Commissioner of Internal Revenue v.

Court of Appeals
[G.R. No. 117982. February 6, 1997]

PONENTE: BELLOSILLO, J.:

FACTS:
The present case arose from the discrepancy in the taxable base on which the
excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling
473-88 dated 4 October 1988 which excluded the VAT from the tax base in
computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91
dated 11 February 1991 which included back the VAT in computing the tax
base for purposes of the fifteen percent (15%) ad valorem tax.
Alhambra industries, Inc. (Alhambra) is a domestic corporation engaged in the
manufacture and sale of cigar and cigarette products. On May 7, 1991 private
respondent received a letter dated April 26, 1991 from the Commissioner of
Internal Revenue assessing its deficiency Ad Valorem Tax (AVT) in the total
amount of P488,396.62, inclusive of increments, on the removals of cigarette
products from their place of production during the period Nov. 2, 1990 to
January 22, 1991.
Alhambra filed protest against amount assessed by the CIR, however, it was
denied by the latter at the same time increasing the amount assessed to
P520,835.29. Alhambra filed a petition for review with the CTA, despite payment
under protest the amount of P520,835.29. On December 1, 1993, CTA ordered
petitioner to refund said amount to Alhambra.

ISSUE:
The main contention is whether the new ruling should be given retroactive
effect thus, in effect revoking the tax exemption given to the petitioner in the
first BIR ruling.

HELD:
The court held in the negative. In its ruling, it states that well-entrenched is the
rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to
so apply them would be prejudicial to the taxpayers.
Section 246 provides for the Non-retroactivity of rulings.- “Any revocation,
modification, or reversal of any rules and regulations promulgated in
accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner of Internal Revenue 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; or c) where the taxpayer
acted in bad faith.”
 G.R. No. L-35726 July 21, 1982 | SOCIAL SECURITY SYSTEM, vs. CITY OF
BACOLOD and MIGUEL REYNALDO as City Treasurer of Bacolod City,

FACTS: In pursuance of its operations, SSS maintains a number of regional

offices, one of which is the five-storey building, known as SSS Building in Bacolod
City, occupying four parcels of land. In 1970, said lands and building were
assessed for taxation at P1,744,840.00. For petitioner's failure to pay the realty
taxes for the years 1968, 1969 and 1970 which, including penalties, amounted
to P104,956.06, respondent city sometime in early 1970 levied upon said lands
and building; and on April 3, 1970, it declared said properties forfeited in its
favor.

ISSUE: Is the forfeiture invalid because being a government-owned and

controlled corporation, is exempt from payment of real estate taxes?

RULING: The Court set aside the decision of the Court of First instance of Negros
Occidental in Civil Case No. 5980, entitled "Social Security System versus City of
Bacolod and Miguel Reynaldo, as City Treasurer of Bacolod City," which
sustained the forfeiture of certain real properties of the Social Security System in
favor of the City of Bacolod for delinquency in payment of real estate taxes.

When no action thereon was taken by respondent city treasurer, petitioner filed
an action in the Court of First Instance of Negros Occidental for nullification of
the forfeiture proceedings. In the same complaint it sought the issuance of a
writ of preliminary injunction to restrain respondent city from consolidating its
ownership over the forfeited properties, and this writ was issued by the court
upon petitioner's posting of a cash bond in the amount of P105,000.00.
After due hearing, the lower court rendered a decision declaring –

"x x x the properties of the Social Security System not exempt from the payment
of real property tax inasmuch as the SSS does not fall under the provisions of
Section 29 of the Charter of the City of Bacolod, and considering further that
there is no law which exempts said entity from taxes, the same should therefore
be subject to taxation like any other corporation in accordance with Section
27 of the City Charter of Bacolod City. The complaint is hereby dismissed with
costs against the plaintiff."

Hence, this petition.

We find the petition meritorious. Section 29 of the Commonwealth Act No. 326,
otherwise known as the Charter of the City of Bacolod, provides as follows:

"SECTION 29. Exemption from taxation. - Lands and buildings owned by the
United States of America, the Commonwealth of the Philippines, the City of
Bacolod, the Province of Occidental Negros, and cemeteries, churches and
their adjacent parsonages and convents, and lands, buildings and
improvements used exclusively for religious, charitable, scientific or educational
purposes, and not for profit, shall be exempt from taxation; but such exemptions
shall not extend to lands or buildings held for investment, though the income
therefrom be devoted to religious, charitable, scientific or educational
purposes."
The court a quo restricted the scope of the exemption contemplated by the
above section exclusively to those government agencies, entities and
instrumentalities exercising governmental or sovereign functions. It relied on the
ruling laid down in "NACOCO versus Bacani, et al."[2] to the effect that the
National Coconut Corporation, a government agency performing mere
ministrant functions, is not included in the term "Government of the Republic of
the Philippines" for purposes of exemption from the legal fees provided for in
Rule 130 of the Rules of Court.[3] Invoking the case of "SSS versus Hon. Soriano,
et al."[4] where this Court definitively categorized the SSS as a government
agency performing proprietary functions, the trial court concluded that
petitioner SSS does not fall within the coverage of Section 29 of the Charter of
Bacolod City.
There can be no question that a government owned or controlled corporation
is subject to payment of the legal fees provided for in Rule 130 of the Rules of
Court. Such liability is plainly written in Section 1 of Republic Act No. 104, which
reads:
"x x x All corporations, agencies, or instrumentalities owned or controlled by the
government shall pay such duties, taxes, fees and other charges upon their
transaction, business, industry, sale, or income as are imposed by law upon
individuals, associations or corporations engaged in any taxable business,
industry, or activity except on goods or commodities imported or purchased
and sold or distributed for relief purposes as may be determined by President
of the Philippines."
However, the subject of inquiry in the case at bar is not whether a government
corporation exercising ministrant or proprietary function, such as petitioner SSS,
is exempt from the payment of legal fees, but whether the properties in
question, which are concededly owned by the government, are exempt from
realty taxes. We hold that under Section 29 of the Charter of the City of
Bacolod, they are so exempt.
It bears emphasis that the said section does not contain any qualification
whatsoever in providing for the exemption from real estate taxes of "lands and
buildings owned by the Commonwealth or Republic of Philippines." Hence,
when the legislature exempted lands and buildings owned by the government
from payment of said taxes, what it intended was a broad and comprehensive
application of such mandate, regardless of whether such property is devoted
to governmental or proprietary purpose.
188 Phil. 546
DE CASTRO, J.:
These two (2) cases are appeals by way of certiorari from the decision dated
August 24, 1966 of the Court of Tax Appeals granting Atlas Fertilizer Corporation
a tax credit in the sum of P81,899.00 which may be applied by said corporation
in payment of its outstanding and/or future liability for internal revenue taxes.

For the material facts, We could very well quote from the decision of the Court
of Tax Appeals, the following:
"Petitioner Atlas Fertilizer Corporation was formerly a department of Atlas Mining
& Development Corporation. The latter was granted by the Secretary of
Finance a certificate of tax exemption under Republic Act No. 901 as a new
and necessary industry for engaging in the manufacture of fertilizer, namely,
sulphuric acid, phosphoric acid, superphosphate, triple superphosphate and
gypsum. The tax exemption privileges of Atlas Consolidated Mining and
Development Corporation were later transferred to the petitioner under the
written authority of the Department of Finance dated November 27,
1957. During the period from June 26, 1961 to October 24, 1962, petitioner
imported raw materials, equipment, spare parts, containers and other supplies
on which it paid one-half or 50% of the compensating taxes due thereon (Exhs.
1 and G, pp. 98-100, BIR rec.).

"While petitioner was still enjoying partial tax exemption of 50% as a new and
necessary industry under Republic Act No. 901, Republic Act No. 3050, which
took effect on June 17, 1961, granted tax exemption to any person, partnership,
company or corporation engaged or which shall engage in the manufacture
of fertilizer of whatever nature from the payment, among others, of
compensating taxes on their importation of capital goods, equipment, spare
parts, raw materials, supplies containers and fuel. To implement said Republic
Act No. 3050, the Department of Finance issued Department Order No. 105,
dated September 15, 1961, which provides, among others, as follows:
"Any x x x corporation x x x which shall engage in the manufacture of fertilizer
and desiring to enjoy the privileges granted under the provisions of Republic
Act No. 3050 may file its application therefore with the Secretary of Finance.

"Fertilizer manufacturer x x x which are granted tax exemption under Republic

Act No. 901 should likewise file applications for tax exemption under Republic
Act No. 3050, indicating therein, among other things, that the applicant waives
the benefits of tax exemption authorized under Republic Act No. 3127.
"In compliance with the above regulation, petitioner filed on January 25, 1962
with the Department of Finance an application for tax exemption under the
provisions of Republic Act No. 3050, which application was approved by the
Secretary of Finance on February 19, 1962. The tax exemption granted by the
said official to petitioner was made retroactive commencing on June 17, 1961,
the date of the effectivity of Republic Act No. 3050 (pp. 93-94, BIR rec.).

"On the basis of the tax exemption granted by the Secretary of Finance under
Republic Act No. 3050, petitioner filed with respondent on June 21, 1963 a claim
for tax credit of the compensating taxes amounting to P83,629.00 which
petitioner allegedly paid to the Bureau of Customs on petitioner's importations
of tax exempt goods, equipment, materials and supplies during the period from
June 26, 1961 to October 24, 1962 (pp. 88-90, BIR rec.). On June 22, 1963, the
day after petitioner had filed its claim for tax credit with respondent, petitioner
filed a petition for review with this Court seeking an order to compel respondent
to issue the corresponding letter of tax credit.

"During the pendency of this case, petitioner's claim for tax credit of P83,629.00
filed with respondent was referred on June 26, 1963 to the Regional Director of
Manila, BIR Regional District No. 3, for investigation, report and
recommendation. On July 15, 1963, the case was assigned to Revenue
Examiner Benjamin Fernandez. Shortly thereafter, the Manila Regional Office
(District No. 3) was divided into two (2) districts - North Manila and South Manila
(District Nos. 5 and 6). As a consequence thereof and the confusion which
ensued as a result of the sorting and transfer of revenue dockets and records,
allocation and assignment of personnel, and the division and transfer of
supplies, equipment and furniture, the papers bearing on the tax credit claim
of petitioner were misplaced. It was only on January 25, 1965 when the
investigating examiner submitted his report and recommended therein that
petitioner be granted a tax credit of P76,935.00, instead of P83,629.00 as
claimed, because the importations and payment of the compensating taxes
under Item Nos. 1, 17, 35, 50, 58, 61, 62, 64, 65, 67 and 68 were not supported
with import entry declarations and receipts of tax payment."
After hearing, the Court of Tax Appeals rendered its decision on August 24, 1966
from which both parties have appealed to this Court.

In his appeal, the Commissioner of Internal Revenue (Commissioner for short)

assigns the following errors:
I

"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONER NEED NOT
PROVE THAT THE RAW MATERIALS, EQUIPMENT, SPARE PARTS, CONTAINERS AND
OTHER SUPPLIES IT IMPORTED WERE USED BY IT IN THE MANUFACTURE OF
FERTILIZER TO BE ENTITLED TO TAX EXEMPTION UNDER REPUBLIC ACT NO. 3050.
II

"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT IT IS INCUMBENT UPON

RESPONDENT TO PROVE THAT THE IMPORTATIONS IN QUESTION WERE NOT USED
BY THE PETITIONER IN THE MANUFACTURE OF FERTILIZER NOTWITHSTANDING THE
FACT THAT THERE WAS ABSOLUTELY NO EVIDENCE INTRODUCED BY PETITIONER
SHOWING THAT THE SAID IMPORTATIONS WERE USED BY IT IN THE MANUFACTURE
OF FERTILIZER.
III

"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONER NEED NOT
PROVE THAT IT HAD PREVIOUSLY SECURED A SPECIFIC AUTHORITY FROM THE
SECRETARY OF FINANCE TO IMPORT THE GOODS IN QUESTION AS A PREREQUISITE
FOR THE ENJOYMENT OF ITS RIGHT TO TAX EXEMPTION UNDER REPUBLIC ACT NO.
3050.
IV
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONER HAS "IN
EFFECT ABANDONED AND GIVEN UP ITS PARTIAL EXEMPTION PRIVILEGE UNDER
REPUBLIC ACT NO. 901". BY SEEKING TO APPLY ITS TAX EXEMPTION UNDER
REPUBLIC ACT NO. 3050.
V

"THE COURT OF TAX APPEALS ERRED IN ORDERING RESPONDENT TO GRANT

PETITIONER A TAX CREDIT OF P81,899.00 IN SPITE OF THE FACT THAT PETITIONER IS
NOT ENTITLED THERETO."
On the other hand, Atlas Fertilizer Corporation (AFC for short), as appellant has
also assigned the following errors:
I

"THE COURT OF TAX APPEALS ERRED IN DENYING THE AWARD OF INTEREST TO THE
PETITIONER ON THE AMOUNT OF P81,899.00 FOUND TO BE DUE AS TAX CREDIT IN
FAVOR OF PETITIONER.
II

"THE COURT OF TAX APPEALS ERRED IN CONCLUDING THAT PETITIONER FILED ITS
CLAIM FOR TAX CREDIT QUITE LATE OR ALMOST TWO YEARS FROM THE FIRST
PAYMENT OF THE COMPENSATING TAX AND EIGHT MONTHS FROM THE LAST
PAYMENT THEREOF.
III

"THE COURT OF TAX APPEALS ERRED IN CONCLUDING THAT THE DELAY IN

PROCESSING THE CLAIM FOR TAX CREDIT WAS NOT PREMEDITATED AND
INTENTIONAL BUT CAUSED BY CIRCUMSTANCES BEYOND THE CONTROL OF
RESPONDENT.
IV

"THE COURT OF TAX APPEALS ERRED IN APPLYING THE EXISTING DOCTRINE THAT
INTEREST ON REFUND (OR TAX CREDIT) IS AWARDED ONLY WHERE COLLECTION
OF THE TAXES WAS ATTENDED WITH ARBITRARINESS.
V

"THE COURT OF TAX APPEALS ERRED IN NOT APPLYING THE APPLICABLE

PROVISIONS OF THE NEW CIVIL CODE, NAMELY, ARTICLES 2154, 2155 AND 2209,
GOVERNING THE RETURN OF PAYMENTS BY REASON OF MISTAKE AND THE
AWARD OF INTEREST WHEN THE OBLIGOR INCURS DELAY."
Appeal by the Commissioner

The pertinent section upon which AFC based its claim for exemption reads:
"Sec. 1. Notwithstanding any provisions of law to the contrary, subject to the
conditions hereinafter provided, any person, partnership, company or
corporation engaged or which shall engage in the manufacture of fertilizer of
whatever nature shall be entitled to exemption until December 31, 1965 from
the payment of special import tax, margin fee on foreign exchange, sales and
compensating taxes and customs duties payable by such person, partnership,
company or corporation, in respect to the importation of capital goods,
equipment, spare parts, raw materials, supplies, containers and fuel by any of
those engaged in the above industry, x x x."[1]
Anent the first and second assignment of errors, the Commissioner points out
that it is well settled that exemptions are strictly construed and are never
presumed. And the burden of proof is on the claimant to establish clearly his
right to exemption. Being an essential and indispensable requisite for the
enjoyment of its tax exemption, the fact that the AFC used the goods for the
manufacture of fertilizer must be shown by it.

In refutation to the above contention, AFC claims that since the Secretary of
Finance, on February 19, 1962, approved its application for tax exemption
under R.A. 3050, it may be assumed that among the matters considered by the
Secretary of Finance in processing the claim for exemption was the fact of
actual use for the manufacture of fertilizer by AFC of the importations made. It
is, therefore, the position of AFC that the certificate of exemption granted by
the Secretary of Finance was sufficient proof that it used the imported articles
in the manufacture of fertilizer.

That the burden of proof is on the claimant to establish his right to exemption
cannot be gainsaid. In the instant case, however, We feel that AFC need not
adduce further evidence to show that it is entitled to exemption. It is to be
observed that there is no dispute that AFC is engaged in the manufacture of
fertilizer, as the very name of AFC suggests the nature of its business. It is also
pertinent to state that when R.A. 3050 took effect, AFC was already enjoying
partial exemption under R.A. 901 as a new and necessary industry engaged in
the manufacture of fertilizer. Furthermore, when the Secretary of Finance, on
February 19, 1962, approved AFC's application for tax exemption under R.A.
3050, We believe that he already considered that the importations were
needed by AFC for the manufacture of fertilizer. This may be inferred from the
fact that before the Secretary of Finance approves an application, he requires
applicants to submit an application which "shall be in the form prescribed by
the Secretary of Finance and contain detailed and complete information
called for in such form. It shall contain a complete list of raw materials, supplies,
containers, and fuel needed and for the exclusive use in the manufacture of
fertilizer. There shall be attached to the application a firm quotation of the
complete machinery equipment, and spare parts thereof needed by and for
the exclusive use of the applicant in the manufacture of fertilizer. The
application shall be sworn to before a notary public and filed in
quadruplicate."[2]

Likewise, since it is presumed that official duty has been regularly performed[3]
it can be assumed that the Secretary of Finance in approving the application,
was satisfied that those importations were not only needed for exclusive use in
the manufacture of fertilizer but that they were actually used therefor, for
otherwise, the Secretary would have not approved the application.

We, therefore, agree with the position of AFC that the certificate of exemption
granted by the Secretary of Finance on February 19, 1962 was sufficient proof
that it used the importations in question in the manufacture of fertilizer. This is
bolstered by the fact that the certificate of exemption was granted after the
imported goods have already arrived.

The Commissioner also argues that AFC failed to secure first an authority from
the Secretary of Finance to import the goods which AFC wanted to be exempt
from tax before said goods were actually imported. According to the
Commissioner, such an authority is a prerequisite for the enjoyment of tax
exemption, since in the letter of the Secretary of Finance dated February 19,
1962 granting AFC tax exemption under R.A. 3050, the Secretary stated:
"As a bonafide fertilizer manufacturer under the provisions of the aforesaid Act,
you are entitled to exemption from the payment of the special import tax,
margin fee on foreign exchange, sales and compensating taxes, and customs
duties directly payable by you in respect to the importation of capital goods,
equipment, spare parts, raw materials, supplies, containers and fuel which this
office may specifically authorize until December 31, 1965 unless sooner
terminated for failure to comply with the requirements of the law and existing
regulations."
Indeed, it would be illogical for the AFC to produce the required specific
authority to import because when the tax exemption was granted on February
19, 1962, sixty-one (61) of the imported goods have already arrived, and the
AFC has paid the corresponding compensating taxes pursuant to R.A. 901
granting manufacturer of fertilizer partial exemption from payment of
compensating taxes. With respect to the seven (7) importation which arrived
after the grant of exemption, it should be noted that AFC was able to withdraw
them from customs custody. We must not lose sight of the fact that before
goods may be withdrawn from customs custody, it is necessary that "a true or
photostat copy of the letter-grant authorizing the tax-free importation of the
articles applied to be withdrawn from customs custody" be presented, pursuant
to paragraph 1(e) of the implementing rules and regulations which is
Department Order No. 105-A[4] issued by the Secretary of Finance. Since AFC
has successfully withdrawn all the seven (7) imported articles from customs
custody, after payment of the compensating taxes, it may be inferred that AFC
has complied with the above provision of Department Order No. 105-A -- to
produce AFC's authority to import.

On the fourth issue, the Commissioner contends that respondent court erred in
ruling that AFC, by seeking to avail of its exemption under R.A. No. 3050, has in
effect abandoned and given up its partial exemption privilege under R.A. No.
901. According to the Commissioner, AFC could not have abandoned or given
up its exemption under R.A. No. 901 because it has already applied the same
to the importations involved herein, and that one cannot abandon or give up
what he has already taken advantage of. Furthermore, tax exemptions under
R.A. 901 and R.A. 3050 cannot be enjoyed simultaneously.

The Commissioner's contention is without merit. Department Order No. 105

issued by the Secretary of Finance expressly directed fertilizer manufacturers
enjoying benefits under R.A. No. 901 to likewise apply for the benefits of R.A. No.
3050. Said Department Order No. 105 provides:
"Fertilizer manufacturers who or which are granted tax exemption under R.A.
No. 901 should likewise file applications for tax exemption under R.A. No. 3050.
x x x."
In compliance with said directive, AFC filed its application for total exemption
under R.A. No. 3050 which was granted by the Secretary of Finance. The
Commissioner's argument that AFC enjoyed simultaneous exemption under
R.A. No. 901 and R.A. No. 3050, is without factual basis. R.A. No. 901 grants
partial exemption while R.A. 3050 grants total exemption. Once a
manufacturer of fertilizer chose to come under R.A. 3050, his partial exemption
under R.A. 901 ceased. In effect, he enjoyed only one exemption benefit, the
full exemption under R.A. No. 3050. As correctly ruled by the respondent court,
when AFC availed of the total exemption under R.A. No. 3050, it has in effect
given up the partial exemption which it was enjoying under R.A. No. 901.

Appeal by AFC

The assignment of errors of AFC may be synthesized to the sole issue as to

whether or not the Government is liable for the payment of interest on refunds
(on tax credit) of taxes erroneously or illegally paid to it on the ground that the
commissioner is guilty of unjust and unreasonable delay in performing an
obligation of the Government.

AFC points out that the Commissioner received the claim for tax credit on June
21, 1963 but it was only on January 11, 1965 or more than eighteen (18) months
later that a BIR examiner came to the premises of the taxpayer to investigate
the claim. In other words, the Commissioner did not act on the claim of AFC
and this inaction is the essence of the delay incurred by the Commissioner in
the performance of an obligation which entitled AFC to reparation in the form
of interest payment.

On the alleged delay, the Commissioner in his brief explained the following:
"The records of this case show that petitioner's claim for tax credit was received
by the Records Control Section of the Bureau of Internal Revenue on June 21,
1963 (Memorandum for Petitioner, CTA Case No. 1410, p. 2, p. 121 CTA rec.;
par. 5 of Answer, CTA Case No. 1410, p. 14 CTA rec.) and was received by the
Appellate Division of the said Bureau which processes claims of that nature on
June 25, 1963. The following day, or on June 26, 1963, the said claim was
indorsed to then BIR Regional District No. 3, Manila, for investigation and report
and, on the same date, petitioner was duly notified of the said indorsement.
(Exh D, p. 101, CTA rec.)

"However, shortly after the claim for tax credit was referred to Regional District
No. 3 for investigation and report, the said district was divided into two districts
to become Regional District Nos. 5 and 6.

"As a consequence of the division, revenue dockets and records then handled
by Region No. 3 had to be sorted and apportioned between the two new
districts. Office supplies, equipment and furniture were likewise divided and
transferred and personnel had to be allocated and assigned to each of the
new districts. Unfortunately, in the process, the papers bearing on petitioner's
claim for tax credit was misplaced.

"This was discovered when the report previously requested on the said claim
was called up in a memorandum of the Deputy Commissioner dated Nov. 23,
1964. As the fieldmen of the Bureau of Internal Revenue are grounded during
the month of December of each year; the investigation could not be
immediately undertaken after the said call-up but had to wait until January. On
January 27, 1965, the desired report contained in an indorsement dated
January 25, 1965 was submitted (Exh. 1, supra)."
Finding the above explanation meritorious, We agree with respondent court
that the delay in processing the claim of AFC for tax credit was neither
premeditated nor intentional. The Commissioner did not sit on the claim of
AFC. If there was any delay, it was due to the splitting into two (2) districts of
Regional District No. 3 where the claim was filed, as a result of which the
documents requesting for refund was misplaced. But the more important
consideration is the well settled rule that in the absence of a statutory provision
clearly or expressly directing or authorizing payment of interest on the amount
to be refunded to taxpayer, the Government cannot be required to pay
interest.[5] Likewise, it is the rule that interest may be awarded only when the
collection of tax sought to be refunded was attended with arbitrariness.[6] Such
circumstance is not present in the case at bar as the payment of compensating
taxes in question was made freely and voluntarily and conformably with the
partial exemption granted by Republic Act No. 901.
 REPUBLIC FLOUR MILLS INC. VS. THE COMMISSIONER OF CUSTOMS and THE
COURT OF TAX APPEALS, G.R. No. L-28463, May 31, 1971

FACTS:
From December 1963 to July 1964, Republic Flour Mills (petitioner)
exported Pollard and/or bran which was loaded from lighters alongside vessels
engaged in foreign trade while anchored near the breakwater. The
Commissioner of Customs and The Court of Tax Appeals (respondent) assessed
the petitioner by way of wharfage dues on the said exportations in the sum of
P7,948.00, which assessment was paid by petitioner under protest
In this case, Republic Flour Mills, Inc. would want the Court to interpret the
words “products of the Philippines” found in Section 2802 of the Tariff and
Custom Code, as excluding bran (ipa) and pollard (darak) on the ground that,
coming as they do from wheat grain which is imported in the Philippines, they
are merely waste from the production of flour. Another main argument of the
petitioner is that no government or private wharves or government facilities
were utilized in exporting such products. In that way, it would not be liable at
all for the wharfage dues assessed under such section by respondent
Commission of Customs.
On the other hand, the stand of respondent Commissioner of Customs
was that petitioner was liable for wharfage dues “upon receipt or discharge of
the exported goods by a vessel engaged in foreign trade regardless of the non-
use of government-owned or private wharves.” Respondent Court of Tax
Appeals sustained the action taken by the Commissioner of Customs under the
appropriate provision of the Tariff and Customs Code.
ISSUE: Whether or not such collection of wharfage dues was in accordance
with law
RULING/HELD:
As stated on the Section 2802 of the Tariff and Custom Code, "There shall
be levied, collected and paid on all articles imported or brought into the
Philippines, and on products of the Philippines exported from the Philippines, a
charge of two pesos per gross metric ton as a fee for wharfage." appears to be
quite precise. Section 2802 refers to what is imported and exported.
The objective of this act must be carried out. Even if there is doubt to the
meaning of the language employed, the interpretation should not be at war
with the end sought to be attained. If petitioner were to prevail, subsequent
pleas motivated by the same desire to be excluded from the operation of the
Tariff and Customs Code would likewise be entitled to sympathetic
consideration. It was desirable then that the gates to such efforts at unjustified
restriction of the coverage of the Act are kept closed. Otherwise, the end result
would be not respect for, but defiance of, a clear legislative mandate
The decision of respondent Court of Tax Appeals of November 27, 1967 is
affirmed with costs against petitioner.
99 Phil. 847
CONCEPCION, J.:
The City of Manila instituted this action for the collection of a sum of money
allegedly due from the defendant Inter-Island Gas Service, Inc., by way
of deficiency municipal tax. The main issue is whether liquefied flammable
gas comes within the purview of section 1, Group 2, of Ordinance No. 1925
of the City of Manila, as amended by Ordinance No. 3364 thereof,
which provides that:
"* * * there shall be paid to the City Treasurer for engaging in any of
the businesses or occupations below enumerated, quarterly license fees
based on gross sales or receipts realized during the preceding quarter, in
accordance with the rates herein prescribed: Provided, however, That a
person engaging in any business or occupation for the first time shall pay the
initial license fee based on the probable gross sales or receipts for the first
quarter beginning from the date of the opening of the business as
indicated herein for the corresponding business or occupation.
* * * * * *
"Group 2. Retail dealers in new (not yet used) merchandise, which dealers are
not yet subject to the payment of any municipal tax, such as: (1) Retail
dealers in general merchandise and (2) retail dealers exclusively engaged
in the sale of electrical supplies; sporting goods; office equipment and
materials; rice; textile including knitted wares; hardwares, including, glasswares;
cooking utensils and construction materials; papers; books, including
stationary." Both parties stipulated:
"' 1. That the plaintiff is a municipal corporation created and existing under the
laws of the Philippines and that the defendant is a corporation likewise created
by and existing under the laws of the Philippines;
" '2. That the defendant sold at retail in the City of Manila from the 4th quarter
of 1949 to the 4th quarter of 1951, inclusive, cooking appliances and liquefied
petroleum gas in cylinders in the following amounts:
Amount of
Period of sales
sales
4th quarter 1949 ............................................................ P207,651.53
1st quarter 1950 ........................................................... 190,936.92
2nd quarter 1950 ........................................................... 188,796.79
3rd quarter 1950 ........................................................... 212,542.53
4th quarter 1950 ........................................................... 206,696.26
1st quarter 1951 ........................................................... 216,346,69
2nd quarter 1951 ........................................................... 219,283.45
3rd quarter 1951 ........................................................... 184,290.85
4th quarter 1951 ........................................................... 191,138.62
" '3. That the defendant paid the different amounts alleged in paragraph 4 of
the complaint corresponding to the quarters therein stated under Ordinance
No. 1925, as last amended by Ordinance No. 3364, based on its sales of
cooking appliances only;
"'4. That the total claim of the plaintiff against the defendant under section 1,
Group 2, of Ordinance No. 1925, as last amended by Ordinance No. 3364 is
Pll,250.00, based on the defendant's sales alleged in paragraph 2 of the
complaint computed at the rate of Pl,250.00 quarterly corresponding to the
first, second, third and fourth quarters of 1951, and the first quarter of 1952; and
" '5. That the defendant has paid the prescribed fees under Ordinance No.
3259 of the City of Manila, 'An Ordinance prescribing regulations for storage,
installations, use and transportation of compressed and liquefied
inflammable gases other than acetylene, and providing fees therefor',
covering the same quarters mentioned in paragraph 4 of the complaint."
Then the case was submitted for decision, whereupon the Court of First
Instance of Manila rendered judgment for the plaintiff, the dispositive part of
which, as amended, reads as follows:
"Therefore, this Court is of the opinion and so holds, that the City Government
of Manila has the right to impose tax on liquefied flammable gas under
Ordinance No. 1925, as amended by Ordinance No. 3364. And for this
reason, the defendant Inter-Island Gas Service, Inc., is hereby sentenced
to pay to the City of Manila the sum of F8,361 as deficiency tax due from
the year 1952, inclusive, including the amount of P50 as surcharge
thereon, and the payment of the costs * * *"
The defendant has appealed from this decision and now in maintains that:
1. "The lower court erred in not holding and declaring that the No. 1925 as
amended (imposing a tax for purposes of revenue), does not clearly
provided that it applies to the sale of liquefied flammable gas.
2.
3. "The lower court erred in not holding and declaring that the provisions of
section 1, Group 2, of Ordinance No. 1925, as amended by Ordinance
No. 3364, are and clearly within the legislative powers granted to the
Municipal Board of Manila, if said Ordinance is applied to the sale
of liquefied flammable gas.
4.
5. "That assuming arguendo that under the provisions of section 1, Group 2,
of Ordinance No. 1925, as last amended by Ordinance No. 3364,
liquefied flammable gas is included, still the lower court erred in not
finding and declaring that said Ordinance No. 1925, as amended, is
a.percentage tax; hence, the complaint does not state a cause of
action because no allegation has been made that the
ordinance in question had previously been approved by the President
of the Philippines.

6. "Further assuming arguendo that Ordinance No. 1925, as amended, is

valid, yet the lower court erred in not finding that to apply it to the
liquefied gas business of the defendant will constitute double taxation;
hence, unconstitutional and void.

7. "The lower court erred in ordering the defendant to pay the City of
Manila the sum of P8.861.00 as deficiency tax due under Ordinance No.
1925, as amended by Ordinance No. 3364, and to pay the costs."
In support of the first two assignments of error appellant cites paragraphs
(m) and (o) of section 18 of the Revised Charter of Manila (Republic Act No.
409) authorizing said city:
"'(m) To tax, fix the license fee. and regulate the * * * storage and sale
of * * * petroleum or any of the products thereof and of all other highly
combustible or explosive materials
********
" '(o) To tax and fix the license fee on dealers in general merchandise * * *."
Then appellant argues that liquefied flammable gas is included in said
paragraph (m) and, hence, excluded from the
connotation of the word "merchandise," as used in paragraph
(o). This argument at first impressed the court, but, upon further reflection, we
are persuaded that it is not decisive on the issue before us. Indeed, although
the clause "petroleum or any of the products thereof and all other
highly combustible or explosive material," appearing in said
paragraph (m) may indicate the intent of Congress of the Philippines to
include liquefied flammable gas within the purview of said paragraph, it does
not follow necessarily that in using the word "merchandise", in Municipal
Ordinance No. 1925, as amended, the Municipal Board of Manila intended to
convey thereto the restricted meaning allegedly given to the term
"merchandise" in paragarph (o) of Section 18 of its Revised Charter, or to
exclude liquefied flammable gas from the operation of said ordinance. In this
connection, it should be noted that the authority of the City of Manila
to tax dealers in liquefied flammable gas under its Revised Charter, is
conceded. Accordingly, the question whether the grant of power appears in
paragraph (m) or in paragraph (o) of the aforementioned Section 18, is
immaterial to the exercise of said authority.
As already adverted to, the case hinges on the connotation of the term
"merchandise" as used in said ordinance, or the interest of the Municipal Board
in connection therewith. Referring to the meaning of said word, Corpus Juris
Secundum has the following to say:
"The word 'merchandise, employed as a noun, is defined as meaning the
objects of commerce; the subjects of commerce and traffic; whatever is
usually bought and sold in trade, or market, or by merchants; goods; wares;
commodities; commodities, goods, or wares bought and sold for gain;
commodities or goods to trade with; a commercial commodity or
commercial commodities in general,
"The term is also defined as meaning things which are ordinarily bought and
sold; anything' movable, anything customarily bought and sold for profit; any
movable object of trade or traffic; any article which is the object of
commerce, or which may be bought or sold in trade; the staple of a mercantile
business; that which is passed from hand to hand by purchase and
sale." (Vol. 57 pp. 1056-1057.)
Inasmuch as, admittedly, liquefied gas may be, and is being, bought and
sold in trade, it clearly is a merchandise, and comes within the purview of the
ordinary import of this world. Was it used in this sense in Ordinance No. 1925, as
amended, as, in effect, held by the lower court, or did the Municipal Board
intend to convey therewith the meaning allegedly
given thereto in paragraph (o) of Section 18 of Republic Act No. 409, as
contended by defendant-appellant? We find ourselves unable to accept the
latter view, not only because the former is more in accord with the simple
and usual connotation of said term, but, also, because it appears that said
ordinance has not followed the classification made in Section 18 of Republic
Act No. 109. Thus, for instance, although the word "merchandise" appears in
paragraph (o) of said Section 18, it is included in Group 2 of said ordinance,
together with electrical supplies, sporting goods, textiles, hardwares, including
glasswares, and cooking utensils, which are found in paragraph (n) of said
Article 18. Moreover, said Group 2 refers to "retail dealers in new (not yet used)
merchandise, which dealers are not yet subject to the payment of any
municipal tax, such as: (1) Retail dealers in general merchandise * *
* Obviously, the enumeration made in said Group 2 is not all inclusive. It merely
illustrates some of the objects the dealers in which are taxed under its provision.
The word "merchandise" as used therein has not restrictive meaning. Said
group taxes dealers in all "new (not yet used) merchandise, which dealers are
not yet subject to the payment of any municipal tax." Liquefied flammable gas
is a "new" object of commerce, and hence, merchandise, and, at the time of
the passage of said ordinance, dealers therein were not, as yet, subject
to the payment of any municipal tax. In short, the first and second
assignments of error are untenable.
Under the third assignment of error, it is claimed that the tax imposed under
the ordinance in question is in the nature of a percentage tax. The schedule
of taxes under the aforementioned Group 2 is a follows:
Quarterly gross
Class Quarterly license fee
sales
1................................... Over to P125,000.00 Pl,250.00
2................................... P100,000.00 to 125,000.00 Pl,125.00
3................................... 90,000.00 to 99,999.99 1,000.00
4................................... 80,000.00 to 89,999.99 900.00
5................................... 70,000.00 to 79,999.99 800.00
6................................... 60,000.00 to 69,999.99 700,00
7................................... 50,000.00 to 59,999.99 600.00
8................................... 45,000.00 to 49,999.99 500.00
9................................... 40,000.00 to 44,999.99 450.00
10.................................. 36,000.00 to 39,999.99 400.00
11................................... 33,000.00 to 35,999.99 360.00
12................................... 30,000.00 to 32,999.99 330.00
13................................... 27,500.00 to. 29,999.99 300.00
14................................... 25,750.00 to 27,499.99 275.00
15................................... 22,500.00 to 24,999.99 250.00
16................................... 20,500.00 to 22,499.99 225.00
17................................... 18,700.00 to 20,499.99 205.00
18................................... 17,200.00 to 18,699.99 187.00
19................................... 15,500.00 to 17,199.99 172.00
20................................... 14,100.00 to 15,499.99 155.00
21................................... 12,700.00 to 14,099.99 141.00
22................................... 11,500.00 to 12,699.99 127.00
23................................... 10,500.00 to 11,499.99 115.00
24................................... 9.500.00 to 10,499.99 105.00
 25................................... 8,700.00 to 9,499.99 95.00
26................................... 8,000.00 to 8,699.99 87.00
27................................... 7,200.00 to 7,999.99 80.00
28................................... 6,300.00 to 7,199.99 72.00
29................................... 5,500.00 to 6,299.99 63.00
30................................... 5,000.00 to 5,499.99 55.00
31................................... 4,500.00 to 4,999.99 50.00
32................................... 4,400.00 to 4,999.99 45.00
33................................... 3,500.00 to 3,999.99 40.00
34................................... Less than to 3,500.00 35.00
PROVIDED, That retail dealers selling only rice, whose quarterly sales do
not exceed two thousand pesos (P2,000) shall only pay a quarterly license fee
of eighteen pesos (P18)." (Appellee's Brief, pp. 2-3.)
This is not a percentage tax. It is a graduated tax, not based on a given ratio
between the gross income and the burden imposed upon the taxpayer.
The fourth assignment of error is even more devoid of merit because: (1) the
fees paid by the defendant under Ordinance No. 3259 for the
storage, installation, use and
transportation of compressed inflammable gases was charged by way of
license fees, in the exercise of the police power of the State, not under its
inherent power of taxation; and (2) double taxation is not prohibited in our
Constitution.
Being a mere consequence of the previous assignments of error, the last
one needs no discussion.
Wherefore, the decision appealed from is hereby affirmed, with costs against
the defendant-appellant. It is so ordered.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Reyes,
J. B. L., and Felix, JJ., concur.
G.R. No. L-8154 December 20, 1915
JOAQUIN DE VILLATA, petitioner,
vs.
J.S. STANLEY, Acting Insular Collector of Customs, respondent.
Haussermann, Cohn and Fisher for petitioner.
Acting Attorney-General Harvey for respondent.
CARSON, J.:
In the language of plaintiff's brief "This an application for a writ of prohibition
directed against the Collector of Customs and intended to restrain him from
enforcing against plaintiff the provisions of Customs Administrative Circular No.
627. The complaint alleges that the plaintiff is the master of S.S. Vizcaya of the
coastwise trade; that as such captain, on July 6, 1912, when sailing from the
port of Gubat to the port of Legaspi, P. I., he failed to notify the postmaster of
the former port, in advance, of his intended sailing, and therefore failed to carry
the mails between said ports; that defendant is threatening to suspend or
revoke the license of plaintiff by reason of said facts, under and by virtue of the
terms of Customs Administrative Circular No. 627, to the great and irreparable
damage of plaintiff."1awphil.net
Customs Administrative Circular No. 627 is as follows: "Prescribing regulations for
the transportation of mails on vessels engaged in the Philippine Coastwise
trade.
MANILA, December 24, 1910.
PARAGRAPH I. Every vessel to which a license is granted under the
provisions of section 117 of Act No. 355 to engage in the coastwise trade
of the Philippine Islands ... shall carry mail tendered for transportation in a
safe and secure manner, and shall keep the same free from injury by
water or otherwise. Master, owners, or agents of vessels shall give prompt
advance notice of the intended sailing thereof to the postmaster at each
port of departure in ample time to permit the making up of mails for
dispatch. Any changes in such sailings shall also be promptly
communicated to the postmaster.
PAR. II. Mails carried by vessels shall be delivered at ports of call on shore
or on a wharf immediately after arrival and prior to the discharge or lading
of any cargo, and shall be taken from shore or wharf just before the
vessel's sailing time, except at ports where the postal authorities have
arranged for ship-side delivery.
PAR. III. Each vessel mentioned in the preceding paragraph shall be
provided with a lock box having a slot in the top or side thereof to receive
letters, papers, or other mail matter delivered on board the vessel after
the mails have been closed at the post-office for that particular voyage.
All mail matter deposited in such box shall be delivered by the master, or
his representative, to the postmaster at a port of call where a post-office
is located.itc-a1f
PAR. IV. The master, owner, agent, or other person in charge of a vessel
shall be legally liable for the loss of or damage to mail in his custody, or in
the custody of his representative or agents.
PAR. V. The license of the master of any vessel engaged in the coastwise
trade of the Philippine Islands may be suspended or revoked by the Insular
Collector of Customs for failure to comply with or strictly enforce the
regulations governing the transportation of mails.
 PAR. VI. Postmaster throughout the Islands are requested to promptly
report to this office in writing any unnecessary delay in the handling of
mails transported by vessels, or failure on the part of masters thereof to
comply with the requirements of this circular.
PAR. VII. Philippine customs officers shall give due publicity to the terms of
this circular.
The case is submitted to us upon the plaintiff's demurrer to the defendant's
answer to the complaint.
As we understand the issues raised by the pleadings, the real questions
submitted to us for adjudication are: First. Has the Government of the Philippine
Islands the power, through any of its agencies, to require, with reference to all
vessels engaged in the coastwise trade, that "Every vessel to which a license is
granted under the provisions of section 117 of Act No. 355 to engage in the
coastwise trade of the Philippine Islands ... shall carry mail tendered for
transportation in a safe and secure manner, and shall keep the same free from
injury by water or otherwise. Masters, owners, or agents of vessel shall give
prompt advance notice of the intended sailing thereof to the postmaster at
each port of departure in ample time to permit the making up of mails for
dispatch. Any changes in such sailings shall also be promptly communicated
to the postmaster?"
Second. Assuming that such power exists, was the Collector of Customs clothed
with power to promulgate a circular at the date of the issue of Customs Circular
No. 627, prescribing the masters of all vessels engaged in the coastwise trade
must comply with such a regulation, and to penalize them for failure so to do
by suspending or revoking their licenses? Both these questions must, we think,
be answered in the affirmative.
We shall first examine the question of the power of the Philippine Government
to prescribe and enforce a regulation of this kind at the date of issuance of
Customs Circular No. 627.
A decree dated August 4, 1863, provided as follows:
In the matter of the investigation made for the application of the
provisions now in force relative to the notice to be given in advance to
the post-office of the sailing of ships, in the exceptional case of a ship just
arrived in port and which has to sail immediately for the convenience of
the interests of its owners or consignees,
Having considered the ordinances relating to packet boats and other
royal orders and superior decrees imposing upon the captain of every ship
the duty of giving notice to the post-office four days in advance at least
of the date they are to sail and the port of destination,
Considering that the actual application of such provisions might affect in
a remarkable way the commercial interests in the very exceptional case
spoken of, where the ship just anchored should have to set sail again
before the period of four days referred to,
The capitania del puerto, the administracion general de aduanas,
comandancia general de carabineros and the administracion general
de correos, having been heard,
This superior civil government ordains: That when a ship falls within the
precise exceptional case raised by the within resolution, its captain shall
only be required to give, from the very instant of determining the sailing of
 the ship, immediate notice to the post-office stating the day and hour in
which the sailing must be made,
For the purposes that may be proper, let this decree be communicated
to the comandancia general de marina, capitania del puerto de Manila
and Cavite and the administracion general de correos, and let same be
published in the Gazette for general information. Report to the
government of H.M. and file. (Berriz, Diccionario de la Administracion de
Filipinas, 1888, vol. 1, p. 516.)
A later decree dated January 13, 1876, was as follows:
Having considered the consultation made by the comandancia general
de marina proposing the amendment of section 7 of the superior decree
of December 18, 1868, relative to the duty imposed upon shipowners or
consignees of steamers whether national or foreign, plying between this
port and the other ports of the Archipelago or China and vice versa, of
giving four days' notice before the day they are to sail, to their great
prejudice; and
Having considered the reports submitted by the direccion general de
administracion civil and the administracion general de correos:
Considering the fact that since that superior order was enforced, the
fortunate increase of steamers and consequently the frequent repetition
of voyages made by them, is evident, and therefore, this circumstance
alone would change the object or reason which at that time made it
necessary to impose the duty referred to in said section 7.
Considering the importance and value at certain times of the prompt
clearance of one of its ships to a commercial firm which is at all times
worthy of protection by the government.
This general government ordains as follows:
1. The period of four days prescribed by section 7 of of the superior decree
of December 18, 1868, is reduced to two.
2. The shipowners or consignees of steamers, whether national or foreign,
plying between this port and the other ports of the archipelago or China,
and vice versa, shall give notice to the captain of the port's before
midday, in order that the post-office may have immediate notice of the
sailing at an hour that may enable it to insert same in the Gazette of next
day, and the ship may sail in the afternoon of the day next following.
3. The office of the captain of the port will report daily to the
administracion general de correos all ships that at 12 o'clock, noon, may
have requested the visita de salida and in the event of there being none
a report shall be sent stating that fact.
4. The report of the captain of the port's office must be at the
administracion general before 2 o'clock, p.m., every day.
5. Captains and consignees of ships can in no case request the visita de
salida without the period of forty-eight hours intervening between the time
they report and the visit, so as to give opportune notice to the
administracion de correos.
6. The centro de correos shall send the notices to the Gazette and other
newspapers, and shall post them besides on a bulletin board at the door
of the post-office.) Berriz, Diccionario de la Administracion de Filipinas,
1888, vol. 1, pp. 528, 529.)
The decree just cited is the latest provision of Spanish law dealing with the
subject matter under consideration to which our attention has been invited,
and we assume that it prescribed the law in force in these Islands at the date
of the American occupation. An examination of its terms leaves little room for
doubt that under Spanish sovereignty the Government of these Islands
assumed and exercised the right to prescribe reasonable regulations requiring
vessels trading in the Philippine Islands to carry the mails and to give due notice
of their sailing hours to the postal authorities. Indeed it is a matter of common
knowledge that, under the laws and regulations in force at the time of the
change of sovereignty, all vessels engaged in the coasting trade were required
to carry the mails, and to furnish the postal authorities with due notice of their
sailing hours. There is no allegation in the pleadings denying the continuance
in force of this practice under American sovereignty down to the date of the
issuance of the above cited Customs Administrative Circular; and we are not
advised of the enactment or promulgation of any local statute or regulation
prior to that date which would excuse these vessels from compliance with the
regulations in force under the old sovereignty with regard thereto. Counsel for
the plaintiff do not challenge the power of the former sovereign to promulgate
the above-cited decrees regulating the postal service, and rely wholly upon
their contention that whatever may have been the state of the law prior to the
enactment of the Philippine Bill of Rights (Act of Congress, July 1, 1902) the
Philippine Government was thereafter denied the power to enforce or enact
such regulations.
The inquiry, therefore, as to the power of the Philippine Government, through its
appropriate agents, to enact and enforce a regulation requiring all vessels
licensed to engage in the interisland trade to transport the mails and to give
timely notice of their sailing hours to the local postal authorities may be limited
to a consideration as to whether or not it lost the power so to do, the enactment
of the Philippine Bill of Rights.
We are of opinion, and so hold, that there is nothing in the Philippine Bill of Rights
which deprived the Philippine Government of the power to make and enforce
reasonable regulations of this nature with which it was clothed prior to the
enactment of that statute.
It is contended that to require the master of a vessel to transport the mails and
to give timely notice to the postal authorities of the hour of his departure may
in some instances cause grave loss and serious inconvenience to her owner by
preventing her departure at an earlier hour; and that in all instances it imposes
an obligation upon the owner to render services which the Government has no
power to require in the absence of a contract, and without just compensation.
It must not be forgotten, however, that vessels licensed to engage in the
interisland trade are common carriers; and that as to them, there is an extensive
field of regulation and control which may properly be exercised by the state
without contravention of the provisions of the Philippine Bill of Rights or the
Constitution of the United states; and this notwithstanding the fact that the
enforcement of such regulations may tend to restrict their liberty and to control
the free exercise of their discretion in the conduct of their business to a degree
and in a form and manner which would not be tolerated under the
constitutional guarantees with relation to the private business of a private
citizen.
Common carriers exercise a sort of public office, and have duties to perform in
which the public is interested. Their business is, therefore, affected with a public
interest, and is subject to public regulation.
The nature of the business in which they are engaged as a public employment,
is such that it is clearly within the power of the state to impose such just and
reasonable regulations thereon as in the interest of the public it may deem
proper. Of course such regulations must not have the effect of depriving an
owner of this property without due process of law, nor of confiscating or
appropriating private property without just compensation, nor of limiting or
prescribing irrevocably vested rights or privileges lawfully acquired under a
charter or franchise. But aside from such constitutional limitations, the
determination of the nature and extent of the regulations which should be
prescribed rests in the hands of the legislator. (New Jersey Steam Nav. Co. vs.
Merchants' Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.)
Of course this power to regulate is not a power to destroy, and limitation
is not the equivalent of confiscation. Under pretense of regulating fares
and freights the state can not require a railroad corporation to carry
persons or property without reward. Nor can it do that which in law
amounts to a taking of private property for public use without just
compensation, or without due process of law. (Chicago etc. R. Co. vs.
Miesota, 134 U.S., 418; Minneapolis Easter R. Co. vs. Minnesota, 134 U. S.,
467.) But the judiciary ought not to interfere with regulations established
under legislative sanction unless they are so plainly and palpably
unreasonable as to make their enforcement equivalent to the taking of
property for public use without such compensation as under all the
circumstances is just both to the owner and to the public, that is, judicial
interference should never occur unless the case presents, clearly and
beyond all doubt, such a flagrant attack upon the rights and property
under the guise of regulations as to compel the court to say that the
regulations in question will have the effect to deny just compensation for
private property taken for the public use. (Chicago etc. R. Co. vs.
Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson
Bridge Co. vs. Henderson City, 173 U.S., 592, 614.) (Fisher vs. Yangco
Steamship Co., 31 Phil. Rep., 1.)
We are of opinion that a regulation requiring all coasting vessels licensed to
engage in the interisland trade to carry the mails and give prompt advance
notice in all cases of intended sailings in ample time to permit dispatch of mails,
and of changes of sailing hours, (manifestly with a view to make it possible for
the post-office officials to tender mail for transportation at the last practicable
moment prior to the hour of departure) is a reasonable regulation, made in the
interests of the public, which the states has a right to impose when it grants
licenses to the vessels affected thereby. We are not now considering the
question of the right of these vessels to direct compensation for the
transportation of such mail when tendered. We are considering merely the right
of the state to require all licensed coasting vessels to hold themselves in
readiness to receive and to carry mail when duly tendered, and to give such
reasonable notice as to their sailing hours as may be necessary to secure ample
time for the tender of the mail before the sailing hour. Certainly we would not
be justified in holding that such a regulation is "so plainly and palpably
unreasonable" and "such a flagrant attack upon the rights of property under
the guise of regulations" as to compel the court to say that its enforcement
would be "equivalent to the taking of property for public use without such
compensation as under all the circumstances is just both to the owner and to
the public."
Considerable expenditures of public money have been made in the past and
continue to be made annually for the purpose of securing the safety of vessels
plying in Philippine waters. To this end lighthouses have been erected; wharfs
and docks constructed; and buoys, bells and other warning signals maintained
at points of danger. Largely for the purpose of conveying timely warnings of
threatening weather to those that go down into the sea in ships, appropriations
are made for the support of a Weather Bureau Coast and geodetic surveys are
conducted to keep them informed as to the dangers hidden beneath the
treacherous sea. Licensed pilots are provided to insure safe entry into the
dangerous ports and harbors throughout the Islands. Maps, charts and general
information as to condition affecting travel by water are kept up to date, and
furnished all vessels having need for them. In a word, the Government
unhesitatingly spends a considerable part of the public funds wherever and
whenever it appears that the safety and even the convenience of the shipping
in Philippine waters will be advanced thereby. Can it be fairly contended that
a regulation is unreasonable which requires vessels licensed to engaged in the
interisland trade, in whose behalf the public funds are so lavishly expended, to
hold themselves in readiness to carry the public mails when duly tendered for
transportation, and to give such reasonable notice of their sailing hours as will
insure the prompt dispatch of all mails ready for delivery at the hours thus
designated?
It is urged, also, that the promulgation and enforcement of a law or regulation
requiring coastwise trading vessels to make provisions for the transportation of
the mails when tendered, and to give notice of their sailing hours in ample time
to permit the dispatch of the mails, is in effect to deprive the owners of their
property without due process of law, to deny them the equal protection of the
laws, and to violate the provisions of the Bill of Rights which prescribe that the
rule of taxation shall be uniform.
We cannot agree with any of these propositions. It is only when the owner of a
vessel enters the quasi-public employment of a common carrier that
regulations of this kind begin to affect or control the conduct of his business,
and he cannot be heard to complain that he is deprived of his property without
due process of law when he elects, of his own free will and accord, to secure
a license as a common carrier in Philippine waters, and to engage in a business,
one of the conditions of which is that he will comply with such regulations. Under
the law in force in these Islands at the time of the change of sovereignty, and
of the enactment of the Act of Congress the owners of all licensed coasting
vessels were required to comply with regulations of this character, as one of the
conditions upon which they were permitted to engage in the quasi-public
employment of carriers in the interisland trade. Manifestly there is no merit in a
claim by the owner of one of these vessels that the enforcement of these
regulations amounts to a deprivation of property without due process of law.
The owner of every coasting vessels in these Islands licensed to engage in the
interisland trade, prior to the promulgation of Customs Administration Circular
No. 627, took out his license and dedicated his vessel to the quasi-public
employment of a common carrier with full knowledge of the existence of
regulations such as that now under consideration, and of the assertion and
assumption by the Government of power to promulgate and enforce such
regulations. It is futile, therefore, for any such owner to contend that the
promulgation or enforcement by the Government through its proper agencies
of any reasonable order of this kind, deprives him of property without due
process of law. No one is compelled to comply with these regulations unless he
voluntarily enters upon the business which they affect, and if he does enter such
business he cannot claim that he is unlawfully deprived, without due process of
law, of that which he voluntarily agrees to surrender.
As to the contention that the regulation under consideration denies to the
owners of coastwise trading vessels the equal protection of the laws, and
violates the rule prescribing uniformity of taxation it should be insufficient
perhaps to say that if regulations of this kind be regarded as in the nature of a
tax upon the vessels affected thereby, the tax cannot be attacked for lack of
uniformity so long as it is laid uniformly upon all the members of the class to
which it extends. In this connection, the argument of counsel (omitting citation
of authority) is substantially as follows:
The constitutional law requiring uniformity of taxation imposes the duty
upon the State directly to lay its burdens uniformly and evenly upon all. It
does not permit the State to lay any particular burden, e. g. the carriage
of the mails, upon any person or class of persons, on the ground that said
person or class may turn about and divide the burden with other persons
or amongst a slightly larger class. The carriage of the public mails is a
public, governmental function to be performed at public cost. It is not
permissible to impose that burden upon the carriers either absolutely or
under the implied understanding that the carriers will shift the burden to
that portion of the public who constitute the shippers or patrons of the
carriers.
Nor yet is the circular in question capable of justification on the ground
that the service required is not a gratuitous one, but one required in
consideration of, and in exchange for the coastwise license, or (in the
case of foreign vessels) the permission to visit at two Philippine ports. It is a
matter of law no coastwise vessel can engage in its business without the
prescribed license. To require therefore that a vessel must undertake the
free carriage of mails in order to procure a license is the exact equivalent
of requiring that it choose between carrying all mail matter free of charge
and going out of business.
Once grant that the State may require free carriage of mails as a
condition for the securing of a license and you must also grant the right to
require the free clothing of the Constabulary as a condition for the license
to import merchandise and to do business on the Escolta. There is no
length to which the parallel may not be logically carried, and if the
requirements of this circular could be validated on this ground, the Insular
government could exist handsomely without taxation by the similar levy of
tribute in kind as a condition precedent to the exercise of vocations,
trades and professions. It goes without saying, however, that a State so
supported would not be imposing its taxation uniformly as is required by
the fundamental law of our land.
Premising what follows with the observation that our statutes, although they
require "uniformity" of taxation, do not prescribe the rule as to "equality" in
taxation which prevails in some jurisdictions; we think these contentions of
counsel can best be disposed of by a few citations from the highest text-book
and judicial authorities.
The distinction between "equality" and "uniformity" in taxation is thus stated in
Black on Constitutional Law, page 392, citing Miller, Const., 241:
In practice, therefore, "equality" in taxation means to be called upon to
pay taxes, which taxes shall be strictly proportioned to the relative value
of their taxable property. And `uniformity' in taxation means that all
taxable articles or kinds of property, of the same class, shall be taxed at
the same rate. It does not mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries shall all be
assessed at the same rate. Different articles may be taxed at different
amounts, provided the rate is uniform on the same class everywhere, with
all people, and at all times.
Applying the rule here laid down the tax in question seems to be
sufficiently uniform.
Neither does the fact that the imposition of the tax may result in double
taxation necessarily affect its validity. (1 Cooley on Taxation, 3d., 389.)
The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority
which exercises it. It reaches to every trade or occupation; to every object
of industry, use, or enjoyment; to every species of possession; and it
imposes a burden which, in case of failure to discharge it, may be
followed by seizure and sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point does the power of the
Government affect more constantly and intimately all the relations of life
than through the exactions made under it. ... The power to tax rests upon
necessity, and is inherent in every sovereignty. The legislature of every free
States will possess it under the general grant of legislative power, whether
particularly specified in the constitution among the powers to be
exercised by it or not. No constitutional government can exist without it,
and no arbitrary government without regular and steady taxation could
be anything but an oppressive and vexatious despotism, since the only
alterative to taxation would be a forced extortion for the needs of
government from such persons or objects as the men in power might
select as victims. Chief Justice Marshall has said of this power: "The power
of taxing the people and their property is essential to the very existence
of government, and may be legitimately exercised on the objects to
which it is applicable to the utmost extent to which the government may
choose to carry it. The only security against the abuse of this power is
found in the structure of the government itself. In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. The people of a State,
therefore, give to their property; and as the exigencies of the government
cannot be limited, they prescribe no limits to the exercise of this right,
resting confidently on the interest of the legislator, and on the influence of
the constituents over their representative, to guard them against its
abuse."
The same eminent judge has said in another case: "The power of
legislation, and consequently of taxation, operates on all persons and
property belonging to the body politic. This is an original principle, which
has its foundation in society itself. It is granted by all for the benefit of all. It
resides in the government as part of itself, and need not be reserved
where property of any description, or the right to use it in any manner, is
granted to individuals or corporate bodies. However absolute the right of
an individual may be, it is still in the nature of that right that it must bear a
portion of the public burdens, and that portion must be determined by
the legislature. This vital power may be abused; but the interest, wisdom,
and justice of the representative body, and its relations with its
constituents, furnish the only security where there is no express contract
against unjust and excessive taxation, as well as against unwise legislation
generally." And again, the same judge says, it is "unfit for the judicial
department to inquire what degree of taxation is the legitimate use, and
what degree may amount to the abuse, of the power." (Numerous cases
cited in support of the text.) Constitutional Limitations, p. 587, Cooley.
It is insisted, however, that the tax in the case before us is excessive, and
so excessive as to indicate a purpose on the part of Congress to destroy
the franchise of the bank, and is, therefore, beyond the constitutional
power of Congress.
The first answer to this is that the judicial cannot prescribe to the legislative
department of the government limitations upon the exercise of its
acknowledged powers. The power to tax may be exercised oppressively
upon persons, but the responsibility of the legislature is not to the courts,
but to the people by whom its members are elected. So if a particular tax
bears heavily upon a corporation or a class of corporations, it cannot, for
that reason only, be pronounced contrary to the Constitution. (Veazie
Bank vs. Fenno, 8 Wall., 533, 548.)
Whilst, as a result of our written constitution, it is axiomatic that the judicial
department of the government is charged with the solemn duty of
enforcing the Constitution, and therefore in cases properly presented, of
determining whether a given manifestation of authority has exceed the
power conferred by that instrument, no instance is afforded from the
foundation of the government where an act, which was within a power
conferred, was declared to, be repugnant to the Constitution, because it
appeared to the judicial mind that the particular exertion of constitutional
power was either unwise or unjust. To announce such a principle would
amount to declaring that in our constitutional system the judiciary was not
only charged with the duty of upholding the Constitution but also with the
responsibility of correcting every possible abuse arising from the exercise
by the other departments of their conceded authority. So to hold would
be to overthrow the entire distinction between the legislative, judicial and
executive departments of the government, upon which our system is
founded, and would be a mere act of judicial usurpation. (McCray vs.
U.S., 195 U.S., 27.)
But, it is insisted, this taxation is so unequal and arbitrary in the fact that it
taxes a business when carried on by a corporation, and exempts a similar
business when carried on by a partnership or private individual, as to
place it beyond the authority conferred upon Congress. As we have seen,
 the only limitation upon the authority conferred is uniformity in laying the
tax, and uniformity does not require the equal application of the tax to all
persons or corporations who may come within its operation, but it is limited
to geographical uniformity throughout the United States. This subject is fully
discussed and set at rest in Knowlton vs. Moore (178 U.S., 41; 44 L. ed., 969;
20 Sup. Ct. Rep., 747), and we can add nothing to the discussion
contained in that case. (Flint vs. Stone Tracy Co., 31 Sup. Ct. Rep., 342,
352.)
It will be observed that we do not consider or decide the question discussed in
plaintiff's brief as to the power of the Philippine Government to condition the
grant of licenses to vessels engaged in the interisland trade on their agreement
to transport the mails free of charge. We do not think that question is squarely
submitted to us by the pleadings. Except, perhaps in paragraph III, the circular
itself nowhere requires or imposes upon the vessels affected thereby the duty
of carrying the mails free of charge; and it is manifest both from the complaint
and the brief of counsel that the prayer for prohibition is not based on that
relatively unimportant provision of the circular.
The real contention arises over the provisions of paragraph I, which require
trading vessels to carry mails tendered for transportation in a safe and a secure
manner. But this does not necessarily require these vessels to accept and to
carry mail free of charge. It is only when goods are lawfully tendered that
common carriers may be compelled to carry them, and it must be presumed
that the author of the circular had in mind a lawful tender of mails when we
wrote this paragraph. If a vessels may not be required to carry mail without
direct compensation, or a contract providing for such compensation, it must
be presumed that the Collector did not intend to require vessels to accept mail
without tender of reasonable compensation for such services or provision for
payment by contract or otherwise, and that this paragraph was intended
merely as a regulation requiring the acceptance of all mail thus lawfully
tendered and the safe transportation of such mail when accepted for
transportation.
The complaint does not allege, except perhaps by inference, that the
defendant or any officer of the Government has undertaken or is undertaking
to compel the plaintiff master of the Vizcaya, or the owners of that vessel, over
their protest, to carry the mails free of charge. The allegations of the complaint
in this regard are substantially limited to the allegations set forth in paragraph 5
thereof, to the effect that neither the circular nor the laws of the Philippine
Islands contain any provision for compensation for the services required under
the terms of the circular, and that by virtue of the circular the plaintiff master
and his vessel ate threatened with the prescribed penalties unless they render
the required services without compensation. But unless the circular be
construed as requiring the transportation of mail without direct compensation,
and we are of opinion that it does not necessarily have that effect, the
complaint nowhere alleges or charges that the defendant Collector of
Customs requires or threatens to require the plaintiff captain or his vessel to
carry the mail free of charge.
Counsel in his brief challenges and discusses at some length the power of the
Government of the Philippine Islands to require plaintiff's vessel to carry mail
without providing just compensation therefor. It would appear from the
argument of counsel that licensed coastwise vessels were required under the
former sovereign to carry mails without direct compensation, and that there is
some contention as to whether they may be required to do so under the laws
now in force; and it would seem that in many instances these vessels continued
to carry the mails free of charge down to the date of the issuance of the
circular, though nothing is said as to whether or not this was done voluntarily
and without protest. If these intimations in the argument of counsel are founded
in fact, a nice question of law might well be raised, under appropriate
pleadings, as to whether the government could continue to require such
services, without direct compensation, where it does not appear that the
required transportation of the mails imposes an inequitable burden in a
particular instance; this as a condition of a continuance of the licenses under
which coastwise trading vessels are required to operate, and in consideration
of the indirect compensation received by such vessels through the above-
mentioned expenditures on their behalf, or by way of services to be rendered
in consideration of the privilege of entering and continuing in the business of
common carriers, somewhat as licensed attorneys are required to render
certain services without direct compensation in consideration of the privilege
granted them to offer their services to the public in the practice of their
profession.
We decline, however, to consider or decide this question in the absence of the
necessary allegations setting forth that the defendant Collector of Customs has
compelled and is threatening to compel the plaintiff master of the Vizcaya to
carry mails free of charge. It does not appear from the pleadings, nor are we
advised as a matter of fact, that any attempt has been made or is being made
by the defendant Collector to compel the plaintiff master of the Vizcaya, over
his protest, to carry mail without compensation. The allegations of the
complaint disclose merely that he threatened to enforce the regulations of the
circular requiring the master of the Vizcaya to make provision for the
transportation of the mails when tendered, and for the giving of reasonable
notice as to sailing hours upon which such tender might be based.
We come now to consider the authority of the Collector of Customs to issue
and enforce general rules and regulations, such as are set forth in Customs
Administrative Circular No. 627, subject to the approval of the Secretary of
Finance and Justice.
Section 3 of Act No. 355 provides that the customs service shall embrace,
among other things, the following:
The documenting of vessels built or owned in the Philippine Islands, etc.
The exclusion of foreign vessels from the coastwise trade.
The entry and clearance of vessels.
The enforcement of such regulation of commerce, foreign and coastwise,
as shall be established by competent authority.
The regulation of the carriage of passengers by water and the licensing of
vessels therefor.
Section 7 of that Act, provides, in part, as follows: "The Insular Collector shall
have general authority throughout the Philippine Islands in all matters
embraced within the jurisdiction of the Customs Service."
Section 19 of that Act, provides, in part, as follows: "The Insular Collector shall,
from time to time, make and promulgate general rules and regulations, not
inconsistent with law, subject to the approval of the Secretary of Finance and
Justice:
 1. Directing the manner of execution of the customs law and laws relating
to commerce, navigation, and immigration.
xxx xxx xxx
7. Prescribing the method of loading and unloading merchandise and the
transportation thereof by bonded carriers, railways, vessels, bonded
lighters, carts, or otherwise.
xxx xxx xxx
Section 73 of that Act provides as follows: "In the coasting trade, the and
measurement, documenting, enrollment, and licensing of vessels built or
owned in the Philippine Archipelago and in the making and recording of all
documents relating thereto, the Insular Collector shall observe, promulgate,
and enforce such orders and regulations respecting the same as have been
heretofore or shall hereafter be prescribed by the proper authority. In the
absence of such regulations or orders he shall observe and follow the laws of
the United States and the regulations of the Treasury Department of the United
States so far as the same may be, in his sound judgment, applicable.
Certificates of protection shall hereafter be signed by the collector of customs
at ports where issued and countersigned by the Insular Collector."
Section 134 of Act No. 355 is as follows: "The coastwise trade shall be under the
general control and supervision of the Insular Collector, and under the direct
supervision of collectors of customs at the subports of entry within their
respective collection districts."
Section 1 of Act No. 780, amended by section 1 of Act No. 1602, provides, in
part, as follows: "A board is hereby created, to consist of the Insular Collector of
Customs, the supervising inspector of hulls and boilers, and assistant inspector
of hulls, one person holding an unexpired license as matter in the Philippine
coastwise trade, and one other competent person, whose duty it shall be to
examine and certify licenses all applicants for licenses as watch officers and
engineers upon vessels of the Philippine Islands."
Section 2 of Act No. 780 is as follows: "Whenever any person applies for license
as master, mate, patron, or engineer of a Philippine coastwise vessel it shall be
the duty of the Board on Philippine Marine Examination to make a thorough
inquiry as to his character and carefully to examine the applicant, the
evidence he presents in support of his application, and such other evidence as
it may deem proper or desirable, and if satisfied that his capacity, experience,
habits of life, and character as such as to warrant the belief that he can be
safely intrusted with the duties and responsibilities of the position for which he
makes application, it shall so certify to the Insular Collector of Customs, who
shall issue a license authorizing such applicant to act as master, mate, patron,
or engineer, as the case may be."
Section 6 of that Act is as follows: "Every license authorized to be issued as
above set forth shall be operative and in force until July first, nineteen hundred
and four, but the Insular Collector of Customs may at any time suspend or
revoke any license upon satisfactory proof of misconduct, intemperate habits,
incapacity, or inattention to duty on the part of the licensee."
Section 2 of Act No. 1025 is as follows: "Upon the expiration of the license
authorized to be issued by said Act Numbered Seven Hundred and eighty, the
said Board is further authorized and empowered to renew such license from
year to year upon due application being made as prescribed in said Act, but
each renewal shall be operative for only one year. In case of renewal of license
the written examination required by section three of said Act shall not be had,
but the applicant for renewal shall only be required to submit to an
examination, if deemed necessary by the Board, to test his physical soundness,
but the Board is authorized to refuse any application for renewal upon
satisfactory evidence of misconduct, intemperate habits, incapacity, or
inattention to duty on the part of the licensee, and also to revoke any such
renewal license, when granted, for the same reasons, or any of them."
Furthermore the duties of the captain of the port, as that office formerly existed
and as provided in the Spanish laws, now devolve upon the Insular Collector of
Customs and his subordinates as he may direct, pursuant to the provisions of
section 1 of Act No. 625.
It follows that any duties which the captain of the port was required to perform
under the above cited decrees and similar regulations issued under the Spanish
Administration of the Government of these Islands, devolved upon the
Collector of Customs at the date of the promulgation of Circular No. 627, so far
as those decrees and similar regulations continued in force at that time.
We conclude from an examination of these citations of law, that in so far as
Customs Administrative Circular No. 627 consists of a body of reasonable
regulations controlling and prescribing the conduct of vessels licensed to
engage in the coastwise trade, and of licensed officers aboard such vessels,
with reference to the transportation of mail, the Insular Collector was clothed
with the necessary authority at the date of the circular for its preparation,
promulgation and enforcement. As we have already indicated, the circular
(aside perhaps from its third paragraph, as to which no real contention is
involved in these proceedings) is, when correctly construed, such a body of
reasonable regulations, touching the conduct of coastwise vessels and their
officers with reference to the transportation of mails. We have, therefore, no
doubt as to the authority of the defendant collector in the premises.
Under the elementary rule by virtue of which a demurrer "searches the whole
record," we are forced to the conclusion that, unless amended, the complaint
must be dismissed, on the ground that no cause of action is developed by the
pleadings.
Twenty days hereafter, let the complaint be dismissed at the costs of the
petitioner unless amended so as to set forth a cause of action, and ten days
thereafter let the record be filed in the archives of original actions in this court.
So ordered.
G.R. Nos. L-21633-34 June 29, 1967
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS,
petitioners,
vs.
BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC.,
respondents.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Felicisimo R. Rosete and F. Malate, Jr. for petitioners.
Claudio Teehankee and Leocadio de Asis for respondents.
CONCEPCION, C.J.:
Appeal by the Government from a decision of the Court of Tax Appeals,
reversing of the decisions of the Commissioner of Internal Revenue and the
Commissioner of Customs, in Cases No. 956 and 957 of said Court, holding
Botelho Shipping Corporation and General Shipping Co., Inc. — hereinafter
referred to collectively as the Buyers — liable for the payment of the sum of
P483,433.00 and P494,824.00, respectively, as compensating taxes on the
vessels "M/S Maria Rosello" and "M/S General Lim."
On August 30, 1960, the Reparations Commission of the Philippines —
hereinafter referred to as the Commission — and Botelho Shipping Corporation
— hereinafter referred to as Botelho — entered into a "Contract of Conditional
Purchase and Sale of Reparations Goods," whereby the former agreed to sell
to Botelho for P6,798,888.88 the vessel "M/S Maria Rosello," procured by the
Commission from Japan, pursuant to the provisions of the Philippine-Japanese
Reparations Agreement of May 9, 1956. On September 19, 1960, the
Commission signed a similar contract with General Shipping Co., Inc. —
hereinafter referred to as General Shipping — for the sale thereto of "M/S
General Lim" at the price of P6,951,666.66. Both agreements, couched in
identical terms, except as to price, stipulated that:
a) The Reparations Commission "retains title to and ownership of the
above described vessel until it is fully paid for." (Exh. "A", p. 2, both cases)
b) The stipulated purchase price of the M/S MARIA ROSELLO was to be
paid by Botelho to the Commission under a deferred payment plan in 10
equal yearly installments of P717,333.49, bearing 3% interest per annum,
beginning August 31, 1962 and August 31 of every year thereafter until the
year 1972, while the purchase price of the M/S GENERAL LIM was to be
paid by General Shipping to the Commission under a deferred payment
plan in 10 equal yearly installments of P723,132.68, bearing 3% interest per
annum beginning September 30 of every year until the year 1972. (Exhs. 9,
p. 4 and A-2, both cases) (See Respondents' brief, p. 4.)
Delivered in Japan to its respective buyers, acting on behalf of the Commission,
the vessels, upon their departure from Tokyo, on the maiden trip thereof to the
Philippines, were issued, by the Philippine Vice-Consul in said city, provisional
certificates of Philippine registry in the name of the Commission, so that the
vessels could proceed to the Philippines and secure therein the respective final
registration document.
Upon arrival at the port of Manila, the Buyer filed the corresponding
applications for registration of the vessels, but, the Bureau of Customs placed
the same under custody and refused to give due course to said applications,
unless the aforementioned sums of P483,433 and P494,824 be paid as
compensating tax. As the Commissioner of Customs refused to reconsider the
stand taken by his office, the Buyers simultaneously filed with the Court of Tax
Appeals their respective petitions for review, against the Commissioner of
Customs and the Commissioner of Internal Revenue — hereinafter referred to
collectively as Appellants — with urgent motion for suspension of the collection
of said tax. After a joint hearing on this motion, the same was, on October 31,
1960, granted by the Tax Court, upon the sum of a P500,000.00 bond by each
one of the Buyers.
On June 17, 1961, while these cases were pending trial in said Court, Republic
Act No. 3079 amended Republic Act No. 1789 — the Original Reparations Act,
under which the aforementioned contracts with the Buyers had been executed
— by exempting buyers of reparations goods acquired from the Commission,
from liability for the compensating tax. Moreover, section 20 of Republic Act
No. 3079, provides:
x x x This Act shall take effect upon its approval, except that the
amendment contained in Section seven hereof relating to the
requirements of procurement orders including the requirement of down
payment by private applicant end-users shall not apply to procurement
orders already duty issued and verified at the time of the passage of this
amendatory Act, and except further that the amendment contained in
Section ten relating to the insurance of the reparations goods by the end-
users upon delivery shall apply also to goods covered by contracts
already entered into by the Commission and end-user prior to the
approval of this amendatory Act as well as goods already delivered to
the end-user, and except further that the amendments contained in
Sections eleven and twelve hereof relating to the terms of installment
payments on capital goods disposed of to private parties, and the
execution of a performance bond before delivery of reparations goods,
shall not apply to contracts for the utilization of reparations goods already
entered into by the Commission and the end-users prior to the approval
of this amendatory Act: Provided, That any end-user may apply for the
renovation of his utilization contract with the Commission in order to avail
of any provision of this amendatory Act which is more favorable to an
applicant end-user than has heretofore been granted in like manner and
to the same extent as an end-user filing his application after the approval
of this amendatory Act, and the Commission may agree to such
renovation on condition that the end-user shall voluntarily assume all the
new obligations provided for in this amendatory Act.
Invoking the provisions of this section 20, the Buyers applied, therefore, for the
renovation of their utilizations contracts with the Commission, which granted
the application, and, then, filed with the Tax Court, their supplemental petitions
for review. Subsequently, the parties submitted Stipulations of Fact and, after a
joint trial, at which they introduced additional evidence, said Court rendered
the appealed decision, reversing the decisions herein Appellants, and
declared said Buyers exempt from the compensating tax sought to be assessed
against the vessels aforementioned. Hence, these appeals by the Government
G.R. No. L-21633 refers to the case as regards "M/S Maria Rosello," whereas "M/S
General Lim" is the subject-matter of G.R. No. L-21634.
It seems clear that, under Republic Act No. 1789 — pursuant to which the
contracts of Conditional Purchase and Sale in question had been executed —
the vessels "M/S Maria Rosello" and "M/S General Lim" were subject to
compensating tax. Indeed, Section 14 of said Act provides that "reparations
goods obtained by private parties shall be exempt only from the payment of
customs duties, consular fees and the special import tax." Although this Section
was amended by R.A. No. 3079, to include the compensating tax" among the
exemptions enumerated therein, such amendment took place, not only after
the contracts involved in these appeals had been perfected and partly
consummated, but, also, after the corresponding compensating tax had
become due and payment thereof demanded by Appellants herein. It is,
moreover, obvious that said additional exemption should not and cannot be
given retroactive operation, in the absence of a manifest intent of Congress to
do this effect. The issue in the cases at bar hinges on whether or not such intent
is clear.
Appellants maintain the negative, upon the ground that a tax exemption must
be clear and explicit; that there is no express provision for the retroactivity of
the exemption, established by Republic Act No. 3079, from the compensating
tax; that the favorable provisions, which are referred to in section 20 thereof,
cannot include the exemption from compensating tax; and, that Congress
could not have intended any retroactive exemption, considering that the result
thereof would be prejudicial to the Government.
The inherent weakness of the last ground becomes manifest when we consider
that, if true, there could be no tax exemption of any kind whatsoever, even if
Congress should wish to create one, because every such exemption implies a
waiver of the right to collect what otherwise would be due to the Government,
and, in this sense, is prejudicial thereto. In fact, however, tax exemptions may
and do exist, such as the one prescribed in section 14 of Republic Act No. 1789,
as amended by Republic Act No. 3079, which, by the way, is "clear and
explicit," thus, meeting the first ground of appellant's contention. It may not be
amiss to add that no tax exemption — like any other legal exemption or
exception — is given without any reason therefor. In much the same way as
other statutory commands, its avowed purpose is some public benefit or
interest, which the law-making body considers sufficient to offset the monetary
loss entitled in the grant of the exemption. Indeed, section 20 of Republic Act
No. 3079 exacts a valuable consideration for the retroactivity of its favorable
provisions, namely, the voluntary assumption, by the end-user who bought
reparations goods prior to June 17, 1961 of "all the new obligations provided for
in" said Act.
The argument adduced in support of the third ground is that the view adopted
by the Tax Court would operate to grant exemption to particular persons, the
Buyers herein. It should be noted, however, that there is no constitutional
injunction against granting tax exemptions to particular persons. In fact, it is not
unusual to grant legislative franchises to specific individuals or entities,
conferring tax exemptions thereto. What the fundamental law forbids is the
denial of equal protection, such as through unreasonable discrimination or
classification.1äwphï1.ñët
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from
the compensating tax, not particular persons, but persons belonging to a
particular class. Indeed, appellants do not assail the constitutionality of said
section 14, insofar as it grants exemptions to end-users who, after the approval
of Republic Act No. 3079, on June 17, 1961, purchased reparations goods
procured by the Commission. From the viewpoint of Constitutional Law,
especially the equal protection clause, there is no difference between the
grant of exemption to said end-users, and the extension of the grant to those
whose contracts of purchase and sale mere made before said date, under
Republic Act No. 1789.
It is true that Republic Act No. 3079 does not explicitly declare that those who
purchased reparations goods prior to June 17, 1961, are exempt from the
compensating tax. It does not say so, because they do not really enjoy such
exemption, unless they comply with the proviso in Section 20 of said Act, by
applying for the renovation of their respective utilization contracts, "in order to
avail of any provision of the Amendatory Act which is more favorable" to the
applicant. In other words, it is manifest, from the language of said section 20,
that the same intended to give such buyers the opportunity to be treated "in
like manner and to the same extent as an end-user filing his application after
this approval of this Amendatory Act." Like the "most-favored-nation-clause" in
international agreements, the aforementioned section 20 thus seeks, not to
discriminate or to create an exemption or exception, but to abolish the
discrimination, exemption or exception that would otherwise result, in favor of
the end-user who bought after June 17, 1961 and against one who bought prior
thereto. Indeed, it is difficult to find a substantial justification for the distinction
between the one and the other. As correctly held by the Tax Court in Philippine
Ace Lines, Inc. v. Commissioner of Internal Revenue (C.T.A. Nos. 964 and 984,
January 25, 1963), and reiterated in the cases under consideration:
x x x In providing that the favorable provision of Republic Act No. 3079
shall be available to applicants for renovation of their utilization contracts,
on condition that said applicants shall voluntarily assume all the new
obligations provided in the new law, the law intends to place persons who
acquired reparations goods before the enactment of the amendatory
Act on the same footing as those who acquire reparations goods after its
enactment. This is so because of the provision that once an application
for renovation of a utilization contract has been approved, the favorable
provisions of said Act shall be available to the applicant "in like manner
and to the same extent, as an end-user filing his application alter the
approval of this amendatory Act." To deny exemption from compensating
tax to one whose utilization contract has been renovated, while granting
the exemption to one who files an application for acquisition of
reparations goods after the approval of the new law, would be contrary
to the express mandate of the new law, that they both be subject to the
same privileges in like manner and to the same extent. It would be
manifest distortion of the literal meaning and purpose of the new law.
Wherefore, the appealed decision of the Court of Tax Appeals is hereby
affirmed in toto, without any pronouncement as to costs. It is so ordered.
G.R. No. L-12401 October 31, 1960
MARCELO STEEL CORPORATION, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Meer, Meer & Meer for petitioner.
Asst. Solicitor General J.P. Alejandro and Atty. S. J. Javier for respondent.
PADILLA, J.:
This is a petition to review under section 18, Republic Act No. 1125, a judgement
of the Court of Tax Appeals upholding the assessment made by the respondent
for income tax due during the years 1952 and 1953 from the petitioner (C.T.A.
Case No. 172).
The parties have entered into stipulation of facts which the Court summarized
as follows:
The petitioner is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with offices at Malabon, Rizal. It is
engaged in three (3) industrial activities, namely, (1) manufacture of wire
fence, (2) manufacture of nails, and (3) manufacture of steel bars, rods
and other allied steel products. enjoined the benefits of the tax exemption
under Republic Act No. 35.
On May 21, 1953, the petitioner filed an income tax return for the year
1952, reflecting a net income of P34,386.58 realized solely from its business
of manufacturing wire fence, an activity which is not tax exempt, and on
March 31, 1954, it filed its income tax return for the year 1953, showing a
net income of P58,329.00 realized from the same sources, i.e., the
manufacture of wire fence.
On basis of the said income tax return filed by the petitioner for the year
1952 and 1953 which did not reflect the financial of its tax exempt business
activities, the respondent assessed the total sum of P12,750. Accordingly,
the petitioner paid the said amount assessed against it on following dates:
Tax Date Amount.
Year
1952 May 30, P3,458.50
1953
1952 August 15, 3,458.50
1953
1952 May 5, 1954 5,833.00
TOTAL P12,750.00
..............................
On October 1, 1954, the petitioner filed amended income tax returns for
taxable years 1952 and 1953, showing that bit suffered a net loss of
P871,407.37 in 1952, and P10,956.29 in 1953. The said losses were arrived at
by consolidating the gross income and expenses and/or deductions of
the petitioner in all its business activities, as follows:
For the year
1952
 Net
Income,
taxable
industry:
Wire fence P34,386.58.
Net loss,. tax
exempt
industries:
Nails (P620,722.73)
Steel bars (285,071.22) (905,793.95)
TOTAL NET (P871,407.37)
LOSS
For the year
1953
Net
income,
taxable
industry:
Wire fence (P60,950.20)
Steel; bars (102,335.20) (163,285.40)
TOTAL NET (P104,956.29)
LOSS
On October 1, 1954, the petitioner, claiming that instead of earning the
net income shown in its original income tax returns for 1952 and 1953, it
sustained the losses shown in its amended income tax returns for refund of
the income taxes for the said years amounting to P12,750.00 which it
allegedly paid to the respondent.
After more than ten months of waiting without any action being taken by
the respondent on the claim for refund, and in order to protect its right
under Section 306 of the National Internal Revenue Code, the petitioner,
on August 13, 1955, filed with this Court the instant petition for review.
There are two issues to be resolved in this case, namely, (1) whether or not the
petitioner may be allowed to deduct from the profits realized from its taxable
business activities, the losses sustained by its tax except industries, and (2)
whether or not the action for refund, with regard to the sum of P3,458.50 which
was of the Tax Code.
The Court of Tax Appeals held that "petitioner cannot deduct from the profits
realized from its taxable industries, the losses sustained by its tax exempt
business activities, . . ."
The duration of the petitioner's tax exemption with respect to the manufacture
of nails is from 25 June 1949 to 25 June 1953 (Exhibit 7), later adjusted to be from
11 August 1949 to 11 August 1953, and with respect to the manufacture of steel
bars, rods and other allied steel product, is from 16 March 1951 to 16 March
1955 (Exhibit 6). The exemption refers to the following internal revenue taxes:
the fixed and privilege tax on business, the percentage tax on the sales of
manufactured products, in respect to which exemption was granted, the
compensating tax on the articles, goods or materials exclusively used in the
new and necessary industry, the documentary stamp tax and the income tax
with respect to the not income derived from the exempt industry (Exhibits 6 and
7).
The petitioner's theory is that since it is a corporation organized with a single
capital that answer for all its financial obligation including those incurred in the
tax exempt industries, the gross income derived from both its taxable or non-
exempt and tax-exempt industries, and the allowable deductions from said
incomes, should be consolidated and its income tax liability should be based
on the difference between the consolidated gross incomes and the
consolidated allowable deductions. It relies on the provisions of action 24,
Commonwealth Act No. 466, as amended, providing that "there shall be levied,
assessed, collected, and paid annually upon the total net income received in
the preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines." a graduated tax (Emphasis
supplied), and of section 30, subsection (d), paragraph (2) of the same Act
providing that in computing the net income of a corporation, all losses actually
sustained by it and charged off within the taxable year and not compensated
for by insurance or otherwise, are allowed as deductions.
Republic Act No. 35, the law under which the petitioner was granted tax
exemption for the manufacture of nails and steel bars, rods and other allied
steel products, provides:.
SECTION 1. Any person, partnership, company, or corporation who or
which shall engage in anew and necessary industry shall, for a period of
four years from the date of the organization of such industry, be entitled
to exemption from the payment of all internal revenue taxes directly
payable by such person, partnership, company, or corporation in respect
to said industry.
SEC. 2. The President of the Philippines, shall, upon recommendation of
the Secretary of Finance, periodically determine the qualifications that
the industries should possess to be entitled to the benefits of this Act.
SEC. 3. This Act shall take effect upon its approval.
(Approved, September 30, 1946.)
The purpose of aim of Republic Act No. 35 is to encourage the establishment
or exploitation of new and necessary industries to promote the economic
growth of the country. It is a form of subsidy granted by the Government to
encourageous staking their capital in an unknown venture. An entrepreneur
engaging in a new and necessary industry faces uncertainly and assumes a risk
bigger than one engaging in a venture already known and developed. Like a
settler in an unexplored land who is just blazing a trial in a virgin forest, he needs
all the encouragement and assistance from the Government. He needs capital
to buy his implements, to pay his laborers and to sustain him and his family.
Comparable to the farmers who had just planted the seeds of fruit bearing trees
in his orchard, he does not except an immediate return on his investment.
Usually loss is incurred rather than profit made. It is for these reasons that the law
grants him tax exemption—to lighten onerous financial burdens and reduce
losses. However these may be, Republic Act No. 35 has confined the privilege
of tax exemption only to new and necessary industries. It did not intend to grant
the tax exemption benefit to an entrepreneur engaged at the same time in a
taxable or non-payment industry and a new and necessary industry, by
allowing him to deduct his gains or profits derived from the operation of the first
from the losses incurred in the operation of the second. Unlike a new and
necessary industry, a taxable or non-exempt industry is already a going
concern, deriving profits from its operation, and deserving no subsidy from the
Government. It is but fair that it be required to give to the Government a share
in its profits in the form of taxes.
The fact that the petitioner is a corporate organized with a single capital that
answer for all its financial obligations including those incurred in the tax exempt
industries is of no moment. The intent of the law is to treat taxable or non-
exempt industries as separate and distinct from new and necessary industries
which are tax-exempt for purposes of taxation. Section 7, Executive Order No.
341, series of 1950, issued by the President of the Philippines pursuant to section
2, Republic Act No. 35, provides:
Any industry granted tax exemption under the provisions of Republic Act
No. 35 shall report to the Secretary of Finance at the end of every fiscal
rear a complete list and a correct valuation of all real and personal
property of its industrial plant of factory: shall file a separate income tax
return; shall keep separetely the accounting records relative to the
industry declared exempt; shall keep such records and submit such sworn
statements as may be prescribed from time to time by the Secretary of
Finance;1 (Emphasis supplied.)
And when Congress revised the provision of Republic Act No. 35 by enacting
onto law Republic Act No. 901 it incorporate similar provisions and provided
that "Any industry granted tax exemption under of Republic Act No. 35" shall
"file a separate income tax return."2
The petitioner states that it is not liable to pay income tax on its industries of
manufacturing nails and steel bars, ros and other allied steel product for the
reason that it had incurred loss in their operation and not because it is exempt
under the provision of Republic Act No. 35. It argues that by being allowed to
deduct its gains derived from the operation of its taxable or non-exempt
industry of manufacturing wire fence, from the losses incurred in the operation
of its tax-exempt industries of manufacturing nails and steels bars, rod and other
allied steel products, it would not receive the benefit of double exemption
under Republic Act No. 35 is to lighten the onerous financial burden and reduce
the losses of the entrepeneur, yet it is not designed to assure him of a return on
his capital invested. As already stated, the law intended to treat to treat
taxable or non-excempt industry as separate and distinct from new and
necessary industry, which is tax exempt, and did not mean to grant an
entrepreneur, engaged at the same time in a taxable or non-exempt industry
and a new and necessary industry, the benefit or privilege of deducting his
gains or profit derived from the operation of the first from the losses incurred in
the operation of the second. Moreover, aside from its exemption from the
payment of income tax on its profits derived from the operation of new and
necessary industries, the petitioner is exempt from the payment of other internal
revenue taxes directly payable by it, such as the fixed and privilege tax on
business, the percentage tax on the fixed and privilege tax on business, the
percentage tax on the sales of manufactured products, in respect to which
exemption is granted, the compensating tax on the articles, goods or material
exclusively used in the new and necessary industry, and the documentary
stamp tax (Exhibits 6 and 7). These exemption alone are enough to lighten its
onerous financial burden and reduce losses.
The petitioner claims that unlike the United States Internal Revenue Code which
expressly forbids the deduction of —
Any amount otherwise allowable as a deduction which is allocable to one
or more classes of income other than interest (whether or not only any
amount of income of that class or classes is received or accrued) wholly
exempt from the taxes imposed by this chapter [(Section 24 (a) (5)].
our National Internal Revenue Code does not contain a similar prohibition.
When in 1939 Commonwealth Act No. 466, the National Internal Revenue
Code, was enacted into law, the idea of granting tax exemption to new and
necessary industries in the Philippines had not yet been thought of because
there were no new and necessary industries being established or exploited. It
was only in 1946, after the last World War, and after the Philippines became
sovereign nation, that the establishment or exploitation of new and necessary
industries was stimulated. Hence the absence of a similar provision in out
National Internal Revenue Code. This absence, however, cannot be
capitalized upon by the petitioner in support of its theory. For, as already stated,
when Congress enacted Republic Act No. 35 into law, it intended to segregate
income derived from the operation of new and necessary industries from that
derived from the operation of taxable or non-exempt industries.
For the foregoing reasons, the judgement under review is affirmed, with costs
against the petitioner.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez
David, Paredes, and Dizon, JJ., concur.