PILMICO-MAURI FOODS CORP. VS.
CIR General Issue: To reverse the decision promulgated on
December 15, 2004 by the First Division of the Court of
FACTS: Pilmico-Mauri Foods Corporation, the
Tax Appeals and the resolution dated May 19, 2005
petitioner, is a manufacturing company engaged in
affirming the assailed decision.
manufacturing and selling yeast, bakery ingredients, and
wheat related products. The company is based in Cebu
City with additional offices in Makati and Iligan City.
Pilmico-Mauri Foods Corporation is also operating as a
subsidiary of AB Mauri Food, Inc.
As a result of the examination of the petitioner’s
books of accounts in 1996, Revenue Officer Eugenio D.
Maestrado issued assessments for deficiency income,
value-added tax (VAT) and withholding tax liabilities.
Assessment notices were issued as follows:
(1) Assessment Notice No, 81-IT-13-9698-11-128 -
deficiency income tax for the year 1996 in the
sum of P4,359,046.96 (inclusive of interest and
other penalties);
(2) Assessment Notice No. 81-VAT-13-96-98-11-
127 - deficiency value-added tax in the sum of
P5,017,778.01 (inclusive of interest and other
penalties);
(3) Assessment Notice NO. 81-WT-13-96-98-11-
126 - deficiency withholding taxes for the year
1996 in the sum of P348, 925.05 (inclusive of
interest and other penalties).
These deficiency tax liabilities totaled P9, 761, 750.02
was decided on December 15, 2004.
A Motion for Partial Reconsideration was filed by the
petitioner on January 21, 2005 for the reconsideration of
the final decision of the respondent based on the assailed
decision affirming the disputed assessments (dated last
July 3, 2000 wherein the deficiency tax liabilities of the
petitioner were reduced from P9, 761,750.02 to P3,
020,259.30) which is now in the reduced amount of P 2,
804, 920.36 (inclusive of surcharge and deficiency
interest). However, this Motion for Partial
Reconsideration was denied. Thus, motion is
subsequently made through a Petition for Review.
On June 17, 2005, the corporation motioned for extension
of time to file petition for review en banc. On the 5th of
July 2005, the Petition for Review En Banc was filed.
ISSUES: For its petition, these were the following issues
raised:
(a) Whether or not Pilmico-Mauri Foods
Corporation has the liability to pay a deficiency
in income, value-added, expanded withholding,
final withholding and withholding tax on
compensation.
(b) With regards to the deficiency income tax of
P1,180,382.84:
a. Whether or not the purchases of raw
materials are unsupported
b. Whether or not the cancelled invoices
and expenses for taxes, repairs and
freights are unsupported.
c. Whether or not commission, storage and
trucking charges claimed are deductible.
d. Whether or not the alleged deficiency
income tax for the year 1996 was
correctly computed.
(c) With regards to the deficiency value-added tax of
P1,642,145.79:
a. Whether or not the input taxes claimed
are unsupported.
b. Whether or not the petitioner has claimed
non-vatable transportation expenses.
(d) With regards to the deficiency withholding taxes,
whether or not the petitioner wasn’t able to
observe the withholding tax laws on payments
subject to expanded withholding tax, final
withholding tax and withholding tax on
compensation.
(e) Whether or not an expense is deductible when it
is clearly shown that what is being claimed is an
ordinary and necessary expense.
(f) Whether or not the “Cohan Rule”, as adopted in
the case of Visayan Cebu Terminal vs. Collector,
is applicable in the consideration of the
substantiation of documents.
1
RULINGS OF THE COURT: Wherefore, having no more issues left
unanswered, the court dismissed the petition for review
The petitioner’s motion for partial
on July 5, 2005 due to lack of merit.
reconsideration of the assailed decision in December 15,
2004 was denied due to lack of merit in a resolution dated
May 19, 2005.
CIR VS. NEXT MOBILE, INC.
The petitioner was not in compliance of Section
FACTS: Respondent filed with the BIR taxes for 2001.
238 of the 1977 National Internal Revenue Code which is
Respondent, through Sarmiento, their director of Finance,
with regards to the issuance of receipts or sales or
executed several waivers of the statute of limitations to
commercial invoices.
extend the prescriptive perios of assessment for taxes.
The official receipts and sales invoices are
considered as the best evidences to prove the deductibility On 2005, respondent received from the BIR a PAN and a
of ordinary and necessary expenses. The Honorable Court formal letter of demand to pay deficiency income tax. The
of Tax Appeals First Division’s factual findings presented BIR denied respondent's protest.
that the official receipts presented by the petitioner did not
With the CTA, it was held that the demand was beyond
conform to the requirements of Section 238 of the 1977
the three year prescription period under the NIRC. That
NIRC. As discovered, the official receipts presented by
the case does not apply the 10 year prescripton period as
the petitioner during the trial were also not in the name of
there was not false return by the respondent. Also, the
the petitioner but in the name of Golden Restaurant and
waivers did not validly extend the prescription because of
that such official receipts were issued by Pilmico Foods
irregularities.
Corporation, the parent company, and not by the alleged
seller Jose Tan Enterprises. Of course, seeing the
ISSUE: Whether the period to pay has prescribed.
irregularities in these official receipts, these cannot be
used as evidence for the petitioner’s claimed deductions.
RULING:NO. The SC held that a waiver of the statute of
The petitioner is still under the burden of proving the
limitations must faithfully comply with RMO No. 20-90
deductibility of their expenses.
and RDAO 05-01 in order to be valid. Sarmiento failed to
Factually, the best evidence that the petitioner show her authority to the BIR to sign the waivers.
should have presented to support its claimed deductions
were the invoices and official receipts issued by the The BIR were also at fault having to neglect their
Register of Deeds. The petitioner did not only fail to ministerial duties.
present such evidences in court, but they have also failed
Both parties knew the infirmities of the waivers but still
to explain the loss of such documents.
continued. Respondents were held in bad faith as after
It is not enough that an expense is proved to be an having benefited by the waivers by giving them more time
ordinary and necessary expense. The expenses should to pay, they used the waivers they made themselves when
also be substantiated with the required documents or the consequences were not in their favor.
evidences in order to claim such deductions.
The BIR's negligence amounts to malice and bad faith as
The petitioner’s stand with regards to the use of they also knew the waivers did not conform with RMO
the “Cohan Rule” is inapplicable because in the Visayan 20-90 and RDAO 05-01.
Cebu Terminal case, the fire that broke out destroyed
As both parties are in bad faith, the SC granted the petition
some of the supporting documents to be used in claiming
on the issue of the nullification of the formal letter of
allowable deductions. On the other hand, the petitioner
demand to the CTA.
committed a violation in the provision of the Tax Code
wherein the fire that destroyed the supporting documents
took place in the house of the treasurer. This is an
unsatisfactory act because records, such as the supporting
papers, are to be kept in the offices and not in the
residence of employees.

2
CIR VS. NIPPON EXPRESS (PHILS.) CORP.
FACTS: Nippon is a domestic corporation duly
organized and existing under Philippine laws which is
primarily engaged in the business of freight forwarding,
namely, in the international and domestic air and sea
freight and cargo forwarding, hauling, carrying, handling,
distributing, loading, and unloading general cargoes and
all classes of goods, wares, and merchandise, and the
operation of container depots, warehousing, storage,
hauling, and packing facilities.[6] It is a Value-Added Tax
(VAT) registered entity with Tax Identification No./VAT
Registration No. 004-669-434-000.[7] As such, it filed its
quarterly VAT returns for the year 2002 on April 25,
2002, July 25, 2002, October 25, 2002, and January 27,
2003, respectively.[8] It maintained that during the said
period it incurred input VAT attributable to its zero-rated
sales in the amount of f 28,405,167.60, from which only
P3,760,660.74 was applied as tax credit, thus, reflecting
refundable excess input VAT in the amount of
P24,644,506.86.[9]
On April 22, 2004, Nippon filed an administrative claim
for refund[10] of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the Bureau of
Internal Revenue (BIR).[11] A day later, or on April 23,
2004, it filed a judicial claim for tax refund, by way of
petition for review,[12] before the CTA, docketed as CTA
Case No. 6967.[13]
For its part, petitioner the Commissioner of Internal
Revenue (CIR) asserted, inter alia, that the amounts being
claimed by Nippon as unutilized input VAT were not
properly documented, hence, should be denied.[14]
RULING: see book
CIR VS. DASH ENGINEERING PHILIPPINES, INC
FACTS: Respondent DEPI filed its monthly and
quarterly value-added tax (VAT) returns for the period
from January 1, 2003 to June 30, 2003. On August 9,
2004, it filed a claim for tax credit or refund for the
unutilized input VAT attributable to its zero-rated
sales. Because petitioner Commissioner of Internal
Revenue (CIR) failed to act upon the said claim,
respondent was compelled to file a petition for review
with the CTA on May 5, 2005. CTA ruled in favor of
DEPI. CIR elevated the case to CTA En Banc averring
that the claim was filed out of time. DEPI asserts that its
petition was seasonably filed before the CTA in keeping
with the two-year prescriptive period provided for in
Sections 204(c) and 229 of the NIRC. CTA En Banc
affirmed the CTA division ruling.
ISSUE : Whether respondent DEPI’s judicial claim was
filed within the prescriptive period under Sec. 112 of the
Tax Code.
HELD NO.
The two-year period inSec. 112 refers only to
administrative claims. Sections 204 and 229 of the NIRC
pertain to the refund of erroneously or illegally
collected taxes.Input VAT is not ‘excessively’ collected
as understood under Section 229 because at the time the
input VAT is collected the amount paid is correct and
proper. Hence, respondent cannot advance its position by
referring to Section 229 because Section 112 is the more
specific and appropriate provision of law for claims for
excess input VAT.Petitioner is entirely correct in its
assertion that compliance with the periods provided for in
the abovequoted provision is indeed mandatory and
jurisdictional, as affirmed in this Court’s ruling in San
Roque, where the CourtEn Banc settled the controversy
surrounding the application of the 120+30-day period
provided for in Section 112 of the NIRC and reiterated
the Aichi doctrine that the 120+30-day period is
mandatory and jurisdictional.
Therefore, in accordance with San Roque, respondent’s
judicial claim for refund must be denied for having been
filed late. Although respondent filed its administrative
claim with the BIR on August 9, 2004 before the
expiration of the two-year period in Section l 12(A), it
undoubtedly failed to comply with the 120+ 30-day
period in Section l l 2(D) (now subparagraph C) which
requires that upon the inaction of the CIR for 120 days
after the submission of the documents in support of the
claim, the taxpayer has to file its judicial claim within 30
days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December
7, 2004. Thus, DEPI had 30 days therefrom, or until
January 6, 2005, to file a petition for review with the
CTA. Unfortunately, DEPI only sought judicial relief on
May 5, 2005 when it belatedly filed its petition to the
CTA, despite having had ample time to file the same,
almost four months after the period allowed by law. As a
consequence of DEPI’s late filing, the CTA did not
properly acquire jurisdiction over the claim.
3
CAMP JOHN HAY DEVELOPMENT
CORPORATION VS. CBAA
FACTS: In a letter dated 21 March 2002, respondent City
Assessor of Baguio City notified petitioner Camp John
Hay Development Corporation about the issuance against
it of thirty-six (36) Owner’s Copy of Assessment of Real
Property (ARP), covering various buildings of petitioner
and two (2) parcels of land owned by the Bases
Conversion Development Authority (BCDA) in the John
Hay Special Economic Zone (JHSEZ), Baguio City,
which were leased out to petitioner.
In response, petitioner questioned the assessments in a
letter dated 3April 2002 for lack of legal basis due to the
City Assessor’s failure to identify the specific properties
and its corresponding assessed values. The City Assessor
replied in a letter dated 11 April 2002 that the subject
ARPs (with an additional ARP on another building
bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the
JHSEZ were issued on the basis of the approved building
permits obtained from the City Engineer’s Office of
Baguio City and pursuant to Sections 201 to 206 of RA
No. 7160 or the LGC of 1991.
Consequently, on 23 May 2002, petitioner filed with the
Board of Tax Assessment Appeals (BTAA) of Baguio
City an appeal under Section 226 of the LGC of 1991
challenging the validity and propriety of the issuances of
the City Assessor. The appeal was docketed as Tax
Appeal Case No. 2002-003. Petitioner claimed that there
was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes,
national and local, including real property taxes, pursuant
to RA No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.
BTAA cited Section 7, Rule V of the Rules of Procedure
Before the LBAA, and enjoined petitioner to first comply
therewith, particularly as to the payment under protest of
the subject real property taxes before the hearing of its
appeal.
The CBAA denied petitioner’s appeal in a Resolution
dated 23 May 2003, set aside the BTAA’s order of
deferment of hearing, and remanded the case to the LBAA
of Baguio City for further proceedings subject to a full
and up-to-date payment of the realty taxes on subject
properties as assessed by the respondent City Assessor of
Baguio City, either in cash or in bond. Citing various
cases it previously decided, the CBAA explained that the
deferment of hearings by the LBAA was merely in
compliance with the mandate of the law. The governing
provision in this case is Section 231, not Section 226, of
RA No. 7160 which provides that "appeal on assessments
of real property made under the provisions of this Code
shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as
assessed by the provincial or city assessor, without
prejudice to subsequent adjustment depending upon the
final outcome of the appeal." In addition, as to the issue
raised pertaining to the propriety of the subject
assessments issued against petitioner, allegedly claimed
to be a tax-exempt entity, the CBAA expressed that it has
yet to acquire jurisdiction over it since the same has not
been resolved by the LBAA.
CTA En Banc found that petitioner has indeed failed to
comply with Section 252 of RA No. 7160or the LGC of
1991. Hence, it dismissed the petition and affirmed the
subject Resolutions of the CBAA which remanded the
case to the LBAA for further proceedings subject to
compliance with said Section, in relation to Section 7,
Rule V of the Rules of Procedure before the LBAA.
ISSUE:
Whether respondent CTA En Banc erred in dismissing for
lack of merit the petition and accordingly affirmed the
order of the CBAA to remand the case to the LBAA of
Baguio City for further proceedings subject to a full and
up-to-date payment of realty taxes, either in cash or in
bond, on the subject properties assessed by the City
Assessor of Baguio City?
HELD: NO.
Section 252 of RA No. 7160, also known as the LGC of
199114, categorically provides:
SEC. 252. Payment Under Protest. – (a) No protest shall
be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid
under protest." The protest in writing must be filed within
thirty (30) days from payment of the tax to the provincial,
city treasurer or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area, who shall
decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall
beheld in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor
of the taxpayer, the amount or portion of the tax protested
4
shall be refunded to the protestant, or applied as tax credit prescribed for the purpose. The owner of the property or
against his existing or future tax liability. the person having legal interest therein or the assessor
who is not satisfied with the decision of the Board may,
(d) In the event that the protest is denied or upon the lapse
within thirty (30) days after receipt of the decision of said
of the sixty-day period prescribed in subparagraph (a), the
Board, appeal to the Central Board of Assessment
tax payer may avail of the remedies as provided for in
Appeals, as here in provided. The decision of the Central
Chapter 3, Title Two, Book II of this Code. (Emphasis
Board shall be final and executory.
and underlining supplied)
SEC. 231. Effect of Appeal on the Payment of Real
Relevant thereto, the remedies referred to under Chapter
Property Tax. – Appeal on assessments of real property
3, Title Two, Book II of RA No. 7160 or the LGC of 1991
made under the provisions of this Code shall, in no case,
are those provided for under Sections 226 to 231.
suspend the collection of the corresponding realty taxes
Significant provisions pertaining to the procedural and
on the property involved as assessed by the provincial or
substantive aspects of appeal before the LBAA and
city assessor, without prejudice to subsequent adjustment
CBAA, including its effect on the payment of real
depending upon the final outcome of the appeal.
property taxes, follow:
(Emphasis supplied)
SEC. 226. Local Board of Assessment Appeals. – Any
The above-quoted provisions of RA No. 7160 or the LGC
owner or person having legal interest in the property who
of 1991,clearly sets forth the administrative remedies
is not satisfied with the action of the provincial, city or
available to a taxpayer or real property owner who does
municipal assessor in the assessment of his property may,
not agree with the assessment of the real property tax
within sixty (60) days from the date of receipt of the
sought to be collected.
written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a To begin with, Section 252 emphatically directs that the
petition under oath in the form prescribed for the purpose, taxpayer/real property owner questioning the assessment
together with copies of the tax declarations and such should first pay the tax due before his protest can be
affidavits or documents submitted in support of the entertained. As a matter of fact, the words "paid under
appeal. protest" shall be annotated on the tax receipts.
Consequently, only after such payment has been made by
SEC. 229. Action by the Local Board of Assessment
the taxpayer may he file a protest in writing (within thirty
Appeals. – (a)The Board shall decide the appeal within
(30) days from said payment of tax) to the provincial, city,
one hundred twenty (120) days from the date of receipt of
or municipal treasurer, who shall decide the protest within
such appeal. The Board, after hearing, shall render its
sixty (60)days from its receipt. In no case is the local
decision based on substantial evidence or such relevant
treasurer obliged to entertain the protest unless the tax due
evidence on record as a reasonable mind might accept as
has been paid.
adequate to support the conclusion.
Secondly, within the period prescribed by law, any owner
(b) In the exercise of its appellate jurisdiction, the Board
or person having legal interest in the property not satisfied
shall have the powers to summon witnesses, administer
with the action of the provincial, city, or municipal
oaths, conduct ocular inspection, take depositions, and
assessor in the assessment of his property may file an
issue subpoena and subpoena duces tecum. The
appeal with the LBAA of the province or city concerned,
proceedings of the Board shall be conducted solely for the
as provided in Section 226 of RA No. 7160 or the LGC of
purpose of ascertaining the facts without necessarily
1991. Thereafter, within thirty (30) days from receipt, he
adhering to technical rules applicable in judicial
may elevate, by filing a notice of appeal, the adverse
proceedings.
decision of the LBAA with the CBAA, which exercises
(c) The secretary of the Board shall furnish the owner of exclusive jurisdiction to hear and decide all appeals from
the property or the person having legal interest therein and the decisions, orders, and resolutions of the Local Boards
the provincial or city assessor with a copy of the decision involving contested assessments of real properties, claims
of the Board. In case the provincial or city assessor for tax refund and/or tax credits, or overpayments of
concurs in the revision or the assessment, it shall be his taxes.
duty to notify the owner of the property or the person
having legal interest therein of such fact using the form
5
In Dr. Olivares v. Mayor Marquez, under the doctrine of
primacy of administrative remedies, an error in the
assessment must be administratively pursued to the
exclusion of ordinary courts whose decisions would be
void for lack of jurisdiction. But an appeal shall not
suspend the collection of the tax assessed without
prejudice to a later adjustment pending the outcome of the
appeal. Even assuming that the assessor’s authority is
indeed an issue, it must be pointed out that in order for the
court a quo to resolve the petition, the issues of the
correctness of the tax assessment and collection must also
necessarily be dealt with.
In the present case, the authority of the assessor is not
being questioned. Despite petitioners’ protestations, the
petition filed before the court a quo primarily involves the
correctness of the assessments, which are questions of
fact, that are not allowed in a petition for certiorari,
prohibition and mandamus. The court a quo is therefore
precluded from entertaining the petition, and it
appropriately dismissed the petition.
Therefore, if the property being taxed has not been
dropped from the assessment roll, taxes must be paid
under protest if the exemption from taxation is insisted
upon.
Clearly from the foregoing factual backdrop, petitioner
considered the11 April 2002 letter as the "action" referred
to in Section 226 which speaks of the local assessor’s act
of denying the protest filed pursuant to Section252.
However, applying the above-cited jurisprudence in the
present case, it is evident that petitioner’s failure to
comply with the mandatory requirement of payment
under protest in accordance with Section 252 of the LGC
of 1991 was fatal to its appeal. Notwithstanding such
failure to comply therewith, the BTAA elected not to
immediately dismiss the case but instead took cognizance
of petitioner’s appeal subject to the condition that
payment of the real property tax should first be made
before proceeding with the hearing of its appeal, as
provided for under Section 7, Rule V of the Rules of
Procedure Before the LBAA. Hence, the BTAA simply
recognized the importance of the requirement of
"payment under protest" before an appeal may be
entertained, pursuant to Section 252, and in relation with
Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.
First, Section 206 of RA No. 7160 or the LGC of 1991, as
quoted earlier, categorically provides that every person by
or for whom real property is declared, who shall claim
exemption from payment of real property taxes imposed
against said property, shall file with the provincial, city or
municipal assessor sufficient documentary evidence in
support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject
real property is declared; thus, said person shall be
considered by law as the taxpayer thereof. Failure to do
so, said property shall be listed as taxable in the
assessment roll.
Second, considering that petitioner is deemed a taxpayer
within the meaning of law, the issue on whether or not it
is entitled to exemption from paying taxes, national and
local, including real property taxes, is a matter which
would be better resolved, at the very instance, before the
LBAA, for a complete determination of petitioner’s
alleged exemption from payment of real property tax
under RA No. 7160 or the LGC of 1991, there are factual
issues needed to be confirmed. Hence, being a question of
fact, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously
discussed, by paying under protest the tax assessed in
compliance with Section 252 thereof.
Accordingly, the CBAA and the CTA En Banc correctly
ruled that real property taxes should first be paid before
any protest thereon may be considered. It is without a
doubt that such requirement of "payment under protest" is
a condition sine qua non before an appeal may be
entertained. Thus, remanding the case to the LBAA for
further proceedings subject to a full and up-to-date
payment, either in cash or surety, of realty tax on the
subject properties was proper.
To reiterate, the restriction upon the power of courts to
impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the
doctrine that taxes are the lifeblood of the nation and as
such their collection cannot be curtailed by injunction or
any like action; otherwise, the state or, in this case, the
local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely
disabled. The right of local government units to collect
taxes due must always be upheld to avoid severe
erosion. This consideration is consistent with the State
policy to guarantee the autonomy of local
governments and the objective of RA No. 7160 or the
LGC of 1991 that they enjoy genuine and meaningful
local autonomy to empower them to achieve their
6
fullest development as self-reliant communities and present proof of remittance to establish that it had remitted
make them effective partners in the attainment of the final tax on dividends paid as well as the payments for
national goals. services rendered by a Malaysian company. As to the
imposition of delinquency interest, records reveal that
A claim for tax exemption, whether full or partial, does
petitioner failed to pay the deficiency taxes within thirty
not question the authority of local assessor to assess real
(30) days from receipt of the demand letter, thus,
property tax, but merely raises a question of the
delinquency interest accrued from such non-payment.
reasonableness or correctness of such assessment, which
requires compliance with Section 252 of the LGC of Issue
1991. Such argument which may involve a question of
Is the petitioner liable for the:
fact should be resolved at the first instance by the LBAA.
WHEREFORE, the petition is DENIED for lack of merit. a. deficiency withholding taxes on compensation on
The Decision of the Court of Tax Appeals En Bane in directors’ bonuses;
C.T.A. EB No. 48 is AFFIRMED. The case is remanded
to the Local Board of Assessment Appeals of Baguio City b. deficiency expanded withholding taxes on
for further proceedings. transportation, subsistence and lodging, and
representation expense; commission expense;
direct loss expense; occupancy cost; and
service/contractor and purchases;
FIRST LEPANTO TAISHO INSURANCE
CORPORATION VS. CIR c. deficiency final withholding taxes on payment of
dividends and computerization expenses to
Facts
foreign entities; and
First Lepanto Taisho Insurance Corporation (“petitioner”)
d. delinquency interest under Section 249 (c) (3) of
is a Large Taxpayer under Revenue Regulations No. 6-85,
the NIRC?
as amended. The Commissioner of Internal Revenue
(“respondent”) sent a Letter of Authority to petitioner to Ruling
examine atheir books of account for the year 1997 and
other unverified years. On December 29, 1999, the Yes. The petitioner is liable for the deficiencies.
respondent issued tax assessments for deficiency income, I. Deficiency withholding taxes on compensation
withholding, expanded withholding, final withholding, on directors’ bonuses
value-added, and documentary taxes for the year 1997.
The petitioner protested such assessment, which it For taxation purposes, a director is considered an
partially withdrew in view of the tax amnesty program it employee under Section 5 of Revenue Regulation No. 12-
had availed. The CTA ordered the petitioner to pay P 86, to wit:
1,994,390.86 as deficiency withholding tax on
“An individual, performing services for a corporation,
compensation, expanded withholding tax, and final tax.
whether as an officer and director or merely as a director
The petitioner appealed to the CTA En Banc which
whose duties are confined to attendance at and
affirmed the decision of the CTA Division.
participation in the meetings of the Board of Directors, is
The CTA rejected the contention of the petitioner that it an employee.”
is not liable to pay withholding tax on compensation to
The non-inclusion of the names of some of petitioner’s
some of its directors since they were not employees and
directors in the company’s Alpha List does not ipso facto
they had already been subjected to expanded withholding
create a presumption that they are not employees of the
tax. As to the petitioner’s transportation, subsistence and
corporation, because the imposition of withholding tax on
lodging, and representation allowance, the CTA En Banc
compensation hinges upon the nature of work performed
ruled that the petitioner failed to prove that those were
by such individuals in the company. Moreover, contrary
actual expenses. As to deficiency expanded withholding
to petitioner’s attestations, Revenue Regulation No. 2-98,
taxes on compensation, petitioner failed to substantiate
specifically, Section 2.57.2. A (9) thereof, cannot be
that the commissions earned came from reinsurance
applied to this case as the latter is a later regulation while
activities and should not be subject to withholding tax. As
to deficiency final withholding taxes, petitioner failed to
7
the accounting books examined were for taxable year
1997.
II. Deficiency expanded withholding taxes on
transportation, subsistence and lodging, and
representation expense; commission expense; direct
loss expense; occupancy cost; and service/contractor
and purchases
As to the deficiency withholding tax assessment on
transportation, subsistence and lodging, and
representation expense, commission expense, direct loss
expense, occupancy cost, service/contractor and
purchases, the petitioner was not able to sufficiently
establish that the transportation expenses reflected in their
books were reimbursement from actual transportation
expenses incurred by its employees in connection with
their duties as the only document presented was a
Schedule of Transportation Expenses without pertinent
supporting documents. Without said documents, such as
but not limited to, receipts, transportation-related
vouchers and/or invoices, there is no way of ascertaining
whether the amounts reflected in the schedule of expenses
were disbursed for transportation.
With regard to commission expense, no additional
documentary evidence, like the reinsurance agreements
contracts, was presented to support petitioner’s allegation
that the expenditure originated from reinsurance activities
that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal
that petitioner failed to compute the correct total
occupancy cost that should be subjected to withholding
tax, hence, petitioner is liable for the deficiency.
As to service/contractors and purchases, petitioner
contends that both parties already stipulated that it
correctly withheld the taxes due. Stipulations cannot
defeat the right of the State to collect the correct taxes due
on an individual or juridical person because taxes are the
lifeblood of our nation so its collection should be actively
pursued without unnecessary impediment.
III. Deficiency final withholding taxes on payment
of dividends and computerization expenses to foreign
entities
As to the deficiency final withholding tax assessments for
payments of dividends and computerization expenses
incurred by petitioner to foreign entities, particularly
Matsui Marine & Fire Insurance Co. Ltd. (Matsui), the
Court agrees with CIR that petitioner failed to present
evidence to show the supposed remittance to Matsui.
IV. Delinquency interest under Section 249 (c) (3)
of the NIRC
The Court likewise holds the imposition of delinquency
interest under Section 249 (c) (3) of the 1997 NIRC to be
proper, because failure to pay the deficiency tax assessed
within the time prescribed for its payment justifies the
imposition of interest at the rate of twenty percent (20%)
per annum, which interest shall be assessed and collected
from the date prescribed for its payment until full payment
is made.
It is worthy to note that tax revenue statutes are not
generally intended to be liberally construed. Moreover,
the CTA being a highly specialized court .particularly
created for the purpose of reviewing tax and customs
cases, it is settled that its findings and conclusions are
accorded great respect and are generally upheld by this
Court, unless there is a clear showing of a reversible error
or an improvident exercise of authority. Absent such
errors, the challenged decision should be maintained.
CIR VS. SAN ROQUE POWER CORPORATION
FACTS:
 On October 11, 1997, San Roque Power
Corporation (San Roque) entered into a Power
Purchase Agreement (PPA) with the National
Power Corporation (NPC) by building the San
Roque Multi-Purpose Project in San Manuel,
Pangasinan.
 The San Roque Multi-Purpose Project allegedly
incurred, excess input VAT in the amount of
P559,709,337.54 for taxable year 2001 which it
declared in its Quarterly VAT Returns filed for
the same year.
 San Roque duly filed with the BIR separate
claims for refund, amounting to
P559,709,337.54, representing unutilized input
taxes as declared in its VAT returns for taxable
year 2001.
 However, on March 28, 2003, San Roque filed
amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT
To the amount of P560,200,283.14. San Roque
filed with the BIR on the same date, separate
amended claims for refund in the aggregate
amount of P560,200,283.14.
8
  On April 10, 2003, a mere 13 days after it filed its
amended administrative claim with the CIR on
March 28, 2003, San Roque filed a Petition for
Review with the CTA.
 CIR alleged that the claim by San Roque was
prematurely filed with the CTA.
ISSUE:
 WON San Roque is entitled to tax refund? –
NO.
HELD:
 No. San Roque is not entitled to a tax refund
because it failed to comply with the mandatory
and jurisdictional requirement of waiting 120
days before filing its judicial claim.
 On April 10, 2003, a mere 13 days after it filed its
amended administrative claim with the CIR on
March 28, 2003, San Roque filed a Petition for
Review with the CTA, which showed that San
Roque did not wait for the 120-day period to lapse
before filing its judicial claim.
 Compliance with the 120-day waiting period
is mandatory and jurisdictional, under RA
8424 or the Tax Reform Act of 1997. Failure to
comply renders the petition void.
 It violates the doctrine of exhaustion of
administrative remedies and renders the petition
premature and without a cause of action, with the
effect that the CTA does not acquire jurisdiction
over the taxpayer’s petition.
 Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or
prohibitory laws shall be void, except when the
law itself authorizes their validity."
 Thus, San Roque’s petition with the CTA is a
mere scrap of paper.
 Well-settled is the rule that tax refunds or
credits, just like tax exemptions, are strictly
construed against the taxpayer.
 Whether the Atlas doctrine or
the Mirant doctrine is applied to San Roque is
immaterial because what is at issue in the present
case is San Roque’s non-compliance with the
120-day mandatory and jurisdictional period,
which is counted from the date it filed its
administrative claim with the CIR. The 120-day
period may extend beyond the two-year
prescriptive period, as long as the administrative
claim is filed within the two-year prescriptive
period. However, San Roque’s fatal mistake is
that it did not wait for the CIR to decide within
the 120-day period, a mandatory period whether
the Atlas or the Mirant doctrine is applied.
 Section 112(D) of the 1997 Tax Code is clear,
unequivocal, and categorical that the CIR has 120
days to act on an administrative claim. The
taxpayer can file the judicial claim
(1) Only within 30 days after the CIR partially or fully
denies the claim within the 120- day period, or
(2) only within 30 days from the expiration of the 120-
day period if the CIR does not act within the 120-day
period.
 Even if, contrary to all principles of statutory
construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of
Revenue Regulations No. 7-95, still San Roque
cannot recover any refund or credit because
San Roque did not wait for the 60-day period
to lapse, contrary to the express requirement
in Section 4.106-2(c).
 SC granted the petition of CIR to deny the tax
refund or credit claim of San Roque.
CIR VS. BPI
FACTS: On 28 October 1988 petitioner Commissioner
of Internal Revenue (CIR) assessed respondent Bank of
the Philippine Islands’ (BPI) deficiency percentage and
documentary stamp taxes in the total amount of
P129,488,656.63.
In a letter dated 10 December 1988, BPI requested for the
CIR to state or to inform the taxpayer why he is being
assessed a deficiency, and as to what particular percentage
tax the assessment refers to.
Subsequently, BPI received a letter on 27 June 1991 dated
May 8, 1991 from CIR stating that it constitutes the final
decision on the matter, and the basis of the assessments.
BPI filed a petition for review in the CTA but the latter
dismissed the case for lack of jurisdiction since the subject
9
assessments had become final and unappealable. The
CTA ruled that BPI failed to protest on time under Section
270 of the National Internal Revenue Code (NIRC) and
Section 7 in relation to Section 11 of RA 1125.
On appeal, the CA reversed the tax court’s decision and
resolution and remanded the case to the CTA for a
decision on the merits. It ruled that the October 28, 1988
notices were not valid assessments because they did not
inform the taxpayer of the legal and factual bases. It
declared that the proper assessments were those contained
in the May 8, 1991 letter which provided the reasons for
the claimed deficiencies. Thus, it held that BPI filed the
petition for review in CTA on time.
Hence, CIR filed this case.
ISSUES:
1) Were the October 28, 1988 notices valid
assessments?
RULING: Yes the notices sufficiently met the
requirements of a valid assessment under the old law and
jurisprudence. The CIR merely relied on the provisions of
the former Section 270 prior to its amendment by RA
8424 (Tax Reform Act of 1997). Accordingly, when the
assessments were made pursuant to the former Section
270, the only requirement was for the CIR to “notify” or
inform the taxpayer of his “findings.” Nothing in the old
law required a written statement to the taxpayer of the law
and facts on which the assessments were based.
Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the
amount the taxpayer was to pay and a demand for
payment within a prescribed period.
The sentence “The taxpayers shall be informed in writing
of the law and the facts on which the assessments is made;
otherwise, the assessments shall be void” was not in the
old Section of 270 but was later on inserted in the
renumbered Section 228 in 1997. Evidently, the
legislature saw the need to modify the former Section 270
by inserting the aforequoted sentence. The fact that the
amendment was necessary showed that, prior to the
introduction of the amendment, the statute had an entirely
different meaning. The amendment introduced by RA
8424 was an innovation and could not be reasonably
inferred from the old law. Clearly, the legislature intended
to insert a new provision regarding the form and substance
of assessments issued by the CIR.
Under the former Section 270, there were two instances
when an assessment became final and unappealable: 1)
when it was not protested within 30 days and 2) when the
adverse decision on the protest was not appealed to the
CTA within 30 days from receipt of the final decision.
2) Whether or not the assessments made by the CIR
were valid, final, and unappealable?
Failure to protest within the 30-day period: 1)final and
unappealable; 2) presumption of correctness
RULING: Yes, BPI should have protested within 30 days
from receipt of the notices dated October 28, 1988. BPI’s
failure to protest meant that the assessments made are
final and unappealable. The December 10, 1988 reply it
sent to the CIR did not qualify as a protest since BPI did
not even consider the October 28, 1988 notices as valid or
proper assessments.
Moreover, BPI was from then on barred from disputing
the correctness of the assessments or invoking any
defense that would reopen the question of its liability on
the merits.
Presumption of Correctness. There arose a presumption
of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to
prove otherwise. In the absence of proof of any
irregularities … an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
Even if we consider the December 10, 1988 letter as a
protest, BPI must nevertheless be deemed to have failed
to appeal the CIR’s final decision within the 30-day
period. The CIR, in his May 8, 1991 response, stated that
it was his “final decision on the matter.” BPI therefore had
30 days from the time it received the decision on June 27,
1991 to appeal but it did not. Instead, it filed a request for
reconsideration and lodged its appeal in the CTA.
BPI is still liable under the subject tax assessments:
That state will be deprived of the taxes validly due it and
the public will suffer if taxpayers will not be held liable
for the proper taxes assessed against them: Taxes are the
lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal
attribute of sovereignty, the exercise of taxing power
derives its source from the very existence of the state
whose social contract with its citizens obliges it to
10
promote public interest and common good. The theory
behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its
mandate of promoting general welfare and well-being of
the people.
YMCA VS. CIR
FACTS: The question at issue in this case is whether or
not the building and grounds of the Young Men's
Christian Association of Manila are subject to taxation,
under section 48 of the charter of the city of Manila. The
city of Manila, contending that the property is taxable,
assessed it and levied a tax thereon. It was paid under
protest and this action begun to recover it on the ground
that the property was exempt from taxation under the
charter of the city of Manila. The decision was for the city
and the association appealed. The purposes of this
association shall be exclusively religious, charitable and
educational, in developing the Christian character and
usefulness of its members and in improving the spiritual,
mental, social and physical condition of young men. To
develop the Christian character and usefulness of its
members, to improve the spiritual, intellectual, social and
physical condition of young men, and to acquire, hold,
mortgage, and dispose of the necessary lands, buildings
and personal property for the use of said corporation
exclusively for religious, charitable and educational
purposes, and not for investment or profit.
ISSUE:
Whether or not the imposed tax on YMCA is violative of
the Constitutional prohibition against taxation on
religious, charitable and educational entities?
HELD:
There is no doubt about the correctness of the contention
that an institution must devote itself exclusively to one or
the other of the purpose mentioned in the statute before it
can be exempt from taxation; but the statute does not say
that it must be devoted
exclusively to anyone of the purposes therein mentioned.
It maybe a combination of two or three or more of those
purposes and still be entitled to exempt. The Young Men's
Christian Association of Manila cannot be said to be an
institution used exclusively
for religious purposes, or an institution used exclusively
for charitable purposes, or an institution devoted
exclusively to educational purposes; but we believe it can
be truthfully said that it is an institution used exclusively
for all three purposes, and that, as such, it is entitled to be
exempted from taxation.
DAVAO GULF LUMBER CORP VS CIR
Lessons Applicable: tax exemption should be construed
strictissimi juris against the grantee, equity is not a
ground for tax exemption
FACTS:
 Davao Gulf Lumber Corporation, a licensed
forest concessionaire possessing a Timber
License Agreement granted by the Ministry of
Natural Resources (Now DENR), purchased
from various oil companies refined and
manufactured oils as well as motor and diesel
fuels for its exploitation and operation.
 Selling companies paid and passed the specific
taxes imposed under Sec. 153 and 156 of the 1997
NIRC to petitioner as purchaser who in turn filed
before CIR a Claim for Refund for P120, 825
representing 25% of the specific taxes actually
paid based on Insular Lumber Co. v. CTA and
Sec. 5 of RA 1435 and complied with its
procedure.
 Then, petitioner filed before CA a Petition for
Review: Favored petitioner to a partial refund
P2,923 (excluding those that have prescribed)
and based on the rates deemed paid under RA
1435 (NOT higher rates actually paid under the
NIRC)
 Insisting that the basis be the higher rate,
petitioner elevated the case to the CTA who
affirmed the CA's decision
ISSUE: W/N the basis should be the higher rates
prescribed by Sec. 153 and 156 of the 1997 NIRC
HELD: NO. A tax cannot be imposed unless it is
supported by the clear and express language of a statute;
On the other hand, once the tax is unquestionably
imposed, a claim of exemption from tax payments must
be clearly shown and based on language in the law too
plain to be mistaken. Section 5, RA 1435 as a tax
exemption, must be construed strictissimi juris against
the grantee.
11
  Supported by CIR v. CA and Atlas Co., CIR v. government by the imposition of excessive taxes
Rio Tuba Nickel Mining Corp. and Insular petitioners can ill afford and eventually result in the
Lumber Co. - all cases where purchases was made forfeiture of their properties.
BEFORE 1997 NIRC is in effect.
 According to an eminent authority on taxation,
there is no tax exemption solely on the ground of PHILIPPINE BANK OF COMMUNICATIONS VS
equity CIR
FACTS: Petitioner PBCom filed its first and second
quarter income tax returns, reported profits, and paid
JOSE REYES VS PEDRO ALMANZOR income taxes amounting to P5.2M in 1985. However, at
the end of the year PBCom suffered losses so that when it
FACTS: Petitioners JBL Reyes et al. owned a parcel of
filed its Annual Income Tax Returns for the year-ended
land in Tondo which are leased and occupied as dwelling
December 31, 1986, the petitioner likewise reported a net
units by tenants who were paying monthly rentals of not
loss of P14.1 M, and thus declared no tax payable for the
exceeding P300. Sometimes in 1971 the Rental Freezing
year. In 1988, the bank requested from CIR for a tax
Law was passed prohibiting for one year from its
credit and tax refunds representing overpayment of taxes.
effectivity, an increase in monthly rentals of dwelling
Pending investigation of the respondent CIR,
units where rentals do not exceed three hundred pesos
petitioner instituted a Petition for Review before the Court
(P300.00), so that the Reyeses were precluded from
of Tax Appeals (CTA). CTA denied its petition for tax
raising the rents and from ejecting the tenants. In 1973,
credit and refund for failing to file within the prescriptive
respondent City Assessor of Manila re-classified and
period to which the petitioner belies arguing the
reassessed the value of the subject properties based on the
Revenue Circular No.7-85 issued by the CIR itself states
schedule of market values, which entailed an increase in
that claim for overpaid taxes are not covered by the
the corresponding tax rates prompting petitioners to file a
two-year prescriptive period mandated under the Tax
Memorandum of Disagreement averring that the
Code.
reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional"
ISSUE: Is the contention of the petitioner correct? Is the
considering that the taxes imposed upon them greatly
revenue circular a valid exemption to the NIRC?
exceeded the annual income derived from their properties.
They argued that the income approach should have been
HELD: No. The relaxation of revenue regulations by
used in determining the land values instead of the
RMC 7-85 is not warranted as it disregards the two-year
comparable sales approach which the City Assessor
prescriptive period set by law.
adopted.
Basic is the principle that "taxes are the lifeblood of the
ISSUE: Is the approach on tax assessment used by the
nation." The primary purpose is to generate funds for
City Assessor reasonable?
the State to finance the needs of the citizenry and to
HELD: No. The taxing power has the authority to make a advance the common weal. Due process of law under the
reasonable and natural classification for purposes of Constitution does not require judicial proceedings in tax
taxation but the government's act must not be prompted cases. This must necessarily be so because it is upon
by a spirit of hostility, or at the very least discrimination taxation that the government chiefly relies to obtain the
that finds no support in reason. It suffices then that the means to carry on its operations and it is of utmost
laws operate equally and uniformly on all persons under importance that the modes adopted to enforce the
similar circumstances or that all persons must be treated collection of taxes levied should be summary and
in the same manner, the conditions not being different interfered with as little as possible.
both in the privileges conferred and the liabilities
From the same perspective, claims for refund or tax credit
imposed.
should be exercised within the time fixed by law
Consequently, it stands to reason that petitioners who are
because the BIR being an administrative body enforced to
burdened by the government by its Rental Freezing Laws
collect taxes, its functions should not be unduly
(then R.A. No. 6359 and P.D. 20) under the principle of
delayed or hampered by incidental matters.
social justice should not now be penalized by the same
12
PHILIPPINE GUARANTY CO INC VS CIR
FACTS: The petitioner Philippine Guaranty Co., Inc., a
domestic insurance company, entered into reinsurance
contracts with foreign insurance companies not doing
business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines. The premiums
paid by such companies were excluded by the petitioner
from its gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or
pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance
premiums to which the latter protested the assessment on
the ground that the premiums are not subject to tax for the
premiums did not constitute income from sources within
the Philippines because the foreign reinsurers did not
engage in business in the Philippines, and CIR's previous
rulings did not require insurance companies to withhold
income tax due from foreign companies.
ISSUE: Are insurance companies not required to
withhold tax on reinsurance premiums ceded to foreign
insurance companies, which deprives the government
from collecting the tax due from them?
HELD: No. The power to tax is an attribute of
sovereignty. It is a power emanating from necessity. It is
a necessary burden to preserve the State's sovereignty and
a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those
which come within the State's territory, and facilities and
protection which a government is supposed to provide.
Considering that the reinsurance premiums in question
were afforded protection by the government and the
recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the
state.
The petitioner's defense of reliance of good faith on
rulings of the CIR requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly
would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.
PHILEX MINING CORP VS CIR
FACTS: Petitioner Philex Mining Corp. assails the
decision of the Court of Appeals affirming the Court of
Tax Appeals decision ordering it to pay the amount of
P110.7 M as excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20%
annual interest from 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex
protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P120 M plus interest. Therefore
these claims for tax credit/refund should be applied
against the tax liabilities.
ISSUE: Can there be an off-setting between the tax
liabilities vis-a-vis claims of tax refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of
the government and so should be collected without
unnecessary hindrance. Evidently, to countenance
Philex's whimsical reason would render ineffective our
tax collection system. Too simplistic, it finds no support
in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the
payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the
government which has not yet been granted.Taxes cannot
be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors
of each other. There is a material distinction between a tax
and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity. xxx There can be no off-setting of
taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government.
NORTH CAMARINES LUMBER CO VS CIR
FACTS: The petitioner sold more than 2M boardfeet of
logs to General Lumber Co. with the agreement that the
latter would pay the sales taxes. The CIR, upon
consultation officially advised the parties that the bureau
13
interposes no objection so long as the tax due shall be
covered by a surety. General Lumber complied, but later
failed, with the surety, to pay the tax liabilities, and so the
respondent collector required the petitioner to pay thru a
letter dated August 30, 1955. Twice did the petitioner
filed a request for reconsideration before finally
submitting the denied request for appeal before the Court
of Tax Appeals. The CTA dismissed the appeal as it was
clearly filed out of time. The petitioner had consumed
thirty-three days from the receipt of the demand, before
filing the appeal. Petitioner argued that in computing the
30-day period in perfecting the appeal the letter of the
respondent Collector dated January 30, 1956, denying the
second request for reconsideration, should be considered
as the final decision contemplated in Section 7, and not
the letter of demand dated August 30, 1955.
ISSUE: Is the contention of the petitioner tenable?
HELD: No. This contention is untenable. We cannot
countenance that theory that would make the
commencement of the statutory 30-day period solely
dependent on the will of the taxpayer and place the latter
in a position to put off indefinitely and at his convenience
the finality of a tax assessment. Such an absurd procedure
would be detrimental to the interest of the Government,
for "taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need."
WALTER LUTZ VS J. ANTONIO ARANETA
FACTS: Plaintiff Walter Lutz, in his capacity as judicial
administrator of the intestate estate of Antionio Ledesma,
sought to recover from the CIR the sum of P14,666.40
paid by the estate as taxes, under section 3 of the CA 567
or the Sugar Adjustment Act thereby assailing its
constitutionality, for it provided for an increase of the
existing tax on the manufacture of sugar, alleging that
such enactment is not being levied for a public purpose
but solely and exclusively for the aid and support of the
sugar industry thus making it void and unconstitutional.
The sugar industry situation at the time of the enactment
was in an imminent threat of loss and needed to be
stabilized by imposition of emergency measures.
ISSUE: Is CA 567 constitutional, despite its being
allegedly violative of the equal protection clause, the
purpose of which is not for the benefit of the general
public but for the rehabilitation only of the sugar industry?
HELD: Yes. The protection and promotion of the sugar
industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds
what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be
allowed to fully play, subject only to the test of
reasonableness; and it is not contended that the means
provided in the law bear no relation to the objective
pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the state's police power.
REPUBLIC VS ERICTA
This case has to do with the so-called "back pay
certificates" issued by the Philippine Government in the
aftermath of the Pacific War, pursuant to Republic Act
No. 304, as amended by Republic Act No. 800. These
enactments generally recognized the right of persons who
at the outbreak of the war were employed in the classified
and unclassified civil service as well as in government-
owned or controlled corporations, and those who had
served in the free local civil governments organized for
purposes of resistance against the invaders, to salaries,
wages, emoluments, per diems, not received by them by
reason of the war. The Treasurer of the Philippines was
empowered to receive applications for back pay and to
issue in favor of the applicants certificates of indebtedness
redeemable by the Government within ten years for the
amounts determined to be justly due them.
It appears that in relation to its business of producing
motion pictures, Sampaguita Pictures, Inc., hereafter
simply Sampaguita, came to incur an obligation for
percentage, withholding and amusement taxes in the
amount of P10,268.41 in favor of the Republic of the
Philippines. 1 In satisfaction thereof, and of another
obligation of the same nature due from Vera-Perez
Corporation, Sampaguita Pictures, Inc. tendered and
delivered to the Office of the Municipal Treasurer of
Bocaue, Bulacan, on June 9, 1961, sixteen (16) back pay
negotiable certificates of indebtedness in the aggregate
sum of P16,763.60, which had earlier been negotiated to
them by the original holders thereof, and official receipts
therefor were duly issued. 2
Thirteen (13) days later, however, the Assistant Regional
Director of the BIR wrote to Vera-Perez Corporation (his
14
letter is dated June 22, 1961) advising that the acceptance legal compensation." These averments were inter
of the Negotiable Certificates of Indebtedness in payment alia reproduced and set up also as a counterclaim, with
of amusement, percentage and withholding taxes (in the the additional plea that "in the remote possibility that ..(it
total sum of P16,753.50) was erroneous and the payment [Sampaguita 1) be still required .. to pay plaintiff the
was invalid, because actually said certificates were "not amount of P10,268.41 for alleged unpaid taxes, the
acceptable as payments of internal revenue taxes in plaintiff be ordered to pay the defendant the same amount
accordance with the provisions of .. General Circular No. of Pl 0,268.41 representing the face value of the
V-289 dated May 8, 1959." Request was thus made for negotiable certificates of indebtedness."
the payment of the tax liabilities in cash. 3 Evidently
On December 29, 1971, judgment was rendered by the
neither corporations responded one way or the other to
Trial Judge "dismissing both the complaint and the
this letter. Anyway, the next letter adverted to by the
counterclaim without pronouncement as to costs." 9 His
Government is that dated August 18, 1967, written by the
Honor held that delivery of the back pay certificates by
Acting Deputy Commissioner of Internal Revenue to both
Sampaguita had not produced the effect of payment in
Sampaguita and Vera-Perez Corporation. 4 That letter
view of the doctrine in Borja v. Gella 10 that "the right to
gave the corporations "a last 15-day period within which
use backpay certificates of indebtedness in the settlement
to pay the said amount of P16,763.50 in cash or certified
of taxes is given only to original holders and not to mere
check." Again, no acceptable response seems to have been
assignees thereof;" this notwithstanding, Sampaguita, as
made by the corporations. So on June 9, 1969, eight (8)
assignee of the certificates of indebtedness, had
years to the day when the negotiable certificates of
"succeeded to the original rights of the holders thereof,"
indebtedness were accepted in payment of taxes by the
and was therefore authorized to demand payment by the
Municipal Treasurer at Bocaue, Bulacan, the Solicitor
Republic of the indebtedness thereby represented; and
General brought suit in behalf of the Republic of the
while there was "opinion that (legal) compensation cannot
Philippines in relation thereto. 5 The case was docketed
take place against the Republic with respect to taxes, fees,
as Civil Case No. Q-13270 of the Court of First Instance
duties and similar forced contributions due to it (Civil
at Quezon City, and assigned to Branch XVIII thereof,
Code, Volume IV, p. 349, Tolentino; Gasperi 204; 2 Von
then presided over by herein respondent, Hon. Vicente G.
Tuhr Obligaciones, p. 165), there could be no gainsaying
Ericta. 6
the proposition that, under the facts, Sampaguita was
The Solicitor General's complaint 7 impleaded only entitled to judgment upon its counterclaim for the
Sampaguita as defendant. Why he excluded the other payment by the Republic of its indebtedness in virtue of
corporation is not disclosed by the record. In his the back pay certificates in question, with the "ultimate
complaint he alleged that Sampaguita's essayed payment result .. that the claim and counter-claim of the plaintiff
was void since it was "not the original holder of the .. and the defendant, respectively will offset each other."
certificates .. but .. only a mere assignee thereof," and
The Solicitor General presented a motion of
tinder the law," only original holders of back pay
reconsideration. When this was denied, he appealed to
certificates .. are allowed to use the same in payment of
this Court by certiorari positing reversible legal error on
their own taxes," invoking this Court's decision to that
the part of respondent Judge in holding that (1) the
effect in de Borja v. Gella 8 promulgated on July 31,
Republic's claim is offset by Sampaguita's counterclaim,
1963.
and (2) the negotiable certificates of indebtedness in
Sampaguita's answer admitted the basic facts, but asserted question were "long overdue and redeemable." The
that the plaintiffs cause of action had already prescribed; petitioner's postulations are untenable.
that the tender of the certificates in 1961 had been "made
1. The Trial Court ruled that the taxes sought to be
in absolute good faith," "prior to the promulgation of the
collected by the Republic from Sampaguita were still
decision .. (in) de Borja vs. Vicente Gella et al. on July
unpaid, its tender of the certificates of indebtedness in
31, 1963;" that the certificates "having duly matured .. in
question not constituting payment; hence, it ought
the year 1958, (and) plaintiff .. (being then) already duty
properly to be sentenced to pay the taxes. It also ruled that
bound to redeem them and pay for their value,"
even assuming the contrary, legal compensation as a
Sampaguita and the Republic became "mutual creditors
mode of extinguishing an obligation to pay taxes was
and debtors of each other for the amount of P10,268.41"
nonetheless unavailing against the government,
with the result that their obligations were extinguished by
conformably with de Borja v. Gella.
15
On the other hand, according to the Trial Court, at least as
of date of judgment, more than 10 years from June 18,
1958, the date when, as expressly stated in the certificates
of indebtedness, the same were redeemable, the
obligation thereby evidenced was unquestionably already
due and payable; hence, Sampaguita was entitled to a
judgment against the Republic for the payment of the face
value of the certificates, the same having already been
presented and surrendered within the said period of ten
years (on June 9, 1961) to the Treasurer of the Philippines
(thru the Municipal Treasurer of Bocaue, Bulacan
) 11 This is correct. In other words, even if as the Solicitor
General points out, "there is no certainty when the
certificates are actually redeemable" because the law say
"that they are redeemable .. within ten years from the date
of issuance " 12 there can be no question that after the
lapse of ten (10) years from the declared date of
redeemability, payment of the indebtedness was already
exigible The Trial Court was saying in effect that while
judgment should be rendered in favor of the Republic
against Sampaguita for unpaid taxes in the amount of
P10,268.41, judgment ought at the same time to issue for
Sampaguita commanding payment to it by the Republic
of the same sum, representing the face value of the
certificates of indebtedness assigned to it and for recovery
of which it had specifically prayed in its counterclaim.
2. What has just been said confutes the petitioner's second
argument that redemption of the certificates of
indebtedness was not yet demandable of it because "there
is no certainty when the certificates are actually
redeemable, within the meaning of the law." It is true that,
as the Solicitor General contends, "the law does not say
that they are redeemable from its approval on June 18,
1958 but 'within ten years from the date of issuance' of the
certificates, " 13 the ineludible ineluctable fact is that
more than ten (10) years have already elapsed since their
issuance and demand for payment had been made within
said 10-year period. It is useless to quibble about the
precise time "within ten years" when an obligation
becomes demandable, when that period of ten years has
already expired. Whatever inexactitude might inhere in
the phrase, "within ten years," as fixing the time of
exibility of the obligation in question, there can be no
debate about the proposition that the obligation became
due and demandable after ten years. It would be absurd
and unfair to sanction the theory subsumed in the
Republic's petition that its obligation was not demandable
within ten years because of inexactitude yet became time-
barred upon the lapse of that self-same period.
CIR VS ESSO STANDARD EASTERN INC
FACTS: Respondent overpaid its 1959 income tax by
P221,033.00. It was granted a tax credit by the
Commissioner accordingly on 1964. However, ESSOs
payment of its income tax for 1960 was found to be short
by P367,994.00. The Commissioner (of Internal
Revenue) wrote to ESSO demanding payment of the
deficiency tax, together with interest thereon for the
period from 1961 to 1964. ESSO paid under protest the
amount alleged to be due, including the interest as
reckoned by the Commissioner. It protested the
computation of interest, contending it was more than that
properly due. It claimed that it should not have been
required to pay interest on the total amount of the
deficiency tax, P367,994.00, but only on the amount of
P146,961.00—representing the difference between said
deficiency, P367,994.00, and ESSOs earlier overpayment
of P221,033.00 (for which it had been granted a tax
credit). ESSO thus asked for a refund. The Internal
Revenue Commissioner denied the claim for refund.
ESSO appealed to the Court of Tax Appeals which
ordered payment to ESSO of its refund-claim
representing overpaid interest.
The Commissioner argued the tax credit of P221,033.00
was approved only on year 1964, it could not be availed
of in reduction of ESSOs earlier tax deficiency for the
year 1960; as of that year, 1960, there was as yet no tax
credit to speak of, which would reduce the deficiency tax
liability for 1960. In support of his position, the
Commissioner invokes the provisions of Section 51 of the
Tax Code.
ISSUE: Whether or not the interest on delinquency should
be applied on the full tax deficiency of P367,994.00
despite the existence of overpayment in the amount of
P221,033.00.
HELD: NO. Petition was denied. Decision of CTA was
affirmed.
RATIO: The fact is that, as respondent Court of Tax
Appeals has stressed, as early as 1960, the Government
already had in its hands the sum of P221,033.00
representing excess payment. Having been paid and
received by mistake, as petitioner Commissioner
subsequently acknowledged, that sum unquestionably
belonged to ESSO, and the Government had the
obligation to return it to ESSO That acknowledgment of
the erroneous payment came some four (4) years
afterwards in nowise negates or detracts from its actuality.
16
The obligation to return money mistakenly paid arises
from the moment that payment is made, and not from the
time that the payee admits the obligation
to reimburse.The obligation to return money mistakenly
paid arises from the moment that payment is made, and
not from the time that the payee admits the obligation to
reimburse. The obligation of the payee to reimburse an
amount paid to him results from the mistake, not from the
payee’s confession of the mistake or recognition of the
obligation to reimburse.
A literal interpretation is to be rejected if it would be
unjust or lead to absurd results. Statutes should receive a
sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or absurd
conclusion.
FRANCIA VS IAC
FACTS: Engracio Francia was the owner of a 328 square
meter land in Pasay City. In October 1977, a portion of
his land (125 square meter) was expropriated by the
government for P4,116.00. The expropriation was made
to give way to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate
taxes since 1963 amounting to P2,400.00. So in
December 1977, the remaining 203 square meters of his
land was sold at a public auction (after due notice was
given him). The highest bidder was a certain Ho
Fernandez who paid the purchase price of P2,400.00
(which was lesser than the price of the portion of his land
that was expropriated).
Later, Francia filed a complaint to annul the auction sale
on the ground that the selling price was grossly
inadequate. He further argued that his land should have
never been auctioned because the P2,400.00 he owed the
government in taxes should have been set-off by the debt
the government owed him (legal compensation). He
alleged that he was not paid by the government for the
expropriated portion of his land because though he knew
that the payment therefor was deposited in the Philippine
National Bank, he never withdrew it.
ISSUE: Whether or not the tax owed by Francia should
be set-off by the “debt” owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed.
There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own
right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code). This is not
applicable in taxes. There can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the
government.
The Supreme Court emphasized: A claim for taxes is not
such a debt, demand, contract or judgment as is allowed
to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of
the state or municipality to one who is liable to the state
or municipality for taxes. Neither are they a proper subject
of recoupment since they do not arise out of the contract
or transaction sued on.
Further, the government already Francia. All he has to do
was to withdraw the money. Had he done that, he could
have paid his tax obligations even before the auction sale
or could have exercised his right to redeem – which he did
not do.
Anent the issue that the selling price of P2,400.00 was
grossly inadequate, the same is not tenable. The Supreme
Court said: “alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem
as when a sale is made at public auction, upon the theory
that the lesser the price, the easier it is for the owner to
effect redemption.” If mere inadequacy of price is held to
be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not
rendered altogether impracticable. “Where land is sold for
taxes, the inadequacy of the price given is not a valid
objection to the sale.” This rule arises from necessity, for,
if a fair price for the land were essential to the sale, it
would be useless to offer the property. Indeed, it is
notorious that the prices habitually paid by purchasers at
tax sales are grossly out of proportion to the value of the
land.
MELECIO DOMINGO VS LORENZO GARLITOS
FACTS: In the 1960 case of Domingo v Moscoso, the
Supreme Court declared as final and executory the order
for the payment by the estate of the late Walter Scott Price
of estate and inheritance taxes, charges and penalties,
amounting to P40,058.55 issued by the Court of First
Instance – Leyte. The fiscal then presented a petition for
17
the execution of the judgment before the Court of First
Instance – Leyte.
The petition was denied as the execution is not justifiable
as the government is indebted to the estate under
administration in the amount of P 262,200. Hence, the
present petition for certiorari and mandamus.
ISSUE:
Is execution proper?
RULING:
No. The tax and the debt are compensated. The court
having jurisdiction of the estate had found that the claim
of the estate against the government has been recognized
and an amount of P262,200 has already been appropriated
by a corresponding law (RA 2700). Under the
circumstances, both the claim of the Government for the
inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable
as well as fully liquidated.
Compensation, therefore, takes place by operation of law,
in accordance with Article 1279 and 1290 of the Civil
Code, and both debts are extinguished to their concurrent
amounts. If the obligation to pay taxes and the taxpayer’s
claim against the government are both overdue,
demandable, as well as fully liquidated, compensation
takes place by operation of law and both obligations are
extinguished to their concurrent amounts. Therefore the
petitioner has no clear right to execute the judgment for
taxes against the estate of the deceased Walter Price.
PHILEX MINING CORP. VS CIR
FACTS: Petitioner Philex Mining Corp. assails the
decision of the Court of Appeals affirming the Court of
Tax Appeals decision ordering it to pay the amount of
P110.7 M as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20%
annual interest from 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977.
Philex protested the demand for payment of the tax
liabilities stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P120 M plus interest. Therefore
these claims for tax credit/refund should be applied
against the tax liabilities.
ISSUE: Can there be an off-setting between the tax
liabilities vis-a-vis claims of tax refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of
the government and so should be collected without
unnecessary hindrance. Evidently, to countenance
Philex's whimsical reason would render ineffective our
tax collection system. Too simplistic, it finds no support
in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the
payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the
government which has not yet been granted. Taxes cannot
be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors
of each other. There is a material distinction between a tax
and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity. xxx There can be no off-setting of
taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government.
VALENTIN TIO VS. VIDEOGRAM
REGULATORY BOARD
FACTS: Valentin Tio is a videogram establishment
operator adversely affected by Presidential Decree No.
1987 entitled "An Act Creating the Videogram
Regulatory Board".
P.D. No. 1987 provides for the levy of a tax over each
cassette sold (Sec. 134) and a 30% tax on the gross
receipts of a videogram establishment, payable to the
local government (Sec. 10). The rationale for this decree
is set forth in its preambulatory/whereas clauses to wit:
1. WHEREAS, the proliferation and unregulated
circulation of videograms including, among others,
videotapes, discs, cassettes ... have greatly prejudiced the
operations of moviehouses and theaters, and have caused
a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of
[taxes] thereby resulting in substantial losses estimated at
P450 Million annually in government revenues;
18
2. WHEREAS, videogram(s) establishments collectively
earn around P600 Million per annum from rentals, sales
and disposition of videograms, and such earnings have
not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each
year;
3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the
movie industry, ...;
5. WHEREAS, proper taxation of the activities of
videogram establishments will not only alleviate the dire
financial condition of the movie industry ..., but also
provide an additional source of revenue for the
Government, and at the same time rationalize
the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of
obscene videogram features constitutes a clear and
present danger to the moral and spiritual well-being of the
youth [READ: PORN], and impairs the mandate of the
Constitution for the State to support the rearing of the
youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and
social well-being;
8. WHEREAS, in the face of these grave emergencies
corroding the moral values of the people [AGAIN,
READ: PORN] and betraying the national economic
recovery program, bold emergency measures must be
adopted with dispatch; (emphasis supplied and certain
passages omitted)
ISSUES:
The petioner, among others, raised the following issues:
1. Whether or not the imposition of the 30% tax is a rider
and the same is not germane to the subject matter of the
law.
2. Whether or not there is undue delegation of power and
authority; and
HELD:
1. No, the tax is not a rider and is germane to the purpose
and subject of the law.
The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the
title thereof" is sufficiently complied with if the title be
comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that
the title express each and every end that the statute wishes
to accomplish. The requirement is satisfied if all the parts
of the statute are related, and are germane to the subject
matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and
title.
Reading section 10 of P.D. No. 1987 closely, one can see
that the foregoing provision is allied and germane to, and
is reasonably necessary for the accomplishment of, the
general object of the law, which is the regulation of the
video industry through the Videogram Regulatory Board
as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and
title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout
the decree.
Aside from revenue collection, tax laws may also be
enacted for the purpose of regulating an activity. At the
same time, the videogram industry is also an untapped
source of revenue which the government may validly tax.
All of this is evident from preambulatory clauses nos. 2,
5, 6 and 8, quoted in part above.
The levy of the 30% tax is also for a public purpose. It
was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant
film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes.
And while it was also an objective of the law to protect
the movie industry, the tax remains a valid imposition.
2. No. There was no undue delegation of law making
authority.
Petitioner was concerned that Section 11 of P.D. No. 1987
stating that the videogram board (Board) has authority to
"solicit the direct assistance of other agencies and units of
the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units
19
to perform enforcement functions for the Board" is an
undue delegation of legislative power.
This is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its
execution, enforcement, and implementation. "The true
distinction is between the delegation of power to make the
law, which necessarily involves a discretion as to what it
shall be, and conferring authority or discretion as to its
execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid
objection can be made."
Besides, in the very language of the decree, the authority
of the Board to solicit such assistance is for a "fixed and
limited period" with the deputized agencies concerned
being "subject to the direction and control of the Board."
HON. RAMON BAGATSING, ET AL. V. HON.
PEDRO RAMIREZ, ET AL.
FACTS: Municipal Board Of Manila Enacted Ordinance
No. 7522, "An Ordinance Regulating The Operation Of
Public Markets And Prescribing Fees For The Rentals Of
Stalls And Providing Penalties For Violation Thereof And
For Other Purposes." The petitioner City Mayor, Ramon
D. Bagatsing, approved the ordinance on June 15, 1974.
Respondent Federation of Manila Market Vendors, Inc.
sought the declaration of nullity of the said Ordinance.
Among the reason for its nullification was that the
publication requirement under the Revised Charter of the
City of Manila has not been complied with, and that the
ordinance would violate PD No. 7 prescribing the
collection of fees and charges on livestock and animal
products.
After due hearing on the merits, respondent Judge
rendered its decision declaring the nullity of Ordinance
No. 7522 of the City of Manila on the primary ground of
non-compliance with the requirement of publication
under the Revised City Charter. (Note that under the
Revised City Charter that … “Each proposed
ordinance shall be published in two daily newspapers of
general circulation in the city… Each approved
ordinance * * * shall be published in two daily
newspapers of general circulation in the city, within ten
days after its approval)
Petitioners moved for reconsideration of the adverse
decision, stressing that what is required was the
publication of the Ordinance after it is approved by local
legislative bodies in accordance to Local Tax Code. In
other words, while the Revised Charter of the City of
Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily
newspapers of general circulation in the city, the Local
Tax Code only prescribes for publication after the
approval of "ordinances levying or imposing taxes, fees
or other charges"
The chief question to be decided in this case is what law
shall govern the publication of a tax ordinance enacted by
the Municipal Board of Manila, the Revised City Charter
(R.A. 409, as amended), which requires publication of the
ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands
publication after approval?
ISSUES:
1. Was the ordinance properly and validly published?
2. Were the fees for rentals of stalls, penalties and other
charges are taxes?
HELD:
1. Yes. Publication of ordinances levying or
imposing taxes, fees or other charges are governed by
Local Tax Code.
The general rule is that a prior special law is not
ordinarily repealed by a subsequent general law. The fact
that one is special and the other general creates a
presumption that the special is to be considered as
remaining an exception of the general, one as a general
law of the land, the other as the law of a particular case.
However, the exception is when where the special
statute refers to a “subject” in general, while the general
statute treats the “subject” in particular. The exactly is
the circumstance obtaining in the case at bar. Section 17
of the Revised Charter of the City of Manila speaks of
"ordinance" in general, i.e., irrespective of the nature and
scope thereof,whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or
other charges" in particular.
In regard, therefore, to ordinances in general, the
Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity
when it approaches the realm of "ordinances levying or
20
imposing taxes, fees or other charges" in particular.
There, the Local Tax Code controls. Here, as always, a
general provision must give way to a particular
provision. 3 Special provision governs. 4 This is
especially true where the law containing the particular
provision was enacted later than the one containing the
general provision. The City Charter of Manila was
promulgated on June 18, 1949 as against the Local Tax
Code which was decreed on June 1, 1973.
2. Yes, they were considered as taxes, and hence the
Ordinance do not violate PD No. 7. Precisely, the raising
of revenues is the principal object of taxation. Under
Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own
sources of revenue and to levy taxes, subject to such
provisions as may be provided by law." 13 And one of
those sources of revenue is what the Local Tax Code
points to in particular: "Local governments may collect
fees or rentals for the occupancy or use of public markets
and premises * * *." 14 They can provide for and regulate
market stands, stalls and privileges, and, also, the sale,
lease or occupancy thereof. They can license, or permit
the use of, lease, sell or otherwise dispose of stands, stalls
or marketing privileges.
PASCUAL VS. SECRETARY OF PUBLIC WORKS
"A law appropriating the public revenue is invalid if the
public advantage or benefit, derived from such
expenditure, is merely incidental in the promotion of a
particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted
this action for declaratory relief, with injunction, upon the
ground that RA No. 920, which apropriates funds for
public works particularly for the construction and
improvement of Pasig feeder road terminals. Some of the
feeder roads, however, as alleged and as contained in the
tracings attached to the petition, were nothing but
projected and planned subdivision roads, not yet
constructed within the Antonio Subdivision, belonging to
private respondent Zulueta, situated at Pasig, Rizal; and
which projected feeder roads do not connect any
government property or any important premises to the
main highway.
The respondents' contention is that there is public purpose
because people living in the subdivision will directly be
benefitted from the construction of the roads, and the
government also gains from the donation of the land
supposed to be occupied by the streets, made by its owner
to the government.
ISSUE: Should incidental gains by the public be
considered "public purpose" for the purpose of justifying
an expenditure of the government?
HELD: No. It is a general rule that the legislature is
without power to appropriate public revenue for anything
but a public purpose. It is the essential character of the
direct object of the expenditure which must determine its
validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare,
may be ultimately benefited by their promotion.
Incidental to the public or to the state, which results from
the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid
by the use public money.
The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance
of the advantage of individuals, although each advantage
to individuals might incidentally serve the public.
ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION VS. CIR
"The taxpayer must justify his claim for tax exemption or
refund by the clearest grant of organic or statute law and
should not be permitted to stand on vague implications."
"Export processing zones (EPZA) are effectively
considered as foreign territory for tax purposes."
FACTS: Petitioner corporation, a VAT-registered
taxpayer engaged in mining, production, and sale of
various mineral products, filed claims with the BIR for
refund/credit of input VAT on its purchases of capital
goods and on its zero-rated sales in the taxable quarters of
the years 1990 and 1992. BIR did not immediately act on
the matter prompting the petitioner to file a petition for
review before the CTA. The latter denied the claims on
the grounds that for zero-rating to apply, 70% of the
company's sales must consists of exports, that the same
were not filed within the 2-year prescriptive period (the
claim for 1992 quarterly returns were judicially filed only
on April 20, 1994), and that petitioner failed to submit
substantial evidence to support its claim for
refund/credit.
The petitioner, on the other hand, contends that CTA
failed to consider the following: sales to PASAR and
PHILPOS within the EPZA as zero-rated export sales; the
21
2-year prescriptive period should be counted from the
date of filing of the last adjustment return which was April
15, 1993, and not on every end of the applicable quarters;
and that the certification of the independent CPA attesting
to the correctness of the contents of the summary of
suppliers’ invoices or receipts examined, evaluated and
audited by said CPA should substantiate its claims.
ISSUE: Did the petitioner corporation sufficiently
establish the factual bases for its applications for
refund/credit of input VAT?
HELD: No. Although the Court agreed with the
petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input
VAT must be counted from the date of filing of the
quarterly VAT return, and that sales to PASAR and
PHILPOS inside the EPZA are taxed as exports because
these export processing zones are to be managed as a
separate customs territory from the rest of the Philippines,
and thus, for tax purposes, are effectively considered as
foreign territory, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases
of capital goods and effectively zero-rated sales during
the period claimed for not being established and
substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is
regarded as in derogation of the sovereign authority, and
should be construed in strictissimi juris against the person
or entity claiming the exemption. The taxpayer who
claims for exemption must justify his claim by the clearest
grant of organic or statute law and should not be permitted
to stand on vague implications.
BOARD OF ASSESSMENT APPEALS OF LAGUNA
VS. CTA
JOHN H. OSMENA VS. OSCAR ORBOS
" To avoid the taint of unlawful delegation of the power
to tax, there must be a standard which implies that the
legislature determines matter of principle and lays down
fundamental policy."
FACTS: Senator John Osmeña assails the
constitutionality of paragraph 1c of PD 1956, as amended
by EO 137, empowering the Energy Regulatory Board
(ERB) to approve the increase of fuel prices or impose
additional amounts on petroleum products which
proceeds shall accrue to the Oil Price Stabilization Fund
(OPSF) established for the reimbursement to ailing oil
companies in the event of sudden price increases. The
petitioner avers that the collection on oil products
establishments is an undue and invalid delegation of
legislative power to tax.
Further, the petitioner points out that since a 'special fund'
consists of monies collected through the taxing power of
a State, such amounts belong to the State, although the use
thereof is limited to the special purpose/objective for
which it was created. It thus appears that the challenge
posed by the petitioner is premised primarily on the view
that the powers granted to the ERB under P.D. 1956, as
amended, partake of the nature of the taxation power of
the State.
ISSUE: Is there an undue delegation of the legislative
power of taxation?
HELD: None. It seems clear that while the funds
collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover,
that the OPSF as a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the
general fund; and while it is placed in what the law refers
to as a "trust liability account," the fund nonetheless
remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the
constitutional description of a "special fund." With
regard to the alleged undue delegation of legislative
power, the Court finds that the provision conferring the
authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by
which the authority must be exercised. In addition to the
general policy of the law to protect the local consumer by
stabilizing and subsidizing domestic pump rates, P.D.
1956 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.
BOARD OF ASSESSMENT APPEALS, PROVINCE
OF LAGUNA VS. COURT OF TAX APPEALS AND
NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY
"A tax on property of the Government, whether national
or local, would merely have the effect of taking money
from one pocket to put it in another pocket."
FACTS: National Waterworks and Sewerage Authority
(NWSA), a public corporation owned by the Government
of the Philippines as well as all property comprising
waterworks and sewerage systems placed under it, took
over the Cabuyao-Sta. Rosa-Biñan Waterworks System
in 1956. It was assessed by the Provincial Assessor of
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Laguna, for purposes of real estate taxes, on the real
properties owned by Cabuyao Waterworks.
The respondent protested claiming it is exempted from the
payment of real estate taxes in view of the nature and kind
of said property and functions and activities of petitioner.
The petitioner denied the protest arguing that such real
properties are subject to real estate tax because although
said properties belong to the Republic of the Philippines,
the same holds it, not in its governmental, political or
sovereign capacity, but in a private, proprietary or
patrimonial character, which, allegedly, is not covered by
the exemption contained in section 3(a) of Republic Act
No. 470.
ISSUE: Are the real properties owned by the respondent
public corporation subject to real estate tax?
HELD: No. Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or
political capacity and those possessed in a private,
proprietary or patrimonial character. And where the law
does not distinguish neither may we, unless there are facts
and circumstances clearly showing that the lawmaker
intended the contrary, but no such facts and circumstances
have been brought to our attention. Indeed, the noun
"property" and the verb "owned" used in said section 3(a)
strongly suggest that the object of exemption is
considered more from the view point of dominion, than
from that of domain.
Moreover, taxes are financial burdens imposed for the
purpose of raising revenues with which to defray the cost
of the operation of the Government, and a tax on property
of the Government, whether national or local, would
merely have the effect of taking money from one pocket
to put it in another pocket. Hence, it would not serve, in
the final analysis, the main purpose of taxation. What is
more, it would tend to defeat it, on account of the paper
work, time and consequently, expenses it would entail.
spare parts, for the use of industries, miners, mining
enterprises, planters and farmers". Petitioner argued that
the importation it made of gas pumps used by their
gasoline station operators should fall under such
exemptions, being directly used in its industry.
The Collector of Customs of Manila rejected the claim,
and so as the Court on Tax Appeals. The CTA noted that
the pumps imported were not used in the processing of
gasoline and other oil products but by the gasoline
stations, owned by the petitioner, for pumping out, from
underground barrels, gasoline sold on retail to customers.
ISSUE: Is the contention of the petitioner tenable? Does
the subject imports fall into the exemptions?
HELD: No. The contention runs smack against the
familiar rules that exemption from taxation is not favored,
and that exemptions in tax statutes are never presumed.
Which are but statements in adherence to the ancient rule
that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the
taxing authority.
Tested by this precept, we cannot indulge in expansive
construction and write into the law an exemption not
therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express
terms certain exemptions, those are the exemptions to be
considered, and no more. Since the law states that, to be
tax-exempt, equipment and spare parts should be "for the
use of industries", the coverage herein should not be
enlarged to include equipment and spare parts for use in
dispensing gasoline at retail.

ESSO STANDARD EASTERN, INC VS ACTING

COMMISSIONER OF CUSTOMS
"Exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the
taxing authority."

FACTS: Petitioner, engaged in the industry of processing

gasoline, oils etc., claims for the refund of special import
taxes paid pursuant to the provision of RA 1394 which
imposed a special import tax "on all goods, articles or
products imported or brought into the Philippines."
Exempt from this tax, by express mandate of Section 6 of
the same law are "machinery, equipment, accessories, and
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