injunction against the respondents, City
Mayor, City Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City
Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional Trial Court of Iligan
City, Branch I. Petitioner alleged that (1) it was denied due process because it was not
given an opportunity to present its evidence during the investigation conducted by the City
Legal Officer; (2) it was denied equal protection of the laws as the limitations imposed on
its business permit were not imposed on similar businesses in Iligan City; (3) the City
Mayor had no authority to impose the special conditions on its business permit;
and (4) the City Legal Officer had no authority to conduct the investigation as the matter
falls within the exclusive jurisdiction of the Professional Regulation Commission and the
Board of Optometry.

Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-
exhaustion of administrative remedies but on November 24, 1989, Presiding Judge
Mamindiara P. Mangotara deferred resolution of such Motion to Dismiss until after trial of
the case on the merits. However, the prayer for a writ of preliminary injunction was
granted. Thereafter, respondent SOPI filed its answer.

On May 30, 1990, the trial court dismissed the petition for failure to exhaust administrative
remedies, and dissolved the writ of preliminary injunction it earlier issued. Petitioners
motion for reconsideration met the same fate. It was denied by an Order dated June 28,
1990.

On October 3, 1990, instead of taking an appeal, petitioner filed a petition for certiorari,
prohibition and mandamus with the Court of Appeals seeking to set aside the questioned
Order of Dismissal, branding the same as tainted with grave abuse of discretion on the
part of the trial court.

On January 24, 1991, the Ninth Division of the Court of Appeals dismissed the petition for
[2]

lack of merit. Petitioners motion reconsideration was also denied in the Resolution dated
May 15, 1991.

Undaunted, petitioner has come before this court via the present petition, theorizing that:
A.
 THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT THE
RESPONDENT CITY MAYOR ACTED BEYOND HIS AUTHORITY IN
IMPOSING THE SPECIAL CONDITIONS IN THE PERMIT AS THEY HAD
NO BASIS IN ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT THE
SAID SPECIAL CONDITIONS NEVERTHELESS BECAME BINDING ON
PETITIONER UPON ITS ACCEPTANCE THEREOF AS A PRIVATE
AGREEMENT OR CONTRACT.
B.

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE

CONTRACT BETWEEN PETITIONER AND THE CITY OF ILIGAN WAS
ENTERED INTO BY THE LATTER IN THE PERFORMANCE OF ITS
PROPRIETARY FUNCTIONS.

The petition is impressed with merit.

Although petitioner agrees with the finding of the Court of Appeals that respondent City
Mayor acted beyond the scope of his authority in imposing the assailed conditions in
subject business permit, it has excepted to the ruling of the Court of Appeals that the said
conditions nonetheless became binding on petitioner, once accepted, as a private
agreement or contract. Petitioner maintains that the said special conditions are null and
void for being ultra vires and cannot be given effect; and therefore, the principle of
estoppel cannot apply against it.

On the other hand, the public respondents, City Mayor and City Legal Officer, private
respondent SOPI and the Office of the Solicitor General contend that as a valid exercise
of police power, respondent City Mayor has the authority to impose, as he did, special
conditions in the grant of business permits.

Police power as an inherent attribute of sovereignty is the power to prescribe regulations

to promote the health, morals, peace, education, good order or safety and general welfare
of the people. The State, through the legislature, has delegated the exercise of police
[3]

power to local government units, as agencies of the State, in order to effectively

accomplish and carry out the declared objects of their creation. This delegation of police
[4]

power is embodied in the general welfare clause of the Local Government Code which
provides:

Sec. 16. General Welfare. - Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as
powers necessary, appropriate, or incidental for its efficient and effective
governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government units
shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve
 public morals, enhance economic prosperity and social justice, promote full
employment among their residents, maintain peace and order, and preserve
the comfort and convenience of their inhabitants.

The scope of police power has been held to be so comprehensive as to encompass

almost all matters affecting the health, safety, peace, order, morals, comfort and
convenience of the community. Police power is essentially regulatory in nature and the
power to issue licenses or grant business permits, if exercised for a regulatory and not
revenue-raising purpose, is within the ambit of this power.[5]

The authority of city mayors to issue or grant licenses and business permits is beyond
cavil. It is provided for by law.

Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as the
Local Government Code of 1983, reads:

Sec. 171. The City Mayor shall:

xxx

n) Grant or refuse to grant, pursuant to law, city licenses or permits, and

revoke the same for violation of law or ordinance or the conditions upon which
they are granted.

However, the power to grant or issue licenses or business permits must always be
exercised in accordance with law, with utmost observance of the rights of all concerned to
due process and equal protection of the law.

Succinct and in point is the ruling of this Court, that:

"x x x While a business may be regulated, such regulation must, however, be

within the bounds of reason, i. e., the regulatory ordinance must be
reasonable, and its provision cannot be oppressive amounting to an arbitrary
interference with the business or calling subject of regulation. A lawful
business or calling may not, under the guise of regulation, be unreasonably
interfered with even by the exercise of police power. xxx

xxx xxx xxx

xxx The exercise of police power by the local government is valid unless it
contravenes the fundamental law of the land or an act of the legislature, or
unless it is against public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right." [6]

In the case under consideration, the business permit granted by respondent City Mayor to
petitioner was burdened with several conditions. Petitioner agrees with the holding by the
Court of Appeals that respondent City Mayor acted beyond his authority in imposing such
special conditions in its permit as the same have no basis in the law or ordinance. Public
respondents and private respondent SOPI, on the other hand, are one in saying that the
imposition of said special conditions on petitioners business permit is well within the
authority of the City Mayor as a valid exercise of police power.

As aptly discussed by the Solicitor General in his Comment, the power to issue licenses
and permits necessarily includes the corollary power to revoke, withdraw or cancel the
same. And the power to revoke or cancel, likewise includes the power to restrict through
the imposition of certain conditions. In the case of Austin-Hardware, Inc. vs. Court of
Appeals, it was held that the power to license carries with it the authority to provide
[7]

reasonable terms and conditions under which the licensed business shall be conducted.
As the Solicitor General puts it:

"If the City Mayor is empowered to grant or refuse to grant a license, which is
a broader power, it stands to reason that he can also exercise a lesser power
that is reasonably incidental to his express power, i. e. to restrict a license
through the imposition of certain conditions, especially so that there is no
positive prohibition to the exercise of such prerogative by the City Mayor, nor
is there any particular official or body vested with such authority"
[8]

However, the present inquiry does not stop there, as the Solicitor General believes. The
power or authority of the City Mayor to impose conditions or restrictions in the business
permit is indisputable. What petitioner assails are the conditions imposed in its particular
case which, it complains, amount to a confiscation of the business in which petitioner is
engaged.

Distinction must be made between the grant of a license or permit to do business and the
issuance of a license to engage in the practice of a particular profession. The first is
usually granted by the local authorities and the second is issued by the Board or
Commission tasked to regulate the particular profession. A business permit authorizes the
person, natural or otherwise, to engage in business or some form of commercial activity. A
professional license, on the other hand, is the grant of authority to a natural person to
engage in the practice or exercise of his or her profession.

In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to
engage in the business of running an optical shop. It does not purport to seek a license to
engage in the practice of optometry as a corporate body or entity, although it does have in
its employ, persons who are duly licensed to practice optometry by the Board of
Examiners in Optometry.

The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International

Corporation, G.R. No. 117097, promulgated by this Court on March 21, 1997, is in point.
[9]

The factual antecedents of that case are similar to those of the case under consideration
and the issue ultimately resolved therein is exactly the same issue posed for resolution by
this Court en banc.
In the said case, the Acebedo International Corporation filed with the Office of the
Municipal Mayor an application for a business permit for the operation of a branch of
Acebedo Optical in Candon, Ilocos Sur. The application was opposed by the Samahan ng
Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical entity
not qualified to practice optometry. A committee was created by the Office of the Mayor to
study private respondents application. Upon recommendation of the said committee,
Acebedos application for a business permit was denied. Acebedo filed a petition with the
Regional Trial Court but the same was dismissed. On appeal, however, the Court of
Appeals reversed the trial courts disposition, prompting the Samahan ng Optometrists to
elevate the matter to this Court.

The First Division of this Court, then composed of Honorable Justice Teodoro Padilla,
Josue Bellosillo, Jose Vitug and Santiago Kapunan, with Honorable Justice Regino
Hermosisima, Jr. as ponente, denied the petition and ruled in favor of respondent
Acebedo International Corporation, holding that "the fact that private respondent hires
optometrists who practice their profession in the course of their employment in private
respondents optical shops, does not translate into a practice of optometry by private
respondent itself." The Court further elucidated that in both the old and new Optometry
[10]

Law, R.A. No. 1998, superseded by R.A. No. 8050, it is significant to note that there is no
prohibition against the hiring by corporations of optometrists. The Court concluded thus:

"All told, there is no law that prohibits the hiring by corporations of

optometrists or considers the hiring by corporations of optometrists as a
practice by the corporation itself of the profession of optometry."

In the present case, the objective of the imposition of subject conditions on petitioners
business permit could be attained by requiring the optometrists in petitioners employ to
produce a valid certificate of registration as optometrist, from the Board of Examiners in
Optometry. A business permit is issued primarily to regulate the conduct of business and
the City Mayor cannot, through the issuance of such permit, regulate the practice of a
profession, like that of optometry. Such a function is within the exclusive domain of the
administrative agency specifically empowered by law to supervise the profession, in this
case the Professional Regulations Commission and the Board of Examiners in Optometry.

It is significant to note that during the deliberations of the bicameral conference committee
of the Senate and the House of Representatives on R.A. 8050 (Senate Bill No. 1998 and
House Bill No. 14100), the committee failed to reach a consensus as to the prohibition on
indirect practice of optometry by corporations. The proponent of the bill, former Senator
Freddie Webb, admitted thus:

"Senator Webb: xxx xxx xxx

The focus of contention remains to be the proposal of prohibiting the indirect practice of
optometry by corporations. We took a second look and even a third look at the issue in the
bicameral conference, but a compromise remained elusive." [11]

Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her vote:
 "Senator Shahani: Mr. President

The optometry bills have evoked controversial views from the members of the
panel. While we realize the need to uplift the standards of optometry as a
profession, the consensus of both Houses was to avoid touching sensitive
issues which properly belong to judicial determination. Thus, the bicameral
conference committee decided to leave the issue of indirect practice of
optometry and the use of trade names open to the wisdom of the Courts
which are vested with the prerogative of interpreting the laws." [12]

From the foregoing, it is thus evident that Congress has not adopted a unanimous position
on the matter of prohibition of indirect practice of optometry by corporations, specifically
on the hiring and employment of licensed optometrists by optical corporations. It is clear
that Congress left the resolution of such issue for judicial determination, and it is therefore
proper for this Court to resolve the issue.

Even in the United States, jurisprudence varies and there is a conflict of opinions among
the federal courts as to the right of a corporation or individual not himself licensed, to hire
and employ licensed optometrists. [13]

Courts have distinguished between optometry as a learned profession in the category of

law and medicine, and optometry as a mechanical art. And, insofar as the courts regard
optometry as merely a mechanical art, they have tended to find nothing objectionable in
the making and selling of eyeglasses, spectacles and lenses by corporations so long as
the patient is actually examined and prescribed for by a qualified practitioner. [14]

The primary purpose of the statute regulating the practice of optometry is to insure that
optometrical services are to be rendered by competent and licensed persons in order to
protect the health and physical welfare of the people from the dangers engendered by
unlicensed practice. Such purpose may be fully accomplished although the person
rendering the service is employed by a corporation. [15]

Furthermore, it was ruled that the employment of a qualified optometrist by a corporation

is not against public policy. Unless prohibited by statutes, a corporation has all the
[16]

contractual rights that an individual has and it does not become the practice of medicine
[17]

or optometry because of the presence of a physician or optometrist. The manufacturing,

[18]

selling, trading and bartering of eyeglasses and spectacles as articles of merchandise do

not constitute the practice of optometry. [19]

In the case of Dvorine vs. Castelberg Jewelry Corporation, defendant corporation

[20]

conducted as part of its business, a department for the sale of eyeglasses and the
furnishing of optometrical services to its clients. It employed a registered optometrist who
was compensated at a regular salary and commission and who was furnished instruments
and appliances needed for the work, as well as an office. In holding that the corporation
was not engaged in the practice of optometry, the court ruled that there is no public policy
forbidding the commercialization of optometry, as in law and medicine, and recognized the
general practice of making it a commercial business by advertising and selling
eyeglasses.

To accomplish the objective of the regulation, a state may provide by statute that
corporations cannot sell eyeglasses, spectacles, and lenses unless a duly licensed
physician or a duly qualified optometrist is in charge of, and in personal attendance at the
place where such articles are sold. In such a case, the patients primary and essential
[21]

safeguard lies in the optometrists control of the "treatment" by means of prescription and
preliminary and final examination. [22]

In analogy, it is noteworthy that private hospitals are maintained by corporations

incorporated for the purpose of furnishing medical and surgical treatment. In the course of
providing such treatments, these corporations employ physicians, surgeons and medical
practitioners, in the same way that in the course of manufacturing and selling eyeglasses,
eye frames and optical lenses, optical shops hire licensed optometrists to examine,
prescribe and dispense ophthalmic lenses. No one has ever charged that these
corporations are engaged in the practice of medicine. There is indeed no valid basis for
treating corporations engaged in the business of running optical shops differently.

It also bears stressing, as petitioner has pointed out, that the public and private
respondents did not appeal from the ruling of the Court of Appeals. Consequently, the
holding by the Court of Appeals that the act of respondent City Mayor in imposing the
questioned special conditions on petitioners business permit is ultra vires cannot be put
into issue here by the respondents. It is well-settled that:

"A party who has not appealed from the decision may not obtain any
affirmative relief from the appellate court other than what he had obtain from
the lower court, if any, whose decision is brought up on appeal. [23]

xxx an appellee who is not an appellant may assign errors in his brief where
his purpose is to maintain the judgment on other grounds, but he cannot seek
modification or reversal of the judgment or affirmative relief unless he has also
appealed." [24]

Thus, respondents submission that the imposition of subject special conditions on

petitioners business permit is not ultra vires cannot prevail over the finding and ruling by
the Court of Appeals from which they (respondents) did not appeal.

Anent the second assigned error, petitioner maintains that its business permit issued by
the City Mayor is not a contract entered into by Iligan City in the exercise of its proprietary
functions, such that although petitioner agreed to such conditions, it cannot be held in
estoppel since ultra vires acts cannot be given effect.

Respondents, on the other hand, agree with the ruling of the Court of Appeals that the
business permit in question is in the nature of a contract between Iligan City and the
herein petitioner, the terms and conditions of which are binding upon agreement, and that
petitioner is estopped from questioning the same. Moreover, in the Resolution denying
petitioners motion for reconsideration, the Court of Appeals held that the contract between
the petitioner and the City of Iligan was entered into by the latter in the performance of its
proprietary functions.

This Court holds otherwise. It had occasion to rule that a license or permit is not in the
nature of a contract but a special privilege.

"xxx a license or a permit is not a contract between the sovereignty and the
licensee or permitee, and is not a property in the constitutional sense, as to
which the constitutional proscription against impairment of the obligation of
contracts may extend. A license is rather in the nature of a special privilege, of
a permission or authority to do what is within its terms. It is not in any way
vested, permanent or absolute." [25]

It is therefore decisively clear that estoppel cannot apply in this case. The fact that
petitioner acquiesced in the special conditions imposed by the City Mayor in subject
business permit does not preclude it from challenging the said imposition, which is ultra
vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts
which are clearly beyond the scope of ones authority are null and void and cannot be
given any effect. The doctrine of estoppel cannot operate to give effect to an act which is
otherwise null and void or ultra vires.

The Court of Appeals erred in adjudging subject business permit as having been issued
by respondent City Mayor in the performance of proprietary functions of Iligan City. As
hereinabove elaborated upon, the issuance of business licenses and permits by a
municipality or city is essentially regulatory in nature. The authority, which devolved upon
local government units to issue or grant such licenses or permits, is essentially in the
exercise of the police power of the State within the contemplation of the general welfare
clause of the Local Government Code.

WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals in CA-GR
SP No. 22995 REVERSED; and the respondent City Mayor is hereby ordered to reissue
petitioners business permit in accordance with law and with this disposition. No
pronouncement as to costs.

SO ORDERED.