G.R. No.

159796 July 17, 2007

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB)
and ENVIRONMENTALIST CONSUMERS NETWORK,
INC. (ECN), Petitioners,
vs.
DEPARTMENT OF ENERGY (DOE), ENERGY
REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR
ASSETS AND LIABILITIES MANAGEMENT GROUP
(PSALM Corp.), STRATEGIC POWER UTILITIES
GROUP (SPUG), and PANAY ELECTRIC COMPANY
INC. (PECO), Respondents.
NACHURA, J.:
Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB),
and Environmentalist Consumers Network, Inc. (ECN)
(petitioners), come before this Court in this original action
praying that Section 34 of Republic Act (RA) 9136,
otherwise known as the "Electric Power Industry Reform
Act of 2001" (EPIRA), imposing the Universal
Charge,1 and Rule 18 of the Rules and Regulations
(IRR)2 which seeks to implement the said imposition, be
declared unconstitutional. Petitioners also pray that the
Universal Charge imposed upon the consumers be
refunded and that a preliminary injunction and/or
temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and
collecting the said charge.3 The assailed provision of law
reads:
SECTION 34. Universal Charge. — Within one (1) year
from the effectivity of this Act, a universal charge to be
determined, fixed and approved by the ERC, shall be
imposed on all electricity end-users for the following
purposes:
(a) Payment for the stranded debts4 in excess of the
amount assumed by the National Government and
stranded contract costs of NPC5 and as well as
qualified stranded contract costs of distribution utilities
resulting from the restructuring of the industry;
(b) Missionary electrification;6
(c) The equalization of the taxes and royalties applied
to indigenous or renewable sources of energy vis-à-
vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth
of one centavo per kilowatt-hour (₱0.0025/kWh),
which shall accrue to an environmental fund to be
used solely for watershed rehabilitation and
management. Said fund shall be managed by NPC
under existing arrangements; and
(e) A charge to account for all forms of cross-
subsidies for a period not exceeding three (3) years.
The universal charge shall be a non-bypassable charge
which shall be passed on and collected from all end-users
on a monthly basis by the distribution utilities. Collections
by the distribution utilities and the TRANSCO in any given
month shall be remitted to the PSALM Corp. on or before
the fifteenth (15th) of the succeeding month, net of any
amount due to the distribution utility. Any end-user or self-
generating entity not connected to a distribution utility shall
remit its corresponding universal charge directly to the
TRANSCO. The PSALM Corp., as administrator of the
fund, shall create a Special Trust Fund which shall be
disbursed only for the purposes specified herein in an
open and transparent manner. All amount collected for the
universal charge shall be distributed to the respective
beneficiaries within a reasonable period to be provided by
the ERC.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June
26, 2001, it took effect.7
On April 5, 2002, respondent National Power Corporation-
Strategic Power Utilities Group8 (NPC-SPUG) filed with
respondent Energy Regulatory Commission (ERC) a
petition for the availment from the Universal Charge of its
share for Missionary Electrification, docketed as ERC
Case No. 2002-165.9
On May 7, 2002, NPC filed another petition with ERC,
docketed as ERC Case No. 2002-194, praying that the
proposed share from the Universal Charge for the
Environmental charge of ₱0.0025 per kilowatt-hour
(/kWh), or a total of ₱119,488,847.59, be approved for
withdrawal from the Special Trust Fund (STF) managed by
respondent Power Sector Assets and
Liabilities Management Group (PSALM)10 for the
rehabilitation and management of watershed areas.11
On December 20, 2002, the ERC issued an Order12 in
ERC Case No. 2002-165 provisionally approving the
computed amount of ₱0.0168/kWh as the share of the
NPC-SPUG from the Universal Charge for Missionary
Electrification and authorizing the National Transmission
Corporation (TRANSCO) and Distribution Utilities to
collect the same from its end-users on a monthly basis.
On June 26, 2003, the ERC rendered its Decision13 (for
ERC Case No. 2002-165) modifying its Order of
December 20, 2002, thus:
WHEREFORE, the foregoing premises considered, the
provisional authority granted to petitioner National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG)
in the Order dated December 20, 2002 is hereby modified
to the effect that an additional amount of ₱0.0205 per
kilowatt-hour should be added to the ₱0.0168 per kilowatt-
hour provisionally authorized by the Commission in the
said Order. Accordingly, a total amount of ₱0.0373 per
kilowatt-hour is hereby APPROVED for withdrawal from
the Special Trust Fund managed by PSALM as its share
from the Universal Charge for Missionary Electrification
(UC-ME) effective on the following billing cycles:
(a) June 26-July 25, 2003 for National Transmission
Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).
Relative thereto, TRANSCO and Dus are directed to
collect the UC-ME in the amount of ₱0.0373 per kilowatt-
hour and remit the same to PSALM on or before the 15th
day of the succeeding month.
In the meantime, NPC-SPUG is directed to submit, not
later than April 30, 2004, a detailed report to include
Audited Financial Statements and physical status
(percentage of completion) of the projects using the
prescribed format.1avvphi1
Let copies of this Order be furnished petitioner NPC-
SPUG and all distribution utilities (Dus).
SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for
Reconsideration asking the ERC, among others,14 to set
aside the above-mentioned Decision, which the ERC
granted in its Order dated October 7, 2003, disposing:
WHEREFORE, the foregoing premises considered, the
"Motion for Reconsideration" filed by petitioner National
Power Corporation-Small Power Utilities Group (NPC-
SPUG) is hereby GRANTED. Accordingly, the Decision
dated June 26, 2003 is hereby modified accordingly.
Relative thereto, NPC-SPUG is directed to submit a
quarterly report on the following:
1. Projects for CY 2002 undertaken;
2. Location
 3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if
any.
SO ORDERED.15
Meanwhile, on April 2, 2003, ERC decided ERC Case No.
2002-194, authorizing the NPC to draw up to
₱70,000,000.00 from PSALM for its 2003 Watershed
Rehabilitation Budget subject to the availability of funds for
the Environmental Fund component of the Universal
Charge.16
On the basis of the said ERC decisions, respondent
Panay Electric Company, Inc. (PECO) charged petitioner
Romeo P. Gerochi and all other end-users with the
Universal Charge as reflected in their respective electric
bills starting from the month of July 2003.17
Hence, this original action.
Petitioners submit that the assailed provision of law and its
IRR which sought to implement the same are
unconstitutional on the following grounds:
1) The universal charge provided for under Sec. 34 of
the EPIRA and sought to be implemented under Sec.
2, Rule 18 of the IRR of the said law is a tax which is
to be collected from all electric end-users and self-
 generating entities. The power to tax is strictly a
legislative function and as such, the delegation of said
power to any executive or administrative agency like
the ERC is unconstitutional, giving the same unlimited
authority. The assailed provision clearly provides that
the Universal Charge is to be determined, fixed and
approved by the ERC, hence leaving to the latter
complete discretionary legislative authority.
2) The ERC is also empowered to approve and
determine where the funds collected should be used.
3) The imposition of the Universal Charge on all end-
users is oppressive and confiscatory and amounts to
taxation without representation as the consumers
were not given a chance to be heard and
represented.18
Petitioners contend that the Universal Charge has the
characteristics of a tax and is collected to fund the
operations of the NPC. They argue that the
cases19 invoked by the respondents clearly show the
regulatory purpose of the charges imposed therein, which
is not so in the case at bench. In said cases, the
respective funds20 were created in order to balance and
stabilize the prices of oil and sugar, and to act as buffer to
counteract the changes and adjustments in prices, peso
devaluation, and other variables which cannot be
adequately and timely monitored by the legislature. Thus,
there was a need to delegate powers to administrative
bodies.21 Petitioners posit that the Universal Charge is
imposed not for a similar purpose.
On the other hand, respondent PSALM through the Office
of the Government Corporate Counsel (OGCC) contends
that unlike a tax which is imposed to provide income for
public purposes, such as support of the government,
administration of the law, or payment of public expenses,
the assailed Universal Charge is levied for a specific
regulatory purpose, which is to ensure the viability of the
country's electric power industry. Thus, it is exacted by the
State in the exercise of its inherent police power. On this
premise, PSALM submits that there is no undue
delegation of legislative power to the ERC since the latter
merely exercises a limited authority or discretion as to the
execution and implementation of the provisions of the
EPIRA.22
Respondents Department of Energy (DOE), ERC, and
NPC, through the Office of the Solicitor General (OSG),
share the same view that the Universal Charge is not a tax
because it is levied for a specific regulatory purpose,
which is to ensure the viability of the country's electric
power industry, and is, therefore, an exaction in the
exercise of the State's police power. Respondents further
contend that said Universal Charge does not possess the
essential characteristics of a tax, that its imposition would
redound to the benefit of the electric power industry and
not to the public, and that its rate is uniformly levied on
electricity end-users, unlike a tax which is imposed based
on the individual taxpayer's ability to pay. Moreover,
respondents deny that there is undue delegation of
legislative power to the ERC since the EPIRA sets forth
sufficient determinable standards which would guide the
ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal
Charge is not oppressive and confiscatory since it is an
exercise of the police power of the State and it complies
with the requirements of due process.23
On its part, respondent PECO argues that it is duty-bound
to collect and remit the amount pertaining to the
Missionary Electrification and Environmental Fund
components of the Universal Charge, pursuant to Sec. 34
of the EPIRA and the Decisions in ERC Case Nos. 2002-
194 and 2002-165. Otherwise, PECO could be held liable
under Sec. 4624 of the EPIRA, which imposes fines and
penalties for any violation of its provisions or its IRR.25
The Issues
The ultimate issues in the case at bar are:
1) Whether or not, the Universal Charge imposed
under Sec. 34 of the EPIRA is a tax; and
2) Whether or not there is undue delegation of
legislative power to tax on the part of the ERC.26
Before we discuss the issues, the Court shall first deal
with an obvious procedural lapse.
Petitioners filed before us an original action particularly
denominated as a Complaint assailing the constitutionality
of Sec. 34 of the EPIRA imposing the Universal Charge
and Rule 18 of the EPIRA's IRR. No doubt, petitioners
have locus standi. They impugn the constitutionality of
Sec. 34 of the EPIRA because they sustained a direct
injury as a result of the imposition of the Universal Charge
as reflected in their electric bills.
However, petitioners violated the doctrine of hierarchy of
courts when they filed this "Complaint" directly with us.
Furthermore, the Complaint is bereft of any allegation of
grave abuse of discretion on the part of the ERC or any of
the public respondents, in order for the Court to consider it
as a petition for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987
Constitution27 categorically provides that:
SECTION 5. The Supreme Court shall have the following
powers:
1. Exercise original jurisdiction over cases affecting
ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus,
quo warranto, and habeas corpus.
2. Review, revise, reverse, modify, or affirm on appeal
or certiorari, as the law or the rules of court may
provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any
treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.
But this Court's jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, and habeas corpus,
while concurrent with that of the regional trial courts and
the Court of Appeals, does not give litigants unrestrained
freedom of choice of forum from which to seek such
relief.28 It has long been established that this Court will not
entertain direct resort to it unless the redress desired
cannot be obtained in the appropriate courts, or where
exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of
our primary jurisdiction.29 This circumstance alone
warrants the outright dismissal of the present action.
This procedural infirmity notwithstanding, we opt to resolve
the constitutional issue raised herein. We are aware that if
the constitutionality of Sec. 34 of the EPIRA is not
resolved now, the issue will certainly resurface in the near
future, resulting in a repeat of this litigation, and probably
involving the same parties. In the public interest and to
avoid unnecessary delay, this Court renders its ruling now.
The instant complaint is bereft of merit.
The First Issue
To resolve the first issue, it is necessary to distinguish the
State’s power of taxation from the police power.
The power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only
in the responsibility of the legislature which imposes the
tax on the constituency that is to pay it.30 It is based on the
principle that taxes are the lifeblood of the government,
and their prompt and certain availability is an imperious
need.31 Thus, the theory behind the exercise of the power
to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.32
On the other hand, police power is the power of the state
to promote public welfare by restraining and regulating the
use of liberty and property.33 It is the most pervasive, the
least limitable, and the most demanding of the three
fundamental powers of the State. The justification is found
in the Latin maxims salus populi est suprema lex (the
welfare of the people is the supreme law) and sic utere tuo
ut alienum non laedas (so use your property as not to
injure the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs,
police power grants a wide panoply of instruments through
which the State, as parens patriae, gives effect to a host of
its regulatory powers.34 We have held that the power to
"regulate" means the power to protect, foster, promote,
preserve, and control, with due regard for the interests,
first and foremost, of the public, then of the utility and of its
patrons.35
The conservative and pivotal distinction between these
two powers rests in the purpose for which the charge is
made. If generation of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but
if regulation is the primary purpose, the fact that revenue
is incidentally raised does not make the imposition a tax.36
In exacting the assailed Universal Charge through Sec. 34
of the EPIRA, the State's police power, particularly its
regulatory dimension, is invoked. Such can be deduced
from Sec. 34 which enumerates the purposes for which
the Universal Charge is imposed37 and which can be
amply discerned as regulatory in character. The EPIRA
resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. — It is hereby declared
the policy of the State:
(a) To ensure and accelerate the total electrification of
the country;
(b) To ensure the quality, reliability, security and
affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of
electricity in a regime of free and fair competition and
full public accountability to achieve greater
operational and economic efficiency and enhance the
competitiveness of Philippine products in the global
market;
(d) To enhance the inflow of private capital and
broaden the ownership base of the power generation,
transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of
public and private sector entities in the process of
restructuring the electric power industry;
 (f) To protect the public interest as it is affected by the
rates and services of electric utilities and other
providers of electric power;
(g) To assure socially and environmentally compatible
energy sources and infrastructure;
(h) To promote the utilization of indigenous and new
and renewable energy resources in power generation
in order to reduce dependence on imported energy;
(i) To provide for an orderly and transparent
privatization of the assets and liabilities of the
National Power Corporation (NPC);
(j) To establish a strong and purely independent
regulatory body and system to ensure consumer
protection and enhance the competitive operation of
the electricity market; and
(k) To encourage the efficient use of energy and other
modalities of demand side management.
From the aforementioned purposes, it can be gleaned that
the assailed Universal Charge is not a tax, but an exaction
in the exercise of the State's police power. Public welfare
is surely promoted.
Moreover, it is a well-established doctrine that the taxing
power may be used as an implement of police
power.38 In Valmonte v. Energy Regulatory Board, et
al.39 and in Gaston v. Republic Planters Bank,40 this Court
held that the Oil Price Stabilization Fund (OPSF) and the
Sugar Stabilization Fund (SSF) were exactions made in
the exercise of the police power. The doctrine was
reiterated in Osmeña v. Orbos41 with respect to the OPSF.
Thus, we disagree with petitioners that the instant case is
different from the aforementioned cases. With the
Universal Charge, a Special Trust Fund (STF) is also
created under the administration of PSALM.42 The STF
has some notable characteristics similar to the OPSF and
the SSF, viz.:
1) In the implementation of stranded cost recovery,
the ERC shall conduct a review to determine whether
there is under-recovery or over recovery and adjust
(true-up) the level of the stranded cost recovery
charge. In case of an over-recovery, the ERC shall
ensure that any excess amount shall be remitted to
the STF. A separate account shall be created for
these amounts which shall be held in trust for any
future claims of distribution utilities for stranded cost
recovery. At the end of the stranded cost recovery
period, any remaining amount in this account shall be
used to reduce the electricity rates to the end-users.43
2) With respect to the assailed Universal Charge, if
the total amount collected for the same is greater than
the actual availments against it, the PSALM shall
retain the balance within the STF to pay for periods
where a shortfall occurs.44
3) Upon expiration of the term of PSALM, the
administration of the STF shall be transferred to the
 DOF or any of the DOF attached agencies as
designated by the DOF Secretary.45
The OSG is in point when it asseverates:
Evidently, the establishment and maintenance of the
Special Trust Fund, under the last paragraph of Section
34, R.A. No. 9136, is well within the pervasive and non-
waivable power and responsibility of the government to
secure the physical and economic survival and well-being
of the community, that comprehensive sovereign authority
we designate as the police power of the State.46
This feature of the Universal Charge further boosts the
position that the same is an exaction imposed primarily in
pursuit of the State's police objectives. The STF
reasonably serves and assures the attainment and
perpetuity of the purposes for which the Universal Charge
is imposed, i.e., to ensure the viability of the country's
electric power industry.
The Second Issue
The principle of separation of powers ordains that each of
the three branches of government has exclusive
cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. A logical corollary to
the doctrine of separation of powers is the principle of non-
delegation of powers, as expressed in the Latin
maxim potestas delegata non delegari potest (what has
been delegated cannot be delegated). This is based on
the ethical principle that such delegated power constitutes
not only a right but a duty to be performed by the delegate
through the instrumentality of his own judgment and not
through the intervening mind of another. 47
In the face of the increasing complexity of modern life,
delegation of legislative power to various specialized
administrative agencies is allowed as an exception to this
principle.48 Given the volume and variety of interactions in
today's society, it is doubtful if the legislature can
promulgate laws that will deal adequately with and
respond promptly to the minutiae of everyday life. Hence,
the need to delegate to administrative bodies - the
principal agencies tasked to execute laws in their
specialized fields - the authority to promulgate rules and
regulations to implement a given statute and effectuate its
policies. All that is required for the valid exercise of this
power of subordinate legislation is that the regulation be
germane to the objects and purposes of the law and that
the regulation be not in contradiction to, but in conformity
with, the standards prescribed by the law. These
requirements are denominated as the completeness test
and the sufficient standard test.
Under the first test, the law must be complete in all its
terms and conditions when it leaves the legislature such
that when it reaches the delegate, the only thing he will
have to do is to enforce it. The second test mandates
adequate guidelines or limitations in the law to determine
the boundaries of the delegate's authority and prevent the
delegation from running riot.49
The Court finds that the EPIRA, read and appreciated in
its entirety, in relation to Sec. 34 thereof, is complete in all
its essential terms and conditions, and that it contains
sufficient standards.
Although Sec. 34 of the EPIRA merely provides that
"within one (1) year from the effectivity thereof, a Universal
Charge to be determined, fixed and approved by the ERC,
shall be imposed on all electricity end-users," and
therefore, does not state the specific amount to be paid as
Universal Charge, the amount nevertheless is made
certain by the legislative parameters provided in the law
itself. For one, Sec. 43(b)(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. — The ERC shall
promote competition, encourage market development,
ensure customer choice and penalize abuse of market
power in the restructured electricity industry. In
appropriate cases, the ERC is authorized to issue cease
and desist order after due notice and hearing. Towards
this end, it shall be responsible for the following key
functions in the restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act,
promulgate and enforce, in accordance with law, a
National Grid Code and a Distribution Code which shall
include, but not limited to the following:
xxxx
(ii) Financial capability standards for the generating
companies, the TRANSCO, distribution utilities and
suppliers: Provided, That in the formulation of the financial
capability standards, the nature and function of the entity
shall be considered: Provided, further, That such
standards are set to ensure that the electric power
industry participants meet the minimum financial
standards to protect the public interest. Determine, fix, and
approve, after due notice and public hearings the universal
charge, to be imposed on all electricity end-users pursuant
to Section 34 hereof;
Moreover, contrary to the petitioners’ contention, the ERC
does not enjoy a wide latitude of discretion in the
determination of the Universal Charge. Sec. 51(d) and (e)
of the EPIRA50 clearly provides:
SECTION 51. Powers. — The PSALM Corp. shall, in the
performance of its functions and for the attainment of its
objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and
stranded contract costs of NPC which shall form the
basis for ERC in the determination of the
universal charge;
(e) To liquidate the NPC stranded contract costs,
utilizing the proceeds from sales and other property
contributed to it, including the proceeds from the
universal charge.
Thus, the law is complete and passes the first test for valid
delegation of legislative power.
As to the second test, this Court had, in the past, accepted
as sufficient standards the following: "interest of law and
order;"51 "adequate and efficient instruction;"52 "public
interest;"53 "justice and equity;"54 "public convenience and
welfare;"55 "simplicity, economy and
efficiency;"56 "standardization and regulation of medical
education;"57 and "fair and equitable employment
practices."58 Provisions of the EPIRA such as, among
others, "to ensure the total electrification of the country
and the quality, reliability, security and affordability of the
supply of electric power"59 and "watershed rehabilitation
and management"60 meet the requirements for valid
delegation, as they provide the limitations on the ERC’s
power to formulate the IRR. These are sufficient
standards.
It may be noted that this is not the first time that the ERC's
conferred powers were challenged. In Freedom from Debt
Coalition v. Energy Regulatory Commission,61 the Court
had occasion to say:
In determining the extent of powers possessed by the
ERC, the provisions of the EPIRA must not be read in
separate parts. Rather, the law must be read in its entirety,
because a statute is passed as a whole, and is animated
by one general purpose and intent. Its meaning cannot to
be extracted from any single part thereof but from a
general consideration of the statute as a whole.
Considering the intent of Congress in enacting the EPIRA
and reading the statute in its entirety, it is plain to see that
the law has expanded the jurisdiction of the regulatory
body, the ERC in this case, to enable the latter to
implement the reforms sought to be accomplished by the
EPIRA. When the legislators decided to broaden the
jurisdiction of the ERC, they did not intend to abolish or
reduce the powers already conferred upon ERC's
predecessors. To sustain the view that the ERC
possesses only the powers and functions listed under
Section 43 of the EPIRA is to frustrate the objectives of
the law.
In his Concurring and Dissenting Opinion62 in the same
case, then Associate Justice, now Chief Justice, Reynato
S. Puno described the immensity of police power in
relation to the delegation of powers to the ERC and its
regulatory functions over electric power as a vital public
utility, to wit:
Over the years, however, the range of police power was
no longer limited to the preservation of public health,
safety and morals, which used to be the primary social
interests in earlier times. Police power now requires the
State to "assume an affirmative duty to eliminate the
excesses and injustices that are the concomitants of an
unrestrained industrial economy." Police power is now
exerted "to further the public welfare — a concept as vast
as the good of society itself." Hence, "police power is but
another name for the governmental authority to further the
welfare of society that is the basic end of all
government." When police power is delegated to
administrative bodies with regulatory functions, its
exercise should be given a wide latitude. Police power
takes on an even broader dimension in developing
countries such as ours, where the State must take a more
active role in balancing the many conflicting interests in
society. The Questioned Order was issued by the ERC,
acting as an agent of the State in the exercise of police
power. We should have exceptionally good grounds to
curtail its exercise. This approach is more compelling in
the field of rate-regulation of electric power rates. Electric
power generation and distribution is a traditional
instrument of economic growth that affects not only a few
but the entire nation. It is an important factor in
encouraging investment and promoting business. The
engines of progress may come to a screeching halt if the
delivery of electric power is impaired. Billions of pesos
would be lost as a result of power outages or unreliable
electric power services. The State thru the ERC should be
able to exercise its police power with great flexibility, when
the need arises.
This was reiterated in National Association of Electricity
Consumers for Reforms v. Energy Regulatory
Commission63 where the Court held that the ERC, as
regulator, should have sufficient power to respond in real
time to changes wrought by multifarious factors affecting
public utilities.
From the foregoing disquisitions, we therefore hold that
there is no undue delegation of legislative power to the
ERC.
Petitioners failed to pursue in their Memorandum the
contention in the Complaint that the imposition of the
Universal Charge on all end-users is oppressive and
confiscatory, and amounts to taxation without
representation. Hence, such contention is deemed waived
or abandoned per Resolution64 of August 3,
65
2004. Moreover, the determination of whether or not a
tax is excessive, oppressive or confiscatory is an issue
which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same.66
As a penultimate statement, it may be well to recall what
this Court said of EPIRA:
One of the landmark pieces of legislation enacted by
Congress in recent years is the EPIRA. It established a
new policy, legal structure and regulatory framework for
the electric power industry. The new thrust is to tap private
capital for the expansion and improvement of the industry
as the large government debt and the highly capital-
intensive character of the industry itself have long been
acknowledged as the critical constraints to the program.
To attract private investment, largely foreign, the jaded
structure of the industry had to be addressed. While the
generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with
over 130 utilities, mostly small and uneconomic. The
pervasive flaws have caused a low utilization of existing
generation capacity; extremely high and uncompetitive
power rates; poor quality of service to consumers; dismal
to forgettable performance of the government power
sector; high system losses; and an inability to develop a
clear strategy for overcoming these shortcomings.
Thus, the EPIRA provides a framework for the
restructuring of the industry, including the privatization of
the assets of the National Power Corporation (NPC), the
transition to a competitive structure, and the delineation of
the roles of various government agencies and the private
entities. The law ordains the division of the industry into
four (4) distinct sectors, namely: generation, transmission,
distribution and supply.
Corollarily, the NPC generating plants have to privatized
and its transmission business spun off and privatized
thereafter.67
Finally, every law has in its favor the presumption of
constitutionality, and to justify its nullification, there must
be a clear and unequivocal breach of the Constitution and
not one that is doubtful, speculative, or
argumentative.68 Indubitably, petitioners failed to
overcome this presumption in favor of the EPIRA. We find
no clear violation of the Constitution which would warrant
a pronouncement that Sec. 34 of the EPIRA and Rule 18
of its IRR are unconstitutional and void.
WHEREFORE, the instant case is hereby DISMISSED for
lack of merit.
SO ORDERED.
 G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL
BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of
the CITY OF BUTUAN, defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of
First Instance of Agusan, dismissing plaintiff's complaint,
with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines,
is a domestic corporation with offices and principal place
of business in Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its municipal board
and its City Treasurer. Plaintiff — seeks to recover the
sums paid by it to the City of Butuan — hereinafter
referred to as the City and collected by the latter, pursuant
to its Municipal Ordinance No. 110, as amended by
Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the
enforcement thereof. Both parties submitted the case for
decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan
serves as a storage for its products the "Pepsi-Cola"
soft drinks for sale to customers in the City of Butuan
and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in
Cebu City and shipped to the Butuan City warehouse
of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan
enacted Ordinance No. 110 which was subsequently
amended by Ordinance No. 122 and effective
November 28, 1960. A copy of Ordinance No. 110,
Series of 1960 and Ordinance No. 122 are
incorporated herein as Exhibits "A" and "B",
respectively.
3. That Ordinance No. 110 as amended, imposes a
tax on any person, association, etc., of P0.10 per
case of 24 bottles of Pepsi-Cola and the plaintiff paid
under protest the amount of P4,926.63 from August
16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for
the recovery of the total amount of P14,177.03 paid
under protest and those that if may later on pay until
the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan
is illegal, that the tax imposed is excessive and that it
is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended,
the City Treasurer of Butuan City, has prepared a
form to be accomplished by the plaintiff for the
 computation of the tax. A copy of the form is enclosed
herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff
for the period from January 1, 1961 to July 30, 1961
of its warehouse in Butuan City is incorporated herein
as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff
is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be
increased from P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of depreciation which the
company claims to be P3,052.62. This is in
accordance with the findings of the representative of
the undersigned City Attorney who verified the
records of the plaintiff.
7. That beginning November 21, 1960, the price of
Pepsi-Cola per case of 24 bottles was increased to
P1.92 which price is uniform throughout the
Philippines. Said increase was made due to the
increase in the production cost of its manufacture.
8. That the parties reserve the right to submit
arguments on the constitutionality and illegality of
Ordinance No. 110, as amended of the City of Butuan
in their respective memoranda.
xxx xxx x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as amended, states
what products are "liquors", within the purview thereof.
Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates.
Section 3 prescribes a tax of P0.10 per case of 24 bottles
of the soft drinks and carbonated beverages therein
named, and "all other soft drinks or carbonated drinks."
Section 3-A, defines the meaning of the term "consignee
or agent" for purposes of the ordinance. Section 4
provides that said taxes "shall be paid at the end of every
calendar month." Pursuant to Section 5, the taxes "shall
be based and computed from the cargo manifest or bill of
lading or any other record showing the number of cases of
soft drinks, liquors or all other soft drinks or carbonated
drinks received within the month." Sections 6, 7 and 8
specify the surcharge to be added for failure to pay the
taxes within the period prescribed and the penalties
imposable for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure "to furnish the
office of the City Treasurer a copy of the bill of lading or
cargo manifest or record of soft drinks, liquors or
carbonated drinks for sale in the City." Section 9 makes
the ordinance applicable to soft drinks, liquors or
carbonated drinks "received outside" but "sold within" the
City. Section 10 of the ordinance provides that the
revenue derived therefrom "shall be alloted as follows:
40% for Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and
void because: (1) it partakes of the nature of an import tax;
(2) it amounts to double taxation; (3) it is excessive,
oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264,
upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of
merit. Indeed — independently of whether or not the tax in
question, when considered in relation to the sales tax
prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any
opinion - double taxation, in general, is not forbidden by
our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of
the Union.1 Then, again, the general principle against
delegation of legislative powers, in consequence of the
theory of separation of powers2 is subject to one well-
established exception, namely: legislative powers may be
delegated to local governments — to which said theory
does not apply3 — in respect of matters of local concern.
The third objection is, likewise, untenable. The tax
of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks — in the production and sale of which
plaintiff is engaged — or less than P0.0042 per bottle, is
manifestly too small to be excessive, oppressive, or
confiscatory.
The first and the fourth objections merit, however, serious
consideration. In this connection, it is noteworthy that the
tax prescribed in section 3 of Ordinance No. 110, as
originally approved, was imposed upon dealers "engaged
in selling" soft drinks or carbonated drinks. Thus, it would
seem that the intent was then to levy a tax upon the sale
of said merchandise. As amended by Ordinance No. 122,
the tax is, however, imposed only upon "any agent and/or
consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or
carbonated drinks." And, pursuant to section 3-A, which
was inserted by said Ordinance No. 122:
... — Definition of the Term Consignee or Agent. —
For purposes of this Ordinance, a consignee of agent
shall mean any person, association, partnership,
company or corporation who acts in the place of
another by authority from him or one entrusted with
the business of another or to whom is consigned or
shipped no less than 1,000 cases of hard liquors or
soft drinks every month for resale, either retail or
wholesale.
As a consequence, merchants engaged in the sale of soft
drink or carbonated drinks, are not subject to the
tax, unless they are agents and/or consignees of another
dealer, who, in the very nature of things, must be one
engaged in business outside the City. Besides, the tax
would not be applicable to such agent and/or consignee, if
less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that
the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases"
— not sold — but "received" by the taxpayer, the intention
to limit the application of the ordinance to soft drinks and
carbonated drinks brought into the City from outside
thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of
law.4
Even however, if the burden in question were regarded as
a tax on the sale of said beverages, it would still be invalid,
as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since
only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of
the volume of their sales, and even if the same exceeded
those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise
of the power of taxation does not require identity or
equality under all circumstances, or negate the authority to
classify the objects of taxation.5 The classification made in
the exercise of this authority, to be valid, must, however,
be reasonable6 and this requirement is not deemed
satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions,
but, also, to future conditions substantially identical to
those of the present; and (4) the classification applies
equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in
question.8 Indeed, if its purpose were merely to levy a
burden upon the sale of soft drinks or carbonated
beverages, there is no reason why sales thereof by
sealers other than agents or consignees of producers or
merchants established outside the City of Butuan should
be exempt from the tax.
WHEREFORE, the decision appealed from is hereby
reversed, and another one shall be entered annulling
Ordinance No. 110, as amended by Ordinance No. 122,
and sentencing the City of Butuan to refund to plaintiff
herein the amounts collected from and paid under protest
by the latter, with interest thereon at the legal rate from the
date of the promulgation of this decision, in addition to the
costs, and defendants herein are, accordingly, restrained
and prohibited permanently from enforcing said
Ordinance, as amended. It is so ordered.
 G.R. No. 188550 August 19, 2013
DEUTSCHE BANK AG MANILA
BRANCH, PETITIONER,
vs.
COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.
SERENO, CJ.:
This is a Petition for Review1 filed by Deutsche Bank AG
Manila Branch (petitioner) under Rule 45 of the 1997
Rules of Civil Procedure assailing the Court of Tax
Appeals En Banc (CTA En Banc) Decision2 dated 29 May
2009 and Resolution3 dated 1 July 2009 in C.T.A. EB No.
456.
THE FACTS
In accordance with Section 28(A)(5)4 of the National
Internal Revenue Code (NIRC) of 1997, petitioner withheld
and remitted to respondent on 21 October 2003 the
amount of PHP 67,688,553.51, which represented the
fifteen percent (15%) branch profit remittance tax (BPRT)
on its regular banking unit (RBU) net income remitted to
Deutsche Bank Germany (DB Germany) for 2002 and
prior taxable years.5
Believing that it made an overpayment of the BPRT,
petitioner filed with the BIR Large Taxpayers Assessment
and Investigation Division on 4 October 2005 an
administrative claim for refund or issuance of its tax credit
certificate in the total amount of PHP 22,562,851.17. On
the same date, petitioner requested from the International
Tax Affairs Division (ITAD) a confirmation of its entitlement
to the preferential tax rate of 10% under the RP-Germany
Tax Treaty.6
Alleging the inaction of the BIR on its administrative claim,
petitioner filed a Petition for Review7 with the CTA on 18
October 2005. Petitioner reiterated its claim for the refund
or issuance of its tax credit certificate for the amount of
PHP 22,562,851.17 representing the alleged excess
BPRT paid on branch profits remittance to DB Germany.
THE CTA SECOND DIVISION RULING8
After trial on the merits, the CTA Second Division found
that petitioner indeed paid the total amount of PHP
67,688,553.51 representing the 15% BPRT on its RBU
profits amounting to PHP 451,257,023.29 for 2002 and
prior taxable years. Records also disclose that for the year
2003, petitioner remitted to DB Germany the amount of
EURO 5,174,847.38 (or PHP 330,175,961.88 at the
exchange rate of PHP 63.804:1 EURO), which is net of
the 15% BPRT.
However, the claim of petitioner for a refund was denied
on the ground that the application for a tax treaty relief
was not filed with ITAD prior to the payment by the former
of its BPRT and actual remittance of its branch profits to
DB Germany, or prior to its availment of the preferential
rate of ten percent (10%) under the RP-Germany Tax
Treaty provision. The court a quo held that petitioner
violated the fifteen (15) day period mandated under
Section III paragraph (2) of Revenue Memorandum Order
(RMO) No. 1-2000.
Further, the CTA Second Division relied on Mirant
(Philippines) Operations Corporation (formerly Southern
Energy Asia-Pacific Operations [Phils.], Inc.) v.
Commissioner of Internal Revenue9 (Mirant) where the
CTA En Banc ruled that before the benefits of the tax
treaty may be extended to a foreign corporation wishing to
avail itself thereof, the latter should first invoke the
provisions of the tax treaty and prove that they indeed
apply to the corporation.
THE CTA EN BANC RULING10
The CTA En Banc affirmed the CTA Second Division’s
Decision dated 29 August 2008 and Resolution dated 14
January 2009. Citing Mirant, the CTA En Banc held that a
ruling from the ITAD of the BIR must be secured prior to
the availment of a preferential tax rate under a tax treaty.
Applying the principle of stare decisis et non quieta
movere, the CTA En Banc took into consideration that this
Court had denied the Petition in G.R. No. 168531 filed by
Mirant for failure to sufficiently show any reversible error in
the assailed judgment.11 The CTA En Banc ruled that once
a case has been decided in one way, any other case
involving exactly the same point at issue should be
decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty
relief application under RMO No. 1-2000 cannot be
relaxed for petitioner, unlike in CBK Power Company
Limited v. Commissioner of Internal Revenue.12 In that
case, the rule was relaxed and the claim for refund of
excess final withholding taxes was partially granted. While
it issued a ruling to CBK Power Company Limited after the
payment of withholding taxes, the ITAD did not issue any
ruling to petitioner even if it filed a request for confirmation
on 4 October 2005 that the remittance of branch profits to
DB Germany is subject to a preferential tax rate of 10%
pursuant to Article 10 of the RP-Germany Tax Treaty.
ISSUE
This Court is now confronted with the issue of whether the
failure to strictly comply with RMO No. 1-2000 will deprive
persons or corporations of the benefit of a tax treaty.
THE COURT’S RULING
The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to
its head office shall be subject to a tax of 15% based on
the total profits applied for or earmarked for remittance
without any deduction of the tax component. However,
petitioner invokes paragraph 6, Article 10 of the RP-
Germany Tax Treaty, which provides that where a resident
of the Federal Republic of Germany has a branch in the
Republic of the Philippines, this branch may be subjected
to the branch profits remittance tax withheld at source in
accordance with Philippine law but shall not exceed 10%
of the gross amount of the profits remitted by that branch
to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to
extend to a branch in the Philippines, remitting to its head
office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT.
On the other hand, the BIR issued RMO No. 1-2000,
which requires that any availment of the tax treaty relief
must be preceded by an application with ITAD at least 15
days before the transaction. The Order was issued to
streamline the processing of the application of tax treaty
relief in order to improve efficiency and service to the
taxpayers. Further, it also aims to prevent the
consequences of an erroneous interpretation and/or
application of the treaty provisions (i.e., filing a claim for a
tax refund/credit for the overpayment of taxes or for
deficiency tax liabilities for underpayment).13
The crux of the controversy lies in the implementation of
RMO No. 1-2000.
Petitioner argues that, considering that it has met all the
conditions under Article 10 of the RP-Germany Tax
Treaty, the CTA erred in denying its claim solely on the
basis of RMO No. 1-2000. The filing of a tax treaty relief
application is not a condition precedent to the availment of
a preferential tax rate. Further, petitioner posits that,
contrary to the ruling of the CTA, Mirant is not a binding
judicial precedent to deny a claim for refund solely on the
basis of noncompliance with RMO No. 1-2000.
Respondent counters that the requirement of prior
application under RMO No. 1-2000 is mandatory in
character. RMO No. 1-2000 was issued pursuant to the
unquestioned authority of the Secretary of Finance to
promulgate rules and regulations for the effective
implementation of the NIRC. Thus, courts cannot ignore
administrative issuances which partakes the nature of a
statute and have in their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is
mandatory, and noncompliance with this prerequisite is
fatal to the taxpayer’s availment of the preferential tax
rate.
We disagree.
A minute resolution is not a binding precedent
At the outset, this Court’s minute resolution on Mirant is
not a binding precedent. The Court has clarified this
matter in Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue14 as follows:
It is true that, although contained in a minute resolution,
our dismissal of the petition was a disposition of the merits
of the case. When we dismissed the petition, we
effectively affirmed the CA ruling being questioned. As a
result, our ruling in that case has already become final.
When a minute resolution denies or dismisses a petition
for failure to comply with formal and substantive
requirements, the challenged decision, together with its
findings of fact and legal conclusions, are deemed
sustained. But what is its effect on other cases?
With respect to the same subject matter and the same
issues concerning the same parties, it constitutes res
judicata. However, if other parties or another subject
matter (even with the same parties and issues) is involved,
the minute resolution is not binding precedent. Thus, in
CIR v. Baier-Nickel, the Court noted that a previous case,
CIR v. Baier-Nickel involving the same parties and the
same issues, was previously disposed of by the Court thru
a minute resolution dated February 17, 2003 sustaining
the ruling of the CA. Nonetheless, the Court ruled that the
previous case "ha(d) no bearing" on the latter case
because the two cases involved different subject matters
as they were concerned with the taxable income of
different taxable years.
Besides, there are substantial, not simply formal,
distinctions between a minute resolution and a decision.
The constitutional requirement under the first paragraph of
Section 14, Article VIII of the Constitution that the facts
and the law on which the judgment is based must be
expressed clearly and distinctly applies only to decisions,
not to minute resolutions. A minute resolution is signed
only by the clerk of court by authority of the justices, unlike
a decision. It does not require the certification of the Chief
Justice. Moreover, unlike decisions, minute resolutions are
not published in the Philippine Reports. Finally, the proviso
of Section 4(3) of Article VIII speaks of a decision. Indeed,
as a rule, this Court lays down doctrines or principles of
law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the
Chief Justice. (Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine
laid down in that Decision cannot bind this Court in cases
of a similar nature. There are differences in parties, taxes,
taxable periods, and treaties involved; more importantly,
the disposition of that case was made only through a
minute resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general
principles of international law as part of the law of the
land.15 The time-honored international principle of pacta
sunt servanda demands the performance in good faith of
treaty obligations on the part of the states that enter into
the agreement. Every treaty in force is binding upon the
parties, and obligations under the treaty must be
performed by them in good faith.16 More importantly,
treaties have the force and effect of law in this
jurisdiction.17
Tax treaties are entered into "to reconcile the national
fiscal legislations of the contracting parties and, in turn,
help the taxpayer avoid simultaneous taxations in two
different jurisdictions."18 CIR v. S.C. Johnson and Son, Inc.
further clarifies that "tax conventions are drafted with a
view towards the elimination of international juridical
double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away
with double taxation is to encourage the free flow of goods
and services and the movement of capital, technology and
persons between countries, conditions deemed vital in
creating robust and dynamic economies. Foreign
investments will only thrive in a fairly predictable and
reasonable international investment climate and the
protection against double taxation is crucial in creating
such a climate."19
Simply put, tax treaties are entered into to minimize, if not
eliminate the harshness of international juridical double
taxation, which is why they are also known as double tax
treaty or double tax agreements.
"A state that has contracted valid international obligations
is bound to make in its legislations those modifications that
may be necessary to ensure the fulfillment of the
obligations undertaken."20 Thus, laws and issuances must
ensure that the reliefs granted under tax treaties are
accorded to the parties entitled thereto. The BIR must not
impose additional requirements that would negate the
availment of the reliefs provided for under international
agreements. More so, when the RP-Germany Tax Treaty
does not provide for any pre-requisite for the availment of
the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO
No. 1-2000 which would indicate a deprivation of
entitlement to a tax treaty relief for failure to comply with
the 15-day period. We recognize the clear intention of the
BIR in implementing RMO No. 1-2000, but the CTA’s
outright denial of a tax treaty relief for failure to strictly
comply with the prescribed period is not in harmony with
the objectives of the contracting state to ensure that the
benefits granted under tax treaties are enjoyed by duly
entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of
application for the availment of tax treaty relief as required
by RMO No. 1-2000 should not operate to divest
entitlement to the relief as it would constitute a violation of
the duty required by good faith in complying with a tax
treaty. The denial of the availment of tax relief for the
failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value
of the tax treaty. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take
precedence over the objective of RMO No. 1-
2000.1âwphi1 Logically, noncompliance with tax treaties
has negative implications on international relations, and
unduly discourages foreign investors. While the
consequences sought to be prevented by RMO No. 1-
2000 involve an administrative procedure, these may be
remedied through other system management processes,
e.g., the imposition of a fine or penalty. But we cannot
totally deprive those who are entitled to the benefit of a
treaty for failure to strictly comply with an administrative
issuance requiring prior application for tax treaty relief.
Prior Application vs. Claim for Refund
Again, RMO No. 1-2000 was implemented to obviate any
erroneous interpretation and/or application of the treaty
provisions. The objective of the BIR is to forestall
assessments against corporations who erroneously
availed themselves of the benefits of the tax treaty but are
not legally entitled thereto, as well as to save such
investors from the tedious process of claims for a refund
due to an inaccurate application of the tax treaty
provisions. However, as earlier discussed, noncompliance
with the 15-day period for prior application should not
operate to automatically divest entitlement to the tax treaty
relief especially in claims for refund.
The underlying principle of prior application with the BIR
becomes moot in refund cases, such as the present case,
where the very basis of the claim is erroneous or there is
excessive payment arising from non-availment of a tax
treaty relief at the first instance. In this case, petitioner
should not be faulted for not complying with RMO No. 1-
2000 prior to the transaction. It could not have applied for
a tax treaty relief within the period prescribed, or 15 days
prior to the payment of its BPRT, precisely because it
erroneously paid the BPRT not on the basis of the
preferential tax rate under
the RP-Germany Tax Treaty, but on the regular rate as
prescribed by the NIRC. Hence, the prior application
requirement becomes illogical. Therefore, the fact that
petitioner invoked the provisions of the RP-Germany Tax
Treaty when it requested for a confirmation from the ITAD
before filing an administrative claim for a refund should be
deemed substantial compliance with RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the
taxpayer a remedy for tax recovery when there has been
an erroneous payment of tax.1âwphi1 The outright denial
of petitioner’s claim for a refund, on the sole ground of
failure to apply for a tax treaty relief prior to the payment of
the BPRT, would defeat the purpose of Section 229.
Petitioner is entitled to a refund
It is significant to emphasize that petitioner applied –
though belatedly – for a tax treaty relief, in substantial
compliance with RMO No. 1-2000. A ruling by the BIR
would have confirmed whether petitioner was entitled to
the lower rate of 10% BPRT pursuant to the RP-Germany
Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA
Second Division found as follows:
Based on the evidence presented, both documentary and
testimonial, petitioner was able to establish the following
facts:
a. That petitioner is a branch office in the Philippines
of Deutsche Bank AG, a corporation organized and
existing under the laws of the Federal Republic of
Germany;
b. That on October 21, 2003, it filed its Monthly
Remittance Return of Final Income Taxes Withheld
under BIR Form No. 1601-F and remitted the amount
of ₱67,688,553.51 as branch profits remittance tax
with the BIR; and
 c. That on October 29, 2003, the Bangko Sentral ng
Pilipinas having issued a clearance, petitioner
remitted to Frankfurt Head Office the amount of
EUR5,174,847.38 (or ₱330,175,961.88 at 63.804
Peso/Euro) representing its 2002 profits remittance.22
The amount of PHP 67,688,553.51 paid by petitioner
represented the 15% BPRT on its RBU net income, due
for remittance to DB Germany amounting to PHP
451,257,023.29 for 2002 and prior taxable years.23
Likewise, both the administrative and the judicial actions
were filed within the two-year prescriptive period pursuant
to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the
benefit of a preferential tax rate of 10% BPRT in
accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP
45,125,702.34 on its RBU net income amounting to PHP
451,257,023.29 for 2002 and prior taxable years, applying
the 10% BPRT. Thus, it is proper to grant petitioner a
refund ofthe difference between the PHP 67,688,553.51
(15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a
total of PHP 22,562,851.17.
WHEREFORE, premises considered, the instant Petition
is GRANTED. Accordingly, the Court of Tax Appeals En
Banc Decision dated 29 May 2009 and Resolution dated 1
July 2009 are REVERSED and SET ASIDE. A new one is
hereby entered ordering respondent Commissioner of
Internal Revenue to refund or issue a tax credit certificate
in favor of petitioner Deutsche Bank AG Manila Branch the
amount of TWENTY TWO MILLION FIVE HUNDRED
SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE
PESOS AND SEVENTEEN CENTAVOS (PHP
22,562,851.17), Philippine currency, representing the
erroneously paid BPRT for 2002 and prior taxable years.
SO ORDERED.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT,
HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER
ALBERTO P. CRUZ, respondents.
DAVIDE, JR., J.:
This is a petition erroneously brought under Rule 44 of the
Rules of Court 1 questioning the authority of the
Commission on Audit (COA) in disallowing petitioner's
claims for reimbursement from the Oil Price Stabilization
Fund (OPSF) and seeking the reversal of said
Commission's decision denying its claims for recovery of
financing charges from the Fund and reimbursement of
underrecovery arising from sales to the National Power
Corporation, Atlas Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining Corporation
(MAR-COPPER), preventing it from exercising the right to
offset its remittances against its reimbursement vis-a-
vis the OPSF and disallowing its claims which are still
pending resolution before the Office of Energy Affairs
(OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or
ruling of the Constitutional Commissions 3 may be brought
to this Court on certiorari by the aggrieved party within
thirty (30) days from receipt of a copy thereof.
The certiorari referred to is the special civil action
for certiorari under Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA
acted with:
(a) total lack of jurisdiction in completely ignoring and
showing absolutely no respect for the findings and rulings
of the administrator of the fund itself and in disallowing a
claim which is still pending resolution at the OEA level,
and (b) "grave abuse of discretion and completely without
jurisdiction" 5 in declaring that petitioner cannot avail of the
right to offset any amount that it may be required under
the law to remit to the OPSF against any amount that it
may receive by way of reimbursement therefrom are
sufficient to bring this petition within Rule 65 of the Rules
of Court, and, considering further the importance of the
issues raised, the error in the designation of the remedy
pursued will, in this instance, be excused.
The issues raised revolve around the OPSF created under
Section 8 of Presidential Decree (P.D.) No. 1956, as
amended by Executive Order (E.O.) No. 137. As
amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account
in the books of accounts of the Ministry of Energy
to be designated as Oil Price Stabilization Fund
(OPSF) for the purpose of minimizing frequent
price changes brought about by exchange rate
adjustments and/or changes in world market
prices of crude oil and imported petroleum
products. The Oil Price Stabilization Fund may be
sourced from any of the following:
a) Any increase in the tax collection
from ad valorem tax or customs duty
imposed on petroleum products subject
to tax under this Decree arising from
exchange rate adjustment, as may be
determined by the Minister of Finance in
consultation with the Board of Energy;
b) Any increase in the tax collection as a
result of the lifting of tax exemptions of
government corporations, as may be
determined by the Minister of Finance in
consultation with the Board of Energy;
c) Any additional amount to be imposed
on petroleum products to augment the
resources of the Fund through an
appropriate Order that may be issued by
the Board of Energy requiring payment
 by persons or companies engaged in
the business of importing,
manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in
case the actual peso costs paid by oil
companies in the importation of crude oil
and petroleum products is less than the
peso costs computed using the
reference foreign exchange rate as fixed
by the Board of Energy.
The Fund herein created shall be used for the
following:
1) To reimburse the oil companies for
cost increases in crude oil and imported
petroleum products resulting from
exchange rate adjustment and/or
increase in world market prices of crude
oil;
2) To reimburse the oil companies for
possible cost under-recovery incurred
as a result of the reduction of domestic
prices of petroleum products. The
magnitude of the underrecovery, if any,
shall be determined by the Ministry of
Finance. "Cost underrecovery" shall
include the following:
 i. Reduction in oil company
take as directed by the Board
of Energy without the
corresponding reduction in the
landed cost of oil inventories in
the possession of the oil
companies at the time of the
price change;
ii. Reduction in internal ad
valorem taxes as a result of
foregoing government
mandated price reductions;
iii. Other factors as may be
determined by the Ministry of
Finance to result in cost
underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be
administered by the Ministry of Energy.
The material operative facts of this case, as gathered from
the pleadings of the parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex
Philippines, Inc. (CPI), hereinafter referred to as Petitioner,
directing the latter to remit to the OPSF its collection,
excluding that unremitted for the years 1986 and 1988, of
the additional tax on petroleum products authorized under
the aforesaid Section 8 of P.D. No. 1956 which, as of 31
December 1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF shall be held in
abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner
informing it that partial verification with the OEA showed
that the grand total of its unremitted collections of the
above tax is P1,287,668,820.00, broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges
thereon, within sixty (60) days from receipt of the letter;
advising it that the COA will hold in abeyance the audit of
all its claims for reimbursement from the OPSF; and
directing it to desist from further offsetting the taxes
collected against outstanding claims in 1989 and
subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA
for an early release of its reimbursement certificates from
the OPSF covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in support
thereof COA Circular No. 89-299 on the lifting of pre-audit
of government transactions of national government
agencies and government-owned or controlled
corporations. 8
In its Answer dated 8 May 1989, the COA denied
petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated
its earlier directive to petitioner to forward payment of the
latter's unremitted collections to the OPSF to facilitate
COA's audit action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May
1989, submitted to the COA a proposal for the payment of
the collections and the recovery of claims, since the
outright payment of the sum of P1.287 billion to the OEA
as a prerequisite for the processing of said claims against
the OPSF will cause a very serious impairment of its cash
position. 10 The proposal reads:
We, therefore, very respectfully propose the
following:
(1) Any procedural arrangement
acceptable to COA to facilitate
monitoring of payments and
reimbursements will be administered by
the ERB/Finance Dept./OEA, as
agencies designated by law to
administer/regulate OPSF.
(2) For the retroactive period, Caltex will
deliver to OEA, P1.287 billion as
payment to OPSF, similarly OEA will
deliver to Caltex the same amount in
cash reimbursement from OPSF.
 (3) The COA audit will commence
immediately and will be conducted
expeditiously.
(4) The review of current claims (1989)
will be conducted expeditiously to
preclude further accumulation of
reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no
part, handed down Decision No. 921 accepting the above-
stated proposal but prohibiting petitioner from further
offsetting remittances and reimbursements for the current
and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of
Mr. Manuel A. Estrella, President, Petron
Corporation, and Mr. Francis Ablan, President
and Managing Director, Caltex (Philippines) Inc.,
for reconsideration of this Commission's adverse
action embodied in its letters dated February 2,
1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price
Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O.
No. 137, S. 1987, and the latter reiterating the
same directive but further advising the firms to
desist from offsetting collections against their
claims with the notice that "this Commission will
hold in abeyance the audit of all . . . claims for
reimbursement from the OPSF."
It appears that under letters of authority issued by
the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to offset
the amounts due to the Oil Price Stabilization
Fund against their outstanding claims from the
said Fund for the calendar years 1987 and 1988,
pending with the then Ministry of Energy, the
government entity charged with administering the
OPSF. This Commission, however, expressing
serious doubts as to the propriety of the offsetting
of all types of reimbursements from the OPSF
against all categories of remittances, advised
these oil companies that such offsetting was
bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in
support thereof clearly manifest their intent to
make arrangements for the remittance to the
Office of Energy Affairs of the amount of
collections equivalent to what has been
previously offset, provided that this Commission
authorizes the Office of Energy Affairs to prepare
the corresponding checks representing
reimbursement from the OPSF. It is alleged that
the implementation of such an arrangement,
whereby the remittance of collections due to the
OPSF and the reimbursement of claims from the
Fund shall be made within a period of not more
than one week from each other, will benefit the
Fund and not unduly jeopardize the continuing
daily cash requirements of these firms.
 Upon a circumspect evaluation of the
circumstances herein obtaining, this Commission
perceives no further objectionable feature in the
proposed arrangement, provided that 15% of
whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same
to be answerable for suspensions or
disallowances, errors or discrepancies which may
be noted in the course of audit and surcharges
for late remittances without prejudice to similar
future retentions to answer for any deficiency in
such surcharges, and provided further that no
offsetting of remittances and reimbursements for
the current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989,
sent the following letter to Executive Director Wenceslao
R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision
No. 921 dated June 7, 1989, and based on our
initial verification of documents submitted to us
by your Office in support of Caltex (Philippines),
Inc. offsets (sic) for the year 1986 to May 31,
1989, as well as its outstanding claims against
the Oil Price Stabilization Fund (OPSF) as of May
31, 1989, we are pleased to inform your Office
that Caltex (Philippines), Inc. shall be required to
remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which
were offset against its claims reimbursements
(net of unsubmitted claims). In addition, the
Commission hereby authorize (sic) the Office of
Energy Affairs (OEA) to cause payment of
P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are
presented hereunder: . . .
As presented in the foregoing computation the
disallowances totalled P387,683,535, which
included P130,420,235 representing those claims
disallowed by OEA, details of which is (sic)
shown in Schedule 1 as summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges
P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed
hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as
amended by E.O. 137 seems to indicate that
recovery of financing charges by oil companies is
not among the items for which the OPSF may be
utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The
mechanism for such claims is provided in DOF
Circular 1-87.
b. Product Sales –– Sales to International
Vessels/Airlines
BOE Resolution No. 87-01 dated February 7,
1987 as implemented by OEA Order No. 87-03-
095 indicating that (sic) February 7, 1987 as the
effectivity date that (sic) oil companies should
pay OPSF impost on export sales of petroleum
products. Effective February 7, 1987 sales to
international vessels/airlines should not be
included as part of its domestic sales. Changing
the effectivity date of the resolution from
February 7, 1987 to October 20, 1987 as covered
by subsequent ERB Resolution No. 88-12 dated
November 18, 1988 has allowed Caltex to
include in their domestic sales volumes to
international vessels/airlines and claim the
corresponding reimbursements from OPSF
during the period. It is our opinion that the
effectivity of the said resolution should be
February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and
Loan (BLA) transactions including the related
BLA agreement, as they affect the claims for
reimbursements of ad valorem taxes. We
observed that oil companies immediately
settle ad valorem taxes for BLA transaction (sic).
Loan balances therefore are not tax paid
inventories of Caltex subject to reimbursements
but those of the borrower. Hence, we recommend
reduction of the claim for July, August, and
November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I
hereby order and direct the suspension of
payment of all taxes, duties, fees, imposts and
other charges whether direct or indirect due and
payable by the copper mining companies in
distress to the national and local governments." It
is our opinion that LOI 1416 which implements
the exemption from payment of OPSF imposts as
effected by OEA has no legal basis.
Furthermore, we wish to emphasize that payment
to Caltex (Phil.) Inc., of the amount as herein
 authorized shall be subject to availability of funds
of OPSF as of May 31, 1989 and applicable
auditing rules and regulations. With regard to the
disallowances, it is further informed that the
aggrieved party has 30 days within which to
appeal the decision of the Commission in
accordance with law.
On 8 September 1989, petitioner filed an Omnibus
Request for the Reconsideration of the decision based on
the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE
AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS
ISSUED BY THE DEPARTMENT OF FINANCE
AND THE ENERGY REGULATORY BOARD
PURSUANT TO EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN
THE COURSE OF EXERCISE OF EXECUTIVE
POWER BY DEPARTMENT OF FINANCE AND
ENERGY REGULATORY BOARD ARE LEGAL
AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY
COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF
OFFSET ARRANGEMENT, AS AUTHORIZED
 BY THE EXECUTIVE BRANCH OF
GOVERNMENT, REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a
Supplemental Omnibus Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo
taking no part and with Commissioner Fernandez
dissenting in part, handed down Decision No. 1171
affirming the disallowance for recovery of financing
charges, inventory losses, and sales to MARCOPPER and
ATLAS, while allowing the recovery of product sales or
those arising from export sales. 15 Decision No. 1171
reads as follows:
Anent the recovery of financing charges you
contend that Caltex Phil. Inc. has the .authority to
recover financing charges from the OPSF on the
basis of Department of Finance (DOF) Circular 1-
87, dated February 18, 1987, which allowed oil
companies to "recover cost of financing working
capital associated with crude oil shipments,"
and provided a schedule of reimbursement in
terms of peso per barrel. It appears that on
November 6, 1989, the DOF issued a
memorandum to the President of the Philippines
explaining the nature of these financing charges
and justifying their reimbursement as follows:
 As part of your program to promote
economic recovery, . . . oil companies
(were authorized) to refinance their
imports of crude oil and petroleum
products from the normal trade credit of
30 days up to 360 days from date of
loading . . . Conformably . . ., the oil
companies deferred their foreign
exchange remittances for purchases by
refinancing their import bills from the
normal 30-day payment term up to the
desired 360 days. This refinancing of
importations carried additional costs
(financing charges) which then became,
due to government mandate, an
inherent part of the cost of the
purchases of our country's oil
requirement.
We beg to disagree with such contention. The
justification that financing charges increased oil
costs and the schedule of reimbursement rate in
peso per barrel (Exhibit 1) used to support
alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2,
using the same formula which the DOF used in
arriving at the reimbursement rate but using
comparable percentages instead of pesos, the
ineluctable conclusion is that the oil companies
are actually gaining rather than losing from the
extension of credit because such extension
enables them to invest the collections in
marketable securities which have much higher
rates than those they incur due to the extension.
The Data we used were obtained from CPI
(CALTEX) Management and can easily be
verified from our records.
With respect to product sales or those arising
from sales to international vessels or airlines, . . .,
it is believed that export sales (product sales) are
entitled to claim refund from the OPSF.
As regard your claim for underrecovery arising
from inventory losses, . . . It is the considered
view of this Commission that the OPSF is not
liable to refund such surtax on inventory losses
because these are paid to BIR and not OPSF, in
view of which CPI (CALTEX) should seek refund
from BIR. . . .
Finally, as regards the sales to Atlas and
Marcopper, it is represented that you are entitled
to claim recovery from the OPSF pursuant to LOI
1416 issued on July 17, 1984, since these copper
mining companies did not pay CPI (CALTEX) and
OPSF imposts which were added to the selling
price.
Upon a circumspect evaluation, this Commission
believes and so holds that the CPI (CALTEX) has
no authority to claim reimbursement for this
uncollected OPSF impost because LOI 1416
 dated July 17, 1984, which exempts distressed
mining companies from "all taxes, duties, import
fees and other charges" was issued when OPSF
was not yet in existence and could not have
contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF
was not created to aid distressed mining
companies but rather to help the domestic oil
industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March
1990 the present petition wherein it imputes to the COA
the commission of the following errors: 16
I
RESPONDENT COMMISSION ERRED IN
DISALLOWING RECOVERY OF FINANCING
CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN
DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF
UNDERRECOVERY ARISING FROM SALES TO
NPC.
III
RESPONDENT COMMISSION ERRED IN
DENYING CPI's CLAIMS FOR
 REIMBURSEMENT ON SALES TO ATLAS AND
MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN
PREVENTING CPI FROM EXERCISING ITS
LEGAL RIGHT TO OFFSET ITS REMITTANCES
AGAINST ITS REIMBURSEMENT VIS-A-
VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN
DISALLOWING CPI's CLAIMS WHICH ARE
STILL PENDING RESOLUTION BY (SIC) THE
OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the
respondents to comment on the petition within ten (10)
days from notice. 18
On 6 September 1990, respondents COA and
Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on
30 May 1991 and required the parties to file their
respective Memoranda within twenty (20) days from
notice. 20
In a Manifestation dated 18 July 1991, the Office of the
Solicitor General prays that the Comment filed on 6
September 1990 be considered as the Memorandum for
respondents. 21
Upon the other hand, petitioner filed its Memorandum on
14 August 1991.
I. Petitioner dwells lengthily on its first assigned error
contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to
Executive Order No. 137, which added a second purpose,
to wit:
2) To reimburse the oil companies for possible
cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if
any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the
following:
i. Reduction in oil company take as
directed by the Board of Energy without
the corresponding reduction in the
landed cost of oil inventories in the
possession of the oil companies at the
time of the price change;
ii. Reduction in internal ad
valorem taxes as a result of foregoing
government mandated price reductions;
 iii. Other factors as may be determined
by the Ministry of Finance to result in
cost underrecovery.
the "other factors" mentioned therein that may be
determined by the Ministry (now Department) of Finance
may include financing charges for "in essence, financing
charges constitute unrecovered cost of acquisition of
crude oil incurred by the oil companies," as explained in
the 6 November 1989 Memorandum to the President of
the Department of Finance; they "directly translate to cost
underrecovery in cases where the money market
placement rates decline and at the same time the tax on
interest income increases. The relationship is such that
the presence of underrecovery or overrecovery is directly
dependent on the amount and extent of financing
charges."
(2) The claim for recovery of financing charges has clear
legal and factual basis; it was filed on the basis of
Department of Finance Circular No. 1-87, dated 18
February 1987, which provides:
To allow oil companies to recover the costs of
financing working capital associated with crude
oil shipments, the following guidelines on the
utilization of the Oil Price Stabilization Fund
pertaining to the payment of the foregoing (sic)
exchange risk premium and recovery of financing
charges will be implemented:
1. The OPSF foreign exchange premium
shall be reduced to a flat rate of one (1)
percent for the first (6) months and 1/32
of one percent per month thereafter up
to a maximum period of one year, to be
applied on crude oil' shipments from
January 1, 1987. Shipments with
outstanding financing as of January 1,
1987 shall be charged on the basis of
the fee applicable to the remaining
period of financing.
2. In addition, for shipments loaded after
January 1987, oil companies shall be
allowed to recover financing charges
directly from the OPSF per barrel of
crude oil based on the following
schedule:
F
i
n
a
n
c
i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
n
t

R
a
t
e

P
e
s
o
s

p
 e
r

B
a
r
r
e
l
Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to
review every sixty
days. 22
Pursuant to this circular, the Department of Finance, in its
letter of 18 February 1987, advised the Office of Energy
Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
 This refers to the letters of the Oil Industry dated
December 4, 1986 and February 5, 1987 and
subsequent discussions held by the Price Review
committee on February 6, 1987.
On the basis of the representations made, the
Department of Finance recognizes the necessity
to reduce the foreign exchange risk premium
accruing to the Oil Price Stabilization Fund
(OPSF). Such a reduction would allow the
industry to recover partly associated financing
charges on crude oil imports. Accordingly, the
OPSF foreign exchange risk fee shall be reduced
to a flat charge of 1% for the first six (6) months
plus 1/32% of 1% per month thereafter up to a
maximum period of one year, effective January 1,
1987. In addition, since the prevailing company
take would still leave unrecovered financing
charges, reimbursement may be secured from
the OPSF in accordance with the provisions of
the attached Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order
No. 87-05-096 which contains the guidelines for the
computation of the foreign exchange risk fee and the
recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to
recover financing charges directly from
the OPSF for both crude and product
shipments loaded after January 1, 1987
based on the following rates:
F
i
n
a
n
c
i
n
g

P
e
r
i
o
d

R
e
i
m
b
u
r
s
e
m
e
 n
t

R
a
t
e

(
P
B
b
l
.
)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to
review every sixty days. 24
Then on 22 November 1988, the Department of Finance
issued Circular No. 4-88 imposing further guidelines on
the recoverability of financing charges, to wit:
Following are the supplemental rules to
Department of Finance Circular No. 1-87 dated
February 18, 1987 which allowed the recovery of
 financing charges directly from the Oil Price
Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be
on a per shipment basis.
2. The claim shall be filed with the Office
of Energy Affairs together with the claim
on peso cost differential for a particular
shipment and duly certified supporting
documents provided for under Ministry
of Finance No. 11-85.
3. The reimbursement shall be on the
form of reimbursement certificate
(Annex A) to be issued by the Office of
Energy Affairs. The said certificate may
be used to offset against amounts
payable to the OPSF. The oil companies
may also redeem said certificates in
cash if not utilized, subject to availability
of funds. 25
The OEA disseminated this Circular to all oil companies in
its Memorandum Circular No. 88-12-017. 26
The COA can neither ignore these issuances nor
formulate its own interpretation of the laws in the light of
the determination of executive agencies. The
determination by the Department of Finance and the OEA
that financing charges are recoverable from the OPSF is
entitled to great weight and consideration. 27 The function
of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the
promulgation of accounting and auditing rules for, among
others, the disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures,
or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be
inequitable. Additionally, COA's claim that petitioner is
gaining, instead of losing, from the extension of credit, is
belatedly raised and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the
respondents argue that:
1. The Constitution gives the COA discretionary
power to disapprove irregular or unnecessary
government expenditures and as the monetary
claims of petitioner are not allowed by law, the
COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the
OPSF;
3. Under the principle of ejusdem generis, the
"other factors" mentioned in the second purpose
of the OPSF pursuant to E.O. No. 137 can only
include "factors which are of the same nature or
analogous to those enumerated;"
4. In allowing reimbursement of financing
charges from OPSF, Circular No. 1-87 of the
 Department of Finance violates P.D. No. 1956
and E.O. No. 137; and
5. Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise allow
reimbursement of financing
29
charges.
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved
in view of its primacy, We find the theory of petitioner ––
that such does not extend to the disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable
expenditures, or use of government funds and properties,
but only to the promulgation of accounting and auditing
rules for, among others, such disallowance –– to be
untenable in the light of the provisions of the 1987
Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987
Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have
the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue
and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities,
including government-owned and controlled
corporations with original charters, and on a post-
audit basis: (a) constitutional bodies,
commissions and offices that have been granted
fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c)
other government-owned or controlled
corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the
government, which are required by law or the
granting institution to submit to such audit as a
condition of subsidy or equity. However, where
the internal control system of the audited
agencies is inadequate, the Commission may
adopt such measures, including temporary or
special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall
keep the general accounts, of the Government
and, for such period as may be provided by law,
preserve the vouchers and other supporting
papers pertaining thereto.
(2) The Commission shall have exclusive
authority, subject to the limitations in this Article,
to define the scope of its audit and examination,
establish the techniques and methods required
therefor, and promulgate accounting and auditing
rules and regulations, including those for the
prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of
government funds and properties.
These present powers, consistent with the declared
independence of the Commission, 30 are broader and
more extensive than that conferred by the 1973
Constitution. Under the latter, the Commission was
empowered to:
Examine, audit, and settle, in accordance with
law and regulations, all accounts pertaining to the
revenues, and receipts of, and expenditures or
uses of funds and property, owned or held in trust
by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities
including government-owned or controlled
corporations, keep the general accounts of the
Government and, for such period as may
be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting
and auditing rules and regulations including those
for the prevention of irregular, unnecessary,
excessive, or extravagant expenditures or uses
of funds and property. 31
Upon the other hand, under the 1935 Constitution, the
power and authority of the COA's precursor, the General
Auditing Office, were, unfortunately, limited; its very role
was markedly passive. Section 2 of Article XI
thereof provided:
Sec. 2. The Auditor General shall examine, audit,
and settle all accounts pertaining to the revenues
and receipts from whatever source, including
trust funds derived from bond issues; and audit,
 in accordance with law and administrative
regulations, all expenditures of funds or property
pertaining to or held in trust by the Government
or the provinces or municipalities thereof. He
shall keep the general accounts of the
Government and the preserve the vouchers
pertaining thereto. It shall be the duty of the
Auditor General to bring to the attention of the
proper administrative officer expenditures of
funds or property which, in his opinion, are
irregular, unnecessary, excessive, or
extravagant. He shall also perform such other
functions as may be prescribed by law.
As clearly shown above, in respect to irregular,
unnecessary, excessive or extravagant expenditures or
uses of funds, the 1935 Constitution did not grant the
Auditor General the power to issue rules and regulations
to prevent the same. His was merely to bring that matter to
the attention of the proper administrative officer.
The ruling on this particular point, quoted by petitioner
from the cases of Guevarra vs. Gimenez 32 and Ramos
vs. Aquino, 33 are no longer controlling as the two (2) were
decided in the light of the 1935 Constitution.
There can be no doubt, however, that the audit power of
the Auditor General under the 1935 Constitution and the
Commission on Audit under the 1973 Constitution
authorized them to disallow illegal expenditures of funds or
uses of funds and property. Our present Constitution
retains that same power and authority, further
strengthened by the definition of the COA's general
jurisdiction in Section 26 of the Government Auditing Code
of the Philippines 34 and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting
and auditing rules and regulations for the prevention of
irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, 36 the COA promulgated on
29 March 1977 COA Circular No. 77-55. Since the COA is
responsible for the enforcement of the rules and
regulations, it goes without saying that failure to comply
with them is a ground for disapproving the payment of the
proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission,
Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under
Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular,
unnecessary, excessive or extravagant"
expenditures of public funds but could only "bring
[the matter] to the attention of the proper
administrative officer," under the 1987
Constitution, as also under the 1973 Constitution,
the Commission on Audit can "promulgate
accounting and auditing rules and regulations
including those for the prevention and
disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable
expenditures or uses of government funds and
properties." Hence, since the Commission on
Audit must ultimately be responsible for the
 enforcement of these rules and regulations, the
failure to comply with these regulations can be a
ground for disapproving the payment of a
proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions
conferred upon the COA a more active role and invested it
with broader and more extensive powers, they did not
intend merely to make the COA a toothless tiger, but
rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government.
The issue of the financing charges boils down to the
validity of Department of Finance Circular No. 1-87,
Department of Finance Circular No. 4-88 and the
implementing circulars of the OEA, issued pursuant to
Section 8, P.D. No. 1956, as amended by E.O. No. 137,
authorizing it to determine "other factors" which may result
in cost underrecovery and a consequent reimbursement
from the OPSF.
The Solicitor General maintains that, following the doctrine
of ejusdem generis, financing charges are not included in
"cost underrecovery" and, therefore, cannot be considered
as one of the "other factors." Section 8 of P.D. No. 1956,
as amended by E.O. No. 137, does not explicitly define
what "cost underrecovery" is. It merely states what it
includes. Thus:
. . . "Cost underrecovery" shall include the
following:
 i. Reduction in oil company takes as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time of
the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of
the same class or nature as the two specifically
enumerated in subparagraphs (i) and (ii). A common
characteristic of both is that they are in the nature of
government mandated price reductions. Hence, any other
factor which seeks to be a part of the enumeration, or
which could qualify as a cost underrecovery, must be of
the same class or nature as those specifically
enumerated.
Petitioner, however, suggests that E.O. No. 137 intended
to grant the Department of Finance broad and unrestricted
authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general
words follow an enumeration of persons or things, by
words of a particular and specific meaning, such general
words are not to be construed in their widest extent, but
are held to be as applying only to persons or things of the
same kind or class as those specifically mentioned. 38 A
reading of subparagraphs (i) and (ii) easily discloses that
they do not have a common characteristic. The first relates
to price reduction as directed by the Board of Energy while
the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be
limited by the enumeration in these subparagraphs. What
should be considered for purposes of determining the
"other factors" in subparagraph (iii) is the first sentence of
paragraph (2) of the Section which explicitly allows cost
underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.
Although petitioner's financing losses, if indeed incurred,
may constitute cost underrecovery in the sense that such
were incurred as a result of the inability to fully offset
financing expenses from yields in money market
placements, they do not, however, fall under the foregoing
provision of P.D. No. 1956, as amended, because the
same did not result from the reduction of the domestic
price of petroleum products. Until paragraph (2), Section 8
of the decree, as amended, is further amended by
Congress, this Court can do nothing. The duty of this
Court is not to legislate, but to apply or interpret the law.
Be that as it may, this Court wishes to emphasize that as
the facts in this case have shown, it was at the behest of
the Government that petitioner refinanced its oil import
payments from the normal 30-day trade credit to a
maximum of 360 days. Petitioner could be correct in its
assertion that owing to the extended period for payment,
the financial institution which refinanced said payments
charged a higher interest, thereby resulting in higher
financing expenses for the petitioner. It would appear then
that equity considerations dictate that petitioner should
somehow be allowed to recover its financing losses, if any,
which may have been sustained because it
accommodated the request of the Government. Although
under Section 29 of the National Internal Revenue Code
such losses may be deducted from gross income, the
effect of that loss would be merely to reduce its taxable
income, but not to actually wipe out such losses. The
Government then may consider some positive measures
to help petitioner and others similarly situated to obtain
substantial relief. An amendment, as aforestated, may
then be in order.
Upon the other hand, to accept petitioner's theory of
"unrestricted authority" on the part of the Department of
Finance to determine or define "other factors" is to uphold
an undue delegation of legislative power, it clearly
appearing that the subject provision does not provide any
standard for the exercise of the authority. It is a
fundamental rule that delegation of legislative power may
be sustained only upon the ground that some standard for
its exercise is provided and that the legislature, in making
the delegation, has prescribed the manner of the exercise
of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the
extensive credit is rendered irrelevant by reason of the
foregoing disquisitions. It may nevertheless be stated that
petitioner failed to disprove COA's claim that it had in fact
gained in the process. Otherwise stated, petitioner failed
to sufficiently show that it incurred a loss. Such being the
case, how can petitioner claim for reimbursement? It
cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National
Power Corporation, We find for the petitioner. The
respondents themselves admit in their Comment that
underrecovery arising from sales to NPC are reimbursable
because NPC was granted full exemption from the
payment of taxes; to prove this, respondents trace the
laws providing for such exemption. 40 The last law cited is
the Fiscal Incentives Regulatory Board's Resolution No.
17-87 of 24 June 1987 which provides, in part, "that the
tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products . . . are
restored effective March 10, 1987." In a Memorandum
issued on 5 October 1987 by the Office of the President,
NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention
to exempt sales of petroleum products to the NPC is
evident in the recently passed Republic Act No. 6952
establishing the Petroleum Price Standby Fund to support
the OPSF. 41 The pertinent part of Section 2, Republic Act
No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to
the following conditions:
 (1) That the Fund shall be used to
reimburse the oil companies for (a) cost
increases of imported crude oil and
finished petroleum products resulting
from foreign exchange rate adjustments
and/or increases in world market prices
of crude oil; (b) cost underrecovery
incurred as a result of fuel oil sales to
the National Power Corporation
(NPC); and (c) other cost
underrecoveries incurred as may be
finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales
of petroleum products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to
ATLAS and MARCOPPER, petitioner relies on Letter of
Instruction (LOI) 1416, dated 17 July 1984, which ordered
the suspension of payments of all taxes, duties, fees and
other charges, whether direct or indirect, due and payable
by the copper mining companies in distress to the national
government. Pursuant to this LOI, then Minister of Energy,
Hon. Geronimo Velasco, issued Memorandum Circular
No. 84-11-22 advising the oil companies that Atlas
Consolidated Mining Corporation and Marcopper Mining
Corporation are among those declared to be in distress.
In denying the claims arising from sales to ATLAS and
MARCOPPER, the COA, in its 18 August 1989 letter to
Executive Director Wenceslao R. de la Paz, states that "it
is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by
OEA has no legal basis;" 42 in its Decision No. 1171, it
ruled that "the CPI (CALTEX) (Caltex) has no authority to
claim reimbursement for this uncollected impost because
LOI 1416 dated July 17, 1984, . . . was issued when OPSF
was not yet in existence and could not have contemplated
OPSF imposts at the time of its formulation." 43 It is further
stated that: "Moreover, it is evident that OPSF was not
created to aid distressed mining companies but rather to
help the domestic oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously
maintain that LOI 1416 could not have intended to exempt
said distressed mining companies from the payment of
OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was
issued on July 17, 1984. P.D. 1956 creating the
OPSF was promulgated on October 10, 1984,
while E.O. 137, amending P.D. 1956, was issued
on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist
distressed copper mining companies in line with
the government's effort to prevent the collapse of
the copper industry. P.D No. 1956, as amended,
was issued for the purpose of minimizing
frequent price changes brought about by
exchange rate adjustments and/or changes in
world market prices of crude oil and imported
petroleum product's; and
 c. LOI 1416 caused the "suspension of all taxes,
duties, fees, imposts and other charges, whether
direct or indirect, due and payable by the copper
mining companies in distress to the Notional and
Local Governments . . ." On the other hand,
OPSF dues are not payable by (sic) distressed
copper companies but by oil companies. It is to
be noted that the copper mining companies do
not pay OPSF dues. Rather, such imposts are
built in or already incorporated in the prices of oil
products. 44
Lastly, respondents allege that while LOI 1416 suspends
the payment of taxes by distressed mining companies, it
does not accord petitioner the same privilege with respect
to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside
from such reasons, however, it is apparent that LOI 1416
was never published in the Official Gazette 45 as required
by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following
the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case
of Tañada vs. Tuvera: 46
WHEREFORE, the Court hereby orders
respondents to publish in the Official Gazette all
unpublished presidential issuances which are of
 general application, and unless so published they
shall have no binding force and effect.
Resolving the motion for reconsideration of said decision,
this Court, in its Resolution promulgated on 29 December
1986, 47 ruled:
We hold therefore that all statutes, including
those of local application and private laws, shall
be published as a condition for their effectivity,
which shall begin fifteen days after publication
unless a different effectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and
executive orders promulgated by the President in
the exercise of legislative powers whenever the
same are validly delegated by the legislature or,
at present, directly conferred by the Constitution.
Administrative rules and regulations must also be
published if their purpose is to enforce or
implement existing laws pursuant also to a valid
delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws
as above defined shall immediately upon their
approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to become
effective only after fifteen days from their
publication, or on another date specified by the
 legislature, in accordance with Article 2 of the
Civil Code.
LOI 1416 has, therefore, no binding force or effect as it
was never published in the Official Gazette after its
issuance or at any time after the decision in the
abovementioned cases.
Article 2 of the Civil Code was, however, later amended by
Executive Order No. 200, issued on 18 June 1987. As
amended, the said provision now reads:
Laws shall take effect after fifteen days following
the completion of their publication either in the
Official Gazette or in a newspaper of general
circulation in the Philippines, unless it is
otherwise provided.
We are not aware of the publication of LOI 1416 in any
newspaper of general circulation pursuant to Executive
Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has
force and effect, petitioner's claim must still fail. Tax
exemptions as a general rule are construed strictly against
the grantee and liberally in favor of the taxing
authority. 48 The burden of proof rests upon the party
claiming exemption to prove that it is in fact covered by the
exemption so claimed. The party claiming exemption must
therefore be expressly mentioned in the exempting law or
at least be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is
entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF
under LOI 1416. Though LOI 1416 may suspend the
payment of taxes by copper mining companies, it does not
give petitioner the same privilege with respect to the
payment of OPSF dues.
IV. As to COA's disallowance of the amount of
P130,420,235.00, petitioner maintains that the Department
of Finance has still to issue a final and definitive ruling
thereon; accordingly, it was premature for COA to disallow
it. By doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other hand, contend
that said amount was already disallowed by the OEA for
failure to substantiate it. 50 In fact, when OEA submitted
the claims of petitioner for pre-audit, the abovementioned
amount was already excluded.
An examination of the records of this case shows that
petitioner failed to prove or substantiate its contention that
the amount of P130,420,235.00 is still pending before the
OEA and the DOF. Additionally, We find no reason to
doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling
of respondent COA disapproving said claim must be
upheld.
V. The last issue to be resolved in this case is whether or
not the amounts due to the OPSF from petitioner may be
offset against petitioner's outstanding claims from said
fund. Petitioner contends that it should be allowed to offset
its claims from the OPSF against its contributions to the
fund as this has been allowed in the past, particularly in
the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the
provisions of the New Civil Code on compensation and
Section 21, Book V, Title I-B of the Revised Administrative
Code which provides for "Retention of Money for
Satisfaction of Indebtedness to Government." 52 Petitioner
also mentions communications from the Board of Energy
and the Department of Finance that supposedly authorize
compensation.
Respondents, on the other hand, citing Francia vs. IAC
and Fernandez, 53 contend that there can be no offsetting
of taxes against the claims that a taxpayer may have
against the government, as taxes do not arise from
contracts or depend upon the will of the taxpayer, but are
imposed by law. Respondents also allege that petitioner's
reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this
provision empowers the COA to withhold payment of a
government indebtedness to a person who is also
indebted to the government and apply the government
indebtedness to the satisfaction of the obligation of the
person to the government, like authority or right to make
compensation is not given to the private person." 54 The
reason for this, as stated in Commissioner of Internal
Revenue vs. Algue, Inc., 55 is that money due the
government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus,
instead of giving petitioner a reason for compensation or
set-off, the Revised Administrative Code makes it the
respondents' duty to collect petitioner's indebtedness to
the OPSF.
Refuting respondents' contention, petitioner claims that the
amounts due from it do not arise as a result of taxation
because "P.D. 1956, amended, did not create a source of
taxation; it instead established a special fund . . .," 56 and
that the OPSF contributions do not go to the general fund
of the state and are not used for public purpose, i.e., not
for the support of the government, the administration of
law, or the payment of public expenses. This alleged lack
of a public purpose behind OPSF exactions distinguishes
such from a tax. Hence, the ruling in the Francia case is
inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the
Petroleum Price Standby Fund to support the OPSF; the
said law provides in part that:
Sec. 2. Application of the fund shall be subject to
the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum
Price Standby Fund shall be used to pay
any oil company which has an
outstanding obligation to the
Government without said obligation
being offset first, subject to the
 requirements of compensation or offset
under the Civil Code.
We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go
to a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the
police power of the state. 57 There can be no doubt that
the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated
increase in oil prices could hurt the lives of a majority of
the people and cause economic crisis of untold
proportions. It would have a chain reaction in terms of,
among others, demands for wage increases and upward
spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which
the state, via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137,
explicitly provides that the source of OPSF is taxation. No
amount of semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from
the claims that he may have against the
government. 58 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. 59
We may even further state that technically, in respect to
the taxes for the OPSF, the oil companies merely act as
agents for the Government in the latter's collection since
the taxes are, in reality, passed unto the end-users –– the
consuming public. In that capacity, the petitioner, as one
of such companies, has the primary obligation to account
for and remit the taxes collected to the administrator of the
OPSF. This duty stems from the fiduciary relationship
between the two; petitioner certainly cannot be considered
merely as a debtor. In respect, therefore, to its collection
for the OPSF vis-a-vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, the
Government and the petitioner cannot be said to be
mutually debtors and creditors of each other. Secondly,
there is no proof that petitioner's claim is already due and
liquidated. Under Article 1279 of the Civil Code, in order
that compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally,
and that he be at the same time a principal
creditor of the other;
(2) both debts consist in a sum of :money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) the two (2) debts be due;
 (4) they be liquidated and demandable;
(5) over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
That compensation had been the practice in the past can
set no valid precedent. Such a practice has no legal basis.
Lastly, R.A. No. 6952 does not authorize oil companies to
offset their claims against their OPSF contributions.
Instead, it prohibits the government from paying any
amount from the Petroleum Price Standby Fund to oil
companies which have outstanding obligations with the
government, without said obligation being offset first
subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is
hereby rendered AFFIRMING the challenged decision of
the Commission on Audit, except that portion thereof
disallowing petitioner's claim for reimbursement of
underrecovery arising from sales to the National Power
Corporation, which is hereby allowed.
With costs against petitioner. SO ORDERED.
G.R. No. 182399 March 12, 2014
CS GARMENT, INC.,* Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent.
SERENO, CJ:
Before the Court is a Rule 45 petition for review on
certiorari, assailing the respective Decision1 and
Resolution2 of the Court of Tax. Appeals (CTA) en bane in
EB Case No. 287. These judgments in turn affirmed the
Decision3 and the Resolution4 of the CTA Second Division,
which ordered the cancellation of certain items in the 1998
tax assessments against petitioner CS Garment, Inc. (CS
Garment or petitioner). Accordingly, petitioner was
directed to pay the Bureau of Internal Revenue (BIR) the
remaining portion of the tax assessments. This portion
was comprised of the outstanding deficiency value-added
tax (VAT) on CS Garment’s undeclared local sales and on
the incidental sale of a motor vehicle; deficiency
documentary stamp tax (DST) on a lease agreement; and
deficiency income tax as a result of the disallowed
expenses and undeclared local sales. However, while the
present case was pending before this Court, CS Garment
filed a Manifestation and Motion stating that the latter had
availed itself of the government’s tax amnesty program
under Republic Act No. (R.A.) 9480, or the 2007 Tax
Amnesty Law.
FACTS
We reproduce the narration of facts culled by the CTA en
banc5 as follows:
Petitioner [CS Garment] is a domestic corporation duly
organized and existing under and by virtue of the laws of
the Philippines with principal office at Road A, Cavite
Ecozone, Rosario, Cavite. On the other hand, respondent
is the duly appointed Commissioner of Internal Revenue of
the Philippines authorized under law to perform the duties
of said office, including, inter alia, the power to assess
taxpayers for [alleged] deficiency internal revenue tax
liabilities and to act upon administrative protests or
requests for reconsideration/reinvestigation of such
assessments.
Petitioner is registered with the Philippine Economic Zone
Authority (PEZA) under Certificate of Registration No. 89-
064, duly approved on December 18, 1989. As such, it is
engaged in the business of manufacturing garments for
sale abroad.
On November 24, 1999, petitioner [CS Garment] received
from respondent [CIR] Letter of Authority No. 00012641
dated November 10, 1999, authorizing the examination of
petitioner’s books of accounts and other accounting
records for all internal revenue taxes covering the period
January 1, 1998 to December 31, 1998.
On October 23, 2001, petitioner received five (5) formal
demand letters with accompanying Assessment Notices
from respondent, through the Office of the Revenue
Director of Revenue Region No. 9, San Pablo City,
requiring it to pay the alleged deficiency VAT, Income,
DST and withholding tax assessments for taxable year
1998 in the aggregate amount of ₱2,046,580.10 broken
down as follows:
Deficiency VAT

Basic tax due P

 314,194.00
Add: Surcharge 157,097.00
Interest 188,516.00

₱
Total Amount Payable
659,807.00

Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due ₱ 78,639.00

Add: Surcharge 39,320.00
Interest 43,251.00

₱
Total Amount Payable
161,210.00

Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due ₱ 78,639.00

Add: Surcharge 39,320.00
Interest 43,251.00

Total Amount Payable ₱ 161,210.00

Deficiency DST
 Basic tax due P 806.00
Add: Surcharge 403.00
Interest 484.00

Total Amount Payable ₱ 1,693.00

Deficiency EWT

Basic tax due ₱ 22,800.00

Add: Surcharge 11,400.00
Interest 13,680.00

Total Amount Payable ₱ 47,880.00

GRAND TOTAL ₱ 2,046,580.10

On November 20, 2001, or within the 30-day period

prescribed under Section 228 of the Tax Code, as
amended, petitioner filed a formal written protest with the
respondent assailing the above assessments.
On January 11, 2002, or within the sixty-day period after
the filing of the protest, petitioner submitted to the
Assessment Division of Revenue Region No. 9, San Pablo
City, additional documents in support of its protest.
Respondent failed to act with finality on the protest filed by
petitioner within the period of one hundred eighty (180)
days from January 11, 2002 or until July 10, 2002. Hence,
petitioner appealed before [the CTA] via a Petition for
Review filed on August 6, 2002 or within thirty (30) days
from the last day of the aforesaid 180-day period.
The case was raffled to the Second Division of [the CTA]
for decision. After trial on the merits, the Second Division
rendered the Assailed Decision on January 4, 2007 upon
which the Second Division cancelled respondent’s
assessment against CS Garments for deficiency
expanded withholding taxes for CY 1998 amounting to
₱47,880.00, and partially cancelled the deficiency DST
assessment amounting to ₱1,963.00. However, the
Second Division upheld the validity of the deficiency
income tax assessments by subjecting the disallowed
expenses in the amount of ₱14,851,478.83 and a portion
of the undeclared local sales ₱1,541,936.60 (amounting to
₱1,500,000.00) to income tax at the special rate of 5%.
The remainder of undeclared local sales of ₱1,541,936.06
(amounting to ₱41,936.60) was subjected to income tax at
the rate of 34%. The Second Division found that total tax
liability of CS Garments amounted to ₱2,029,570.12, plus
20% delinquency interest pursuant to Section 249(C)(3),
and computed the same as follows:

Defici Income Tax

ency
Tax VAT DST at 5% at 34% TOTAL
Basic P P
P
Tax 314,194. P 145.00 817,573.
1,789.44
Due 00 94
25%
78,548.5 204,393.
Surch 36.25 447.36
0 49
arge
20%
188,516. 422,898.
Intere 102.02 925.6
00 52
st

P P P
P
581,258. P 283.27 1,444,86 2,029,57
3,162.40
50 ======= 5.95 0.12
=======
======= ====== ======= =======
======
====== ====== ======

On January 29, 2007, CS Garments filed its "Motion for

Partial Reconsideration" of the said decision. On May 25,
2007, in a resolution, the Second Division denied CS
Garments’ motion for lack of merit. (Citations omitted)
Petitioner appealed the case to the CTA en banc and
alleged the following: (1) the Formal Assessment Notices
(FAN) issued by the Commissioner of Internal Revenue
(CIR) did not comply with the requirements of the law; (2)
the income generated by CS Garment from its
participation in the Cavite Export Processing Zone’s trade
fairs and from its sales to employees were not subject to
10% VAT; (3) the sale of the company vehicle to its
general manager was not subject to 10% VAT; (4) it had
no undeclared local sales in the amount of ₱1,541,936.60;
and (5) Rule XX, Section 2 of the PEZA Rules and
Regulations allowed deductions from the expenses it had
incurred in connection with advertising and representation;
clinic and office supplies; commissions and professional
fees; transportation, freight and handling, and export fees;
and licenses and other taxes.
The CTA en banc affirmed the Decision and Resolution of
the CTA Second Division. As regards the first issue, the
banc ruled that the CIR had duly apprised CS Garment of
the factual and legal bases for assessing the latter’s
liability for deficiency income tax, as shown in the attached
Schedule of Discrepancies provided to petitioner; and in
the subsequent reference of the CIR to Rule XX, Section 2
of the Rules and Regulations of R.A. 7916. With respect to
the second issue, the CTA pronounced that the income
generated by CS Garment from the trade fairs was subject
to internal revenue taxes, as those transactions were
considered "domestic sales" under R.A. 7916, otherwise
known as the Special Economic Zone Act. With respect to
the third issue, the CTA en banc declared that the sale of
the motor vehicle by CS Garment to the latter’s general
manager in the amount of ₱1.6 million was subject to VAT,
since the sale was considered an incidental transaction
within the meaning of Section 105 of the NIRC. On the
fourth issue, the CTA found that CS Garment had failed to
declare the latter’s total local sales in the amount of
₱1,541,936.60 in its 1998 income tax return. The tax court
then calculated the income tax liability of petitioner by
subjecting ₱1.5 million of that liability to the preferential
income tax rate of 5%. This amount represented the
extent of the authority of CS Garment, as a PEZA-
registered enterprise, to sell in the local market. The
normal income tax rate of 34% was then charged for the
excess amount of ₱41,936.60. Finally, as regards the fifth
issue, the CTA ruled that Section 2, Rule XX of the PEZA
Rules – which enumerates the specific deductions for
ECOZONE Export Enterprises – does not mention certain
claims of petitioner as allowable deductions.
Aggrieved, CS Garment filed the present Petition for
Review assailing the Decision of the CTA en banc.
However, on 26 September 2008, while the instant case
was pending before this Court, petitioner filed a
Manifestation and Motion stating that it had availed itself of
the government’s tax amnesty program under the 2007
Tax Amnesty Law. It thus prays that we take note of its
availment of the tax amnesty and confirm that it is entitled
to all the immunities and privileges under the law. It has
submitted to this Court the following documents, which
have allegedly been filed with Equitable PCI Bank–Cavite
EPZA Branch, a supposed authorized agent-bank of the
BIR:6
1. Notice of Availment of Tax Amnesty under R.A.
9480
2. Statement of Assets, Liabilities, and Net worth
(SALN)
3. Tax Amnesty Return (BIR Form No. 2116)
 4. Tax Amnesty Payment Form (Acceptance of
Payment Form or BIR Form No. 0617)
5. Equitable PCI Bank’s BIR Payment Form indicating
that CS Garment deposited the amount of ₱250,000
to the account of the Bureau of Treasury–BIR
On 26 January 2009, the Office of the Solicitor General
(OSG) filed its Comment objecting to the Manifestation
and Motion of CS Garment.7
The OSG asserts that the filing of an application for tax
amnesty does not by itself entitle petitioner to the benefits
of the law, as the BIR must still assess whether petitioner
was eligible for these benefits and whether all the
conditions for the availment of tax amnesty had been
satisfied. Next, the OSG claims that the BIR is given a
one-year period to contest the correctness of the SALN
filed by CS Garment, thus making petitioner’s motion
premature. Finally, the OSG contends that pursuant to BIR
Revenue Memorandum Circular No. (RMC) 19-2008,
petitioner is disqualified from enjoying the benefits of the
Tax Amnesty Law, since a judgment was already rendered
in favor of the BIR prior to the tax amnesty availment. The
OSG points out that CS Garment submitted its application
for tax amnesty only on 6 March 2008, which was almost
two months after the CTA en banc issued its 14 January
2008 Decision and more than one year after the CTA
Second Division issued its 4 January 2007 Decision.
On 8 February 2010, the Court required both parties to
prepare and file their respective memoranda within 30
days from notice.8 After this Court granted the motions for
extension filed by the parties, the OSG eventually filed its
Memorandum on 18 May 2010, and CS Garment on 7
June 2010. It is worthy to note that in its Memorandum,
the OSG did not raise any argument with respect to
petitioner’s availment of the tax amnesty program. Neither
did the OSG deny the authenticity of the documents
submitted by CS Garments or mention that a case had
been filed against the latter for availing itself of the tax
amnesty program, taking into account the considerable
lapse of time from the moment petitioner filed its Tax
Amnesty Return and Statement of Assets, Liabilities, and
Net Worth in 2008.
On 17 July 2013, the parties were ordered9 to "move in the
premises"10 by informing the Court of the status of the tax
amnesty availment of petitioner CS Garment, including
any supervening event that may be of help to the Court in
its immediate disposition of the present case.
Furthermore, the parties were directed to indicate inter alia
(a) whether CS Garment had complied with the
requirements of the 2007 Tax Amnesty Law, taking note of
the aforementioned documents submitted; (b) whether a
case had been initiated against petitioner, with respect to
its availment of the tax amnesty program; and (c) whether
respondent CIR was still interested in pursuing the case.
Petitioner eventually filed its Compliance11 on 27 August
2013, and the OSG on 29 November 2013.12
According to the OSG,13 CS Garment had already
complied with all documentary requirements of the 2007
Tax Amnesty Law. It also stated that the BIR Litigation
Division had not initiated any case against petitioner
relative to the latter’s tax amnesty application. However,
the OSG reiterated that the CIR was still interested in
pursuing the case.
ISSUE
The threshold question before this Court is whether or not
CS Garment is already immune from paying the deficiency
taxes stated in the 1998 tax assessments of the CIR, as
modified by the CTA.
DISCUSSION
Tax amnesty refers to the articulation of the absolute
waiver by a sovereign of its right to collect taxes and
power to impose penalties on persons or entities guilty of
violating a tax law.14 Tax amnesty aims to grant a general
reprieve to tax evaders who wish to come clean by giving
them an opportunity to straighten out their records.15 In
2007, Congress enacted R.A. 9480, which granted a tax
amnesty covering "all national internal revenue taxes for
the taxable year 2005 and prior years, with or without
assessments duly issued therefor, that have remained
unpaid as of December 31, 2005."16 These national
internal revenue taxes include (a) income tax; (b) VAT; (c)
estate tax; (d) excise tax; (e) donor’s tax; (f) documentary
stamp tax; (g) capital gains tax; and (h) other percentage
taxes.17 Pursuant to Section 6 of the 2007 Tax Amnesty
Law, those who availed themselves of the benefits of the
law became "immune from the payment of taxes, as well
as additions thereto, and the appurtenant civil, criminal or
administrative penalties under the National Internal
Revenue Code of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable
year 2005 and prior years."
Amnesty taxpayers may immediately enjoy the privileges
and immunities under the 2007 Tax Amnesty Law, as
soon as they fulfill the suspensive conditions imposed
therein
A careful scrutiny of the 2007 Tax Amnesty Law would tell
us that the law contains two types of conditions – one
suspensive, the other resolutory. Borrowing from the
concepts under our Civil Code, a condition may be
classified as suspensive when the fulfillment of the
condition results in the acquisition of rights. On the other
hand, a condition may be considered resolutory when the
fulfillment of the condition results in the extinguishment of
rights. In the context of tax amnesty, the rights referred to
are those arising out of the privileges and immunities
granted under the applicable tax amnesty law.
The imposition of a suspensive condition under the 2007
Tax Amnesty Law is evident from the following provisions
of the law:
2007 Tax Amnesty Law – Republic Act No. 9480
SECTION 2. Availment of the Amnesty. — Any person,
natural or juridical, who wishes to avail himself of the tax
amnesty authorized and granted under this Act shall file
with the Bureau of Internal Revenue (BIR) a notice and
Tax Amnesty Return accompanied by a Statement of
Assets, Liabilities and Networth (SALN) as of December
31, 2005, in such form as may be prescribed in the
implementing rules and regulations (IRR) of this Act, and
pay the applicable amnesty tax within six months from the
effectivity of the IRR.
SECTION 4. Presumption of Correctness of the SALN. —
The SALN as of December 31, 2005 shall be considered
as true and correct except where the amount of declared
networth is understated to the extent of thirty percent
(30%) or more as may be established in proceedings
initiated by, or at the instance of, parties other than the
BIR or its agents: Provided, That such proceedings must
be initiated within one year following the date of the filing
of the tax amnesty return and the SALN. Findings of or
admission in congressional hearings, other administrative
agencies of government, and/or courts shall be admissible
to prove a thirty percent (30%) under-declaration.
SECTION 6. Immunities and Privileges. — Those who
availed themselves of the tax amnesty under Section 5
hereof, and have fully complied with all its conditions shall
be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the payment
of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties
under the National Internal Revenue Code of 1997, as
amended, arising from the failure to pay any and all
 internal revenue taxes for taxable year 2005 and prior
years.
(b) The taxpayer’s Tax Amnesty Return and the SALN
as of December 31, 2005 shall not be admissible as
evidence in all proceedings that pertain to taxable
year 2005 and prior years, insofar as such
proceedings relate to internal revenue taxes, before
judicial, quasi-judicial or administrative bodies in
which he is a defendant or respondent, and except for
the purpose of ascertaining the networth beginning
January 1, 2006, the same shall not be examined,
inquired or looked into by any person or government
office. However, the taxpayer may use this as a
defense, whenever appropriate, in cases brought
against him.
(c) The books of accounts and other records of the
taxpayer for the years covered by the tax amnesty
availed of shall not be examined: Provided, That the
Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts
and other records to verify the validity or correctness
of a claim for any tax refund, tax credit (other than
refund or credit of taxes withheld on wages), tax
incentives, and/or exemptions under existing laws.
All these immunities and privileges shall not apply where
the person failed to file a SALN and the Tax Amnesty
Return, or where the amount of networth as of December
31, 2005 is proven to be understated to the extent of thirty
percent (30%) or more, in accordance with the provisions
of Section 3 hereof.
SECTION 7. When and Where to File and Pay. — The
filing of the Tax Amnesty Return and the payment of the
amnesty tax for those availing themselves of the tax
amnesty shall be made within six months starting from the
effectivity of the IRR. It shall be filed at the office of the
Revenue District Officer which has jurisdiction over the
legal residence or principal place of business of the filer.
The Revenue District Officer shall issue an acceptance of
payment form authorizing an authorized agent bank, or in
the absence thereof, the collection agent or municipal
treasurer concerned, to accept the amnesty tax payment.
Department of Finance Order No. 29-07: Rules and
Regulations to Implement R.A. 9480
SECTION 6. Method of Availment of Tax Amnesty. —
xxxx
3. Payment of Amnesty Tax and Full Compliance. — Upon
filing of the Tax Amnesty Return in accordance with Sec. 6
(2) hereof, the taxpayer shall pay the amnesty tax to the
authorized agent bank or in the absence thereof, the
Collection Agent or duly authorized Treasurer of the city or
municipality in which such person has his legal residence
or principal place of business.
The RDO shall issue sufficient Acceptance of Payment
Forms, as may be prescribed by the BIR for the use of —
or to be accomplished by — the bank, the collection agent
or the Treasurer, showing the acceptance of the amnesty
tax payment. In case of the authorized agent bank, the
branch manager or the assistant branch manager shall
sign the acceptance of payment form.
The Acceptance of Payment Form, the Notice of
Availment, the SALN, and the Tax Amnesty Return shall
be submitted to the RDO, which shall be received only
after complete payment. The completion of these
requirements shall be deemed full compliance with the
provisions of R.A. 9480. (Emphases supplied)
In availing themselves of the benefits of the tax amnesty
program, taxpayers must first accomplish the following
forms and prepare them for submission: (1) Notice of
Availment of Tax Amnesty Form; (2) Tax Amnesty Return
Form (BIR Form No. 2116); (3) Statement of Assets,
Liabilities and Net worth (SALN) as of December 31, 2005;
and (4) Tax Amnesty Payment Form (Acceptance of
Payment Form or BIR Form No. 0617).18
The taxpayers must then compute the amnesty tax due in
accordance with the rates provided in Section 5 of the
law,19 using as tax base their net worth as of 31 December
2005 as declared in their SALNs. At their option, the
revenue district office (RDO) of the BIR may assist them in
accomplishing the forms and computing the taxable base
and the amnesty tax due.20 The RDO, however, is
disallowed from looking into, questioning or examining the
veracity of the entries contained in the Tax Amnesty
Return, SALN, and other documents they have
submitted.21 Using the Tax Amnesty Payment Form, the
taxpayers must make a complete payment of the
computed amount to an authorized agent bank, a
collection agent, or a duly authorized treasurer of the city
or municipality.22
Thereafter, the taxpayers must file with the RDO or an
authorized agent bank the (1) Notice of Availment of Tax
Amnesty Form; (2) Tax Amnesty Return Form (BIR Form
No. 2116); (3) SALN; and (4) Tax Amnesty Payment
Form.23 The RDO shall only receive these documents after
complete payment is made, as shown in the Tax Amnesty
Payment Form.24 It must be noted that the completion of
these requirements "shall be deemed full compliance with
the provisions of R.A. 9480."25 In our considered view, this
rule means that amnesty taxpayers may immediately
enjoy the privileges and immunities under the 2007 Tax
Amnesty Law as soon as the aforementioned documents
are duly received.
The OSG has already confirmed26 to this Court that CS
Garment has complied with all of the documentary
requirements of the law. Consequently, and contrary to the
assertion of the OSG, no further assessment by the BIR is
necessary. CS Garment is now entitled to invoke the
immunities and privileges under Section 6 of the law.
Similarly, we reject the contention of OSG that the BIR
was given a one-year period to contest the correctness of
the SALN filed by CS Garment, thus making petitioner’s
motion premature. Neither the 2007 Tax Amnesty Law nor
Department of Finance (DOF) Order No. 29-07 (Tax
Amnesty Law IRR) imposes a waiting period of one year
before the applicant can enjoy the benefits of the Tax
Amnesty Law. It can be surmised from the cited provisions
that the law intended the immediate enjoyment of the
immunities and privileges of tax amnesty upon fulfilment of
the requirements. Further, a reading of Sections 4 and 6 of
the 2007 Tax Amnesty Law shows that Congress has
adopted a "no questions asked" policy, so long as all the
requirements of the law and the rules are satisfied. The
one-year period referred to in the law should thus be
considered only as a prescriptive period within which third
parties, meaning "parties other than the BIR or its agents,"
can question the SALN – not as a waiting period during
which the BIR may contest the SALN and the taxpayer
prevented from enjoying the immunities and privileges
under the law.
This clarification, however, does not mean that the
amnesty taxpayers would go scot-free in case they
substantially understate the amounts of their net worth in
their SALN. The 2007 Tax Amnesty Law imposes a
resolutory condition insofar as the enjoyment of
immunities and privileges under the law is concerned.
Pursuant to Section 4 of the law, third parties may initiate
proceedings contesting the declared amount of net worth
of the amnesty taxpayer within one year following the date
of the filing of the tax amnesty return and the SALN.
Section 6 then states that "All these immunities and
privileges shall not apply x x x where the amount of
networth as of December 31, 2005 is proven to be
understated to the extent of thirty percent (30%) or more,
in accordance with the provisions of Section 3 hereof."
Accordingly, Section 10 provides that amnesty taxpayers
who willfully understate their net worth shall be (a) liable
for perjury under the Revised Penal Code; and (b) subject
to immediate tax fraud investigation in order to collect all
taxes due and to criminally prosecute those found to have
willfully evaded lawful taxes due.
Nevertheless, in this case we note that the OSG has
already Indicated27 that the CIR had not filed a case
relative to the tax amnesty application of CS Garment,
from the time the documents were filed in March 2008.
Neither did the OSG mention that a third party had
initiated proceedings challenging the declared amount of
net worth of the amnesty taxpayer within the one-year
period.
Taxpayers with pending tax cases are still qualified to avail
themselves of the tax amnesty program.
With respect to its last assertion, the OSG quotes the
following guidelines under BIR RMC 19-2008 to establish
that CS Garment is disqualified from availing itself of the
tax amnesty program:28
A BASIC GUIDE ON THE TAX AMNESTY ACT OF 2007
The following is a basic guide for taxpayers who wish to
avail of tax amnesty pursuant of Republic Act No. 9480
(Tax Amnesty Act of 2007).
Who may avail of the amnesty?
xxxx
EXCEPT:
[x] Withholding agents with respect to their
withholding tax liabilities
[x] Those with pending cases:
 Under the jurisdiction of the PCGG
 Involving violations of the Anti-Graft and
Corrupt Practices Act
 Involving violations of the Anti-Money
Laundering Law
 For tax evasion and other criminal offenses
under the NIRC and/or the RPC
[x] Issues and cases which were ruled by any
court (even without finality) in favor of the BIR
prior to amnesty availment of the
taxpayer.(e.g. Taxpayers who have failed to
observe or follow BOI and/or PEZA rules on
entitlement to Income Tax Holiday Incentives and
other incentives)
[x] Cases involving issues ruled with finality by
the Supreme Court prior to the effectivity of R.A.
9480 (e.g. DST on Special Savings Account)
[x] Taxes passed-on and collected from
customers for remittance to the BIR
 [x] Delinquent Accounts/Accounts Receivable
considered as assets of the BIR/Government,
including self-assessed tax (Emphasis supplied)
To resolve the matter, we refer to the basic text of the Tax
Amnesty Law and its implementing rules and regulations,
viz:
Republic Act No. 9480
SECTION 8. Exceptions. — The tax amnesty provided in
Section 5 hereof shall not extend to the following persons
or cases existing as of the effectivity of this Act:
xxxx
(f) Tax cases subject of final and executory judgment by
the courts.
DOF Order No. 29-07: Rules and Regulations to
Implement R.A. 9480
SECTION 5. Exceptions. — The tax amnesty shall not
extend to the following persons or cases existing as of the
effectivity of R.A. 9480:
xxxx
7. Tax cases subject of final and executory judgment by
the courts. (Emphases supplied)
We cull from the aforementioned provisions that neither
the law nor the implementing rules state that a court ruling
that has not attained finality would preclude the availment
of the benefits of the Tax Amnesty Law. Both R.A. 9480
and DOF Order No. 29-07 are quite precise in declaring
that
"[t]ax cases subject of final and executory judgment by the
courts" are the ones excepted from the benefits of the law.
In fact, we have already pointed out the erroneous
interpretation of the law in Philippine Banking Corporation
(Now: Global Business Bank, Inc.) v. Commissioner of
Internal Revenue, viz:
The BIR’s inclusion of "issues and cases which were ruled
by any court (even without finality) in favor of the BIR prior
to amnesty availment of the taxpayer" as one of the
exceptions in RMC 19-2008 is misplaced. RA 9480 is
specifically clear that the exceptions to the tax amnesty
program include "tax cases subject of final and executory
judgment by the courts." The present case has not
become final and executory when Metrobank availed of
the tax amnesty program.29 (Emphasis supplied)
While tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor
of the taxing authority,30 it is also a well-settled
doctrine31 that the rule-making power of administrative
agencies cannot be extended to amend or expand
statutory requirements or to embrace matters not originally
encompassed by the law.1âwphi1 Administrative
regulations should always be in accord with the provisions
of the statute they seek to carry into effect, and any
resulting inconsistency shall be resolved in favor of the
basic law. We thus definitively declare that the exception
"[i]ssues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty
availment of the taxpayer" under BIR RMC 19-2008 is
invalid, as the exception goes beyond the scope of the
provisions of the 2007 Tax Amnesty Law.32
Considering the completion of the aforementioned
requirements, we find that petitioner has successfully
availed itself of the tax amnesty benefits granted under the
Tax Amnesty Law. Therefore, we no longer see any need
to further discuss the issue of the deficiency tax
assessments. CS Garment is now deemed to have been
absolved of its obligations and is already immune from the
payment of taxes – including the assessed deficiency in
the payment of VAT, DST, and income tax as affirmed by
the CTA en banc – as well as of the additions thereto
(e.g., interests and surcharges). Furthermore, the tax
amnesty benefits include immunity from "the appurtenant
civil, criminal, or administrative penalties under the NIRC
of 1997, as amended, arising from the failure to pay any
and all internal revenue taxes for taxable year 2005 and
prior years."33
WHEREFORE, the instant Petition for Review is
GRANTED. The 14 January 2008 Decision and 2 April
2008 Resolution of the Court of Tax Appeals en banc in
CTA EB Case No. 287 is hereby SET ASIDE, and the
remaining assessments for deficiency taxes for taxable
year 1998 are hereby CANCELLED solely in the light of
the availment by CS Garment, Inc. of the tax amnesty
program under Republic Act No. 9480.
SO ORDERED.