1.

Carlos Super Drug vs DSWD

CARLOS SUPERDRUG CORP. vs. DSWD, ET. AL

GR No. 166494, June 29, 2007

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

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

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

 The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold
or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable
year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended.
 The DSWD, on May 8, 2004, approved and adopted the Implementing Rules and Regulations of RA No. 9275, Rule VI, Article 8 which
contains the proviso that the implementation of the tax deduction shall be subject to the Revenue Regulations to be issued by the
BIR and approved by the DOF. With the new law, the Drug Stores Association of the Philippines wanted a clarification of the
meaning of tax deduction. The DOF clarified that under a tax deduction scheme, the tax deduction on discounts was subtracted
from Net Sales together with other deductions which are considered as operating expenses before the Tax Due was computed
based on the Net Taxable Income. On the other hand, under a tax credit scheme, the amount of discounts which is the tax credit
item, was deducted directly from the tax due amount.
 The DOH issued an Administrative Order that the twenty percent discount shall include both prescription and non-prescription
medicines, whether branded or generic. It stated that such discount would be provided in the purchase of medicines from all
establishments supplying medicines for the exclusive use of the senior citizens.
 Drug store owners assail the law with the contention that granting the discount would result to loss of profit and capital especially that
such law failed to provide a scheme to justly compensate the discount.

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

HELD:
 The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or
benefit. This constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation. Just
compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not
the taker’s gain but the owner’s loss. The word just is used to intensify the meaning of the word compensation, and to convey the
idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample.
 The law grants a twenty percent discount to senior citizens for medical and dental services, and diagnostic and laboratory fees;
admission fees charged by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement;
fares for domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior citizens. As a form of reimbursement,
the law provides that business establishments extending the twenty percent discount to senior citizens may claim the discount as a
tax deduction.
 The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police
power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to
meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring
the greatest benefits. Accordingly, it has been described as “the most essential, insistent and the least limitable of powers,
extending as it does to all the great public needs.” It is “[t]he power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to
the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same.”

2. Felix Mining Corp vs CIR

Philex Mining vs CIR

PHILEX MINING CORP. v. CIR

GR No. 125704, August 28, 1998

294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax

Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to

Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities

stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in

the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the

tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the

government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's

whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in

jurisprudence.

To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a

pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be

subject to compensation for the simple reason that the government and the taxpayer are not creditors and

debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government

in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no

off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot

refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax

being collected. The collection of a tax cannot await the results of a lawsuit against the government.

Philex Mining Corporation v CIR GR No 125704, August 28, 1998

FACTS:

BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex protested the demand for payment
stating that it has pending claims for VAT input credit/refund amounting to P120 million. Therefore, these claims for tax
credit/refund should be applied against the tax liabilities.

In reply the BIR found no merit in Philex’s position. On appeal, the CTA reduced the tax liability of Philex.

ISSUES:

Whether legal compensation can properly take place between the VAT input credit/refund and the excise tax liabilities of

Philex Mining Corp;

Whether the BIR has violated the NIRC which requires the refund of input taxes within 60 days

Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

No, legal compensation cannot take place. The government and the taxpayer are not creditors and debtors of each other.

Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT input credit. Obviously, had the

BIR been more diligent and judicious with their duty, it could have granted the refund

No, despite the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule that in the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be stressed that the same is not a valid
reason for the non-payment of its tax liabilities.

3. Domingos vs Garlitos

Domingo v Garlitos

GR No L-18994, June 29, 1963

FACTS:

In the 1960 case of Domingo v Moscoso, the Supreme Court declared as final and executory the order for the payment by the estate
of the late Walter Scott Price of estate and inheritance taxes, charges and penalties, amounting to P40,058.55 issued by the Court of
First Instance – Leyte. The fiscal then presented a petition for the execution of the judgment before the Court of First Instance –
Leyte.

The petition was denied as the execution is not justifiable as the government is indebted to the estate under administration in the
amount of P 262,200. Hence, the present petition for certiorari and mandamus.

ISSUE:

Is execution proper?

RULING:

No. The tax and the debt are compensated. The court having jurisdiction of the estate had found that the claim of the estate against
the government has been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700).
Under the circumstances, both the claim of the Government for the inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated.

Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both
debts are extinguished to their concurrent amounts. If the obligation to pay taxes and the taxpayer’s claim against the government
are both overdue, demandable, as well as fully liquidated, compensation takes place by operation of law and both obligations are
extinguished to their concurrent amounts.
FULL TEXT

1. Carlos Super Drug vs DSWD

EN BANC

G.R. No. 166494 June 29, 2007

CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos Superdrug," ELSIE M. CANO, doing
business under the name and style "Advance Drug," Dr. SIMPLICIO L. YAP, JR., doing business under the name and
style "City Pharmacy," MELVIN S. DELA SERNA, doing business under the name and style "Botica dela Serna," and
LEYTE SERV-WELL CORP., doing business under the name and style "Leyte Serv-Well Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD), DEPARTMENT OF HEALTH (DOH), DEPARTMENT
OF FINANCE (DOF), DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and LOCAL GOVERNMENT
(DILG), respondents.

DECISION

AZCUNA, J.:

This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of Section 4(a) of Republic Act
(R.A.) No. 9257,2 otherwise known as the "Expanded Senior Citizens Act of 2003."

Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.

Public respondents, on the other hand, include the Department of Social Welfare and Development (DSWD), the Department of
Health (DOH), the Department of Finance (DOF), the Department of Justice (DOJ), and the Department of Interior and Local
Government (DILG) which have been specifically tasked to monitor the drugstores’ compliance with the law; promulgate the
implementing rules and regulations for the effective implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.

The antecedents are as follows:

On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by President Gloria Macapagal-Arroyo and
it became effective on March 21, 2004. Section 4(a) of the Act states:

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

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

...

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the
goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value
added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended.4

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of R.A. No. 9257, Rule VI, Article 8
of which states:

Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts granted under Rule V, Section 4 –
Discounts for Establishments;5 Section 9, Medical and Dental Services in Private Facilities[,]6 and Sections 107 and 118 – Air, Sea
and Land Transportation as tax deduction based on the net cost of the goods sold or services rendered. Provided, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended; Provided, finally, that the implementation of the tax deduction shall be subject to the Revenue
Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved by the Department of Finance (DOF).9

On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines (DSAP) concerning the meaning of
a tax deduction under the Expanded Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as
follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction (under the Expanded Senior
Citizens Act).

1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent (20%) discount from all
establishments relative to the utilization of transportation services, hotels and similar lodging establishment, restaurants and
recreation centers and purchase of medicines anywhere in the country, the costs of which may be claimed by the private
establishments concerned as tax credit.

Effectively, a tax credit is a peso-for-peso deduction from a taxpayer’s tax liability due to the government of the amount of
discounts such establishment has granted to a senior citizen. The establishment recovers the full amount of discount given to a
senior citizen and hence, the government shoulders 100% of the discounts granted.

It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system, necessitates that prior
payments of taxes have been made and the taxpayer is attempting to recover this tax payment from his/her income tax due. The
tax credit scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have previously occurred.

1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment concerned may claim the discounts
under Section 4(a), (f), (g) and (h) as tax deduction from gross income, based on the net cost of goods sold or services
rendered.

Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for its tax liability, the
amount of discounts granted to senior citizens. Effectively, the government loses in terms of foregone revenues an amount
equivalent to the marginal tax rate the said establishment is liable to pay the government. This will be an amount equivalent to
32% of the twenty percent (20%) discounts so granted. The establishment shoulders the remaining portion of the granted
discounts.

It may be necessary to note that while the burden on [the] government is slightly diminished in terms of its percentage share on
the discounts granted to senior citizens, the number of potential establishments that may claim tax deductions, have however,
been broadened. Aside from the establishments that may claim tax credits under the old law, more establishments were added
under the new law such as: establishments providing medical and dental services, diagnostic and laboratory services, including
professional fees of attending doctors in all private hospitals and medical facilities, operators of domestic air and sea transport
services, public railways and skyways and bus transport services.

A simple illustration might help amplify the points discussed above, as follows:

Tax Deduction Tax Credit

Gross Sales x x x x x x x x x x x x

Less : Cost of goods sold x x x x x x x x x x

Net Sales x x x x x x x x x x x x

Less: Operating Expenses:

Tax Deduction on Discounts x x x x --

Other deductions: x x x x x x x x

Net Taxable Income x x x x x x x x x x

Tax Due x x x x x x

Less: Tax Credit -- ______x x

Net Tax Due -- x x

As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted from Net Sales together with
other deductions which are considered as operating expenses before the Tax Due was computed based on the Net Taxable
Income. On the other hand, under a tax credit scheme, the amount of discounts which is the tax credit item, was deducted
directly from the tax due amount.10

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and Guidelines to Implement the Relevant
Provisions of Republic Act 9257, otherwise known as the "Expanded Senior Citizens Act of 2003" 11was issued by the DOH,
providing the grant of twenty percent (20%) discount in the purchase of unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.

On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O. No. 171. Under A.O. No. 177, the twenty
percent discount shall not be limited to the purchase of unbranded generic medicines only, but shall extend to both prescription
and non-prescription medicines whether branded or generic. Thus, it stated that "[t]he grant of twenty percent (20%) discount
shall be provided in the purchase of medicines from all establishments dispensing medicines for the exclusive use of the senior
citizens."

Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on the following grounds: 13

1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that private property shall not be
taken for public use without just compensation;

2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states that "no person shall be
deprived of life, liberty or property without due process of law, nor shall any person be denied of the equal protection of the laws;"
and

3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that makes "essential goods,
health and other social services available to all people at affordable cost." 14

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of private property. Compelling
drugstore owners and establishments to grant the discount will result in a loss of profit

and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly compensated for the discount.

Examining petitioners’ arguments, it is apparent that what petitioners are ultimately questioning is the validity of the tax deduction
scheme as a reimbursement mechanism for the twenty percent (20%) discount that they extend to senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the discount privilege
accorded to senior citizens. This is because the discount is treated as a deduction, a tax-deductible expense that is subtracted
from the gross income and results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law15 to reduce
the income prior to the application of the tax rate to compute the amount of tax which is due.16 Being a tax deduction, the discount
does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments concerned. The
discounts given would have entered the coffers and formed part of the gross sales of the private establishments, were it not for
R.A. No. 9257.

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use
or benefit.17 This constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure
is not the taker’s gain but the owner’s loss. The word just is used to intensify the meaning of the word compensation, and to
convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample. 18

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just
compensation.19

Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens,
can impose upon private establishments the burden of partly subsidizing a government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant
benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society.20

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself. Thus, the Act provides:

SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. – Pursuant to Article XV, Section 4 of the Constitution, it is the duty of the
family to take care of its elderly members while the State may design programs of social security for them. In addition to this,
Section 10 in the Declaration of Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential goods, health and other social services available to all
the people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies of this Act:

...

(f) To recognize the important role of the private sector in the improvement of the welfare of senior citizens and to
actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior citizens for medical and dental services, and
diagnostic and laboratory fees; admission fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to
senior citizens may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object.
Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and
circumstances, thus assuring the greatest benefits. 22 Accordingly, it has been described as "the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs."23 It is "[t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth,
and of the subjects of the same."24

For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of
police power because property rights, though sheltered by due process, must yield to general welfare.25

Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that
they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of the provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.26

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their
business, because petitioners have not taken time to calculate correctly and come up with a financial report, so that they have not
been able to show properly whether or not the tax deduction scheme really works greatly to their disadvantage.27

In treating the discount as a tax deduction, petitioners insist that they will incur losses because, referring to the DOF Opinion, for
every ₱1.00 senior citizen discount that petitioners would give, ₱0.68 will be shouldered by them as only ₱0.32 will be refunded
by the government by way of a tax deduction.

To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as an example.
According to the latter, it acquires Norvasc from the distributors at ₱37.57 per tablet, and retails it at ₱39.60 (or at a margin of 5%).
If it grants a 20% discount to senior citizens or an amount equivalent to ₱7.92, then it would have to sell Norvasc at ₱31.68 which
translates to a loss from capital of ₱5.89 per tablet. Even if the government will allow a tax deduction, only ₱2.53 per tablet will be
refunded and not the full amount of the discount which is ₱7.92. In short, only 32% of the 20% discount will be reimbursed to the
drugstores.28

Petitioners’ computation is flawed. For purposes of reimbursement, the law states that the cost of the discount shall be deducted
from gross income,29 the amount of income derived from all sources before deducting allowable expenses, which will result in net
income. Here, petitioners tried to show a loss on a per transaction basis, which should not be the case. An income statement,
showing an accounting of petitioners’ sales, expenses, and net profit (or loss) for a given period could have accurately reflected
the effect of the discount on their income. Absent any financial statement, petitioners cannot substantiate their claim that they will
be operating at a loss should they give the discount. In addition, the computation was erroneously based on the assumption that
their customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the
discount.

Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of their medicines given the
cutthroat nature of the players in the industry. It is a business decision on the part of petitioners to peg the mark-up at 5%. Selling
the medicines below acquisition cost, as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing is a
property right, petitioners cannot reproach the law for being oppressive, simply because they cannot afford to raise their prices for
fear of losing their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing component of the business.
While the Constitution protects property rights, petitioners must accept the realities of business and the State, in the exercise of
police power, can intervene in the operations of a business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the precept for the protection
of property, various laws and jurisprudence, particularly on agrarian reform and the regulation of contracts and public utilities,
continuously serve as a reminder that the right to property can be relinquished upon the command of the State for the promotion
of public good.30

Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners and the other private
establishments concerned. This being the case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related. Without sufficient proof that Section 4(a) of
R.A. No. 9257 is arbitrary, and that the continued implementation of the same would be unconscionably detrimental to petitioners,
the Court will refrain from quashing a legislative act.31

WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.

SO ORDERED.
2. Felix Mining Corp vs CIR

THIRD DIVISION

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,

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

ROMERO, J.:

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

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

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

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

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

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

————— ————— —————— ——————

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

————— ————— —————— ——————

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

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

————— ————— —————— ——————

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

————— ————— —————— ——————

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

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

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

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

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

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus
interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated" debts are those
where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this
Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs. French and
Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8

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

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

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

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is
AFFIRMED.

13
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.

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

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

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

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

1989 007732 11 July 1996 P37,322,799.19

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

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

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

We see no merit in this contention.

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

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

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

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

. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is
not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a
pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the
Commissioner, 21 is no longer without any support in statutory law.

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

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

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

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

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

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

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

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

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

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

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

Art. 27 of the Civil Code provides:

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

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

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

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

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

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

SO ORDERED.

3. Domingos vs Garlitos

EN BANC

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos,
presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to
execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as
final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting
to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate
Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June
21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the
execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The
orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband
Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before
Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive Secretary De Leon dated December 14, 1956, the
note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price
the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of
the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the
Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court
promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the
Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector
of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to
P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its
citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the
amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of
September 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the
estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may
order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of
First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of
administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property
of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees
residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to
be made, the regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët

Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the
estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such
debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after
hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and
may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is
not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased
person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said
properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is
in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to
ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found
that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the
provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased
Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the
remedy.

The petition is, therefore, dismissed, without costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.