City of Milwaukee V.

Milwaukee & Suburban Trans Corp

MARTIN, C. J.
The question is whether or not the "license fees" exacted under these ordinances constitute a tax for revenue or a charge for regulation or a
contract. It is undisputed that at the time the ordinances were adopted the city had authority to tax the company for revenue as well as for
regulatory purposes.
As stated in Wisconsin Telephone Co. v. Milwaukee (1905), 126 Wis. 1, 13, 104 N.W. 1009, where the power to license exists, a reasonable
discretion is vested in the municipality, but courts will look into ordinances with a view of determining whether they are passed for the purpose of
revenue, although sought to be upheld as police regulations. Cities should not be permitted, under the guise of their regulatory power, to collect
revenue for the benefit of the city regardless of the amount necessary to defray the expense of its regulation.
In its decision the trial court called attention to the fact that in the conversion ordinances the city undertook to repave and widen streets to
accommodate the trackless trolleys and bear the expense of the obligation, formerly that of the company, to repave and maintain the track zones;
that the city obligated itself to prohibit parking of automobiles along portions of the routes, in connection with which the court took judicial
notice of the fact that the city has been put to the *304 expense of acquiring property for off-street parking, an expense due in part to such parking
limitations. The court stated that the ordinances reveal substantial benefits proceeding to the company and a concurring disadvantage and expense
to the city. Therefore, it reasoned, the fees did not constitute a tax for revenue but, rather, compensation for the costs assumed and services
rendered by the city.
According to Webster's New International Dictionary (2d ed. 1954), a "tax" (noun) is:
"A charge, esp. a pecuniary burden imposed by authority; specif., a charge or burden, usually pecuniary, laid upon persons or property for public
purposes; a forced contribution of wealth to meet the public needs of a government."
To "tax" (verb) is defined as:
"To assess with, or subject to the payment of, a tax or taxes; esp., to exact money from for the support of government; ..."
In 51 Am. Jur., Taxation, p. 35, sec. 3, it is stated:
"A tax is a forced burden, charge, exaction, imposition, or contribution assessed in accordance with some reasonable rule of apportionment by
authority of a sovereign state upon the persons or property within its jurisdiction, to provide public revenue for the support of the government, the
administration of the law, or the payment of public expenses. Any payment exacted by the state or its municipal subdivisions as a contribution
toward the cost of maintaining governmental functions, where the special benefits derived from their performance is merged in the general
benefit, is a tax."
In 51 Am. Jur., Taxation, p. 34, sec. 2, it is stated:
"The term `taxation' defines the power by which the sovereign raises revenue to defray the necessary expenses of government. Taxation is merely
a way of apportioning the cost of government among those who in some measure are *305 privileged to enjoy its benefits and must bear its
burdens. The purpose of taxation on the part of government is to provide funds or property with which to promote the general welfare and
protection of its citizens. Taxation, in its broadest and most general sense, includes every charge or burden imposed by the sovereign power upon
persons, property, or property rights for the use and support of the government and to enable it to discharge its appropriate functions, and in that
broad definition there is included a proportionate levy upon persons or property and all the various other methods and devices by which revenue
is exacted from persons and property for public purposes."
In 38 Am. Jur., Municipal Corporations, p. 13, sec. 321, it is stated:
"... there is a sharp distinction between a municipal license for revenue and one for regulation under the police power; the first named is a tax and
is to be construed under the principles and rules governing taxing powers, while the latter is under the police power, looking toward the health,
morals, safety, or general welfare of the community."
The substance, and not the form, of the imposition is the test of its true character. It is stated in 4 Cooley, Taxation (4th ed.), p. 3511, sec. 1784:
"The distinction between a demand of money under the police power and one made under the power to tax is not so much one of form as of
substance. The proceedings may be the same in the two cases, though the purpose is essentially different. The one is made for regulation and the
other for revenue. If the purpose is regulation the imposition ordinarily is an exercise of the police power, while if the purpose is revenue the
imposition is an exercise of the taxing power and is a tax."
See also 9 McQuillin, Mun. Corp. (3d ed.), p. 26, sec. 26.15. The distinction between taxation for revenue and for regulation is determined by the
relationship between the cost *306 to, or services provided by, the city and the charge imposed. In 1 Cooley, Taxation (4th ed.), p. 98, sec. 27, it
is stated:
"... a charge of a fixed sum which bears no relation to the cost of inspection and which is payable into the general revenue of the state is a tax
rather than an exercise of the police power. Whether an imposition is called a license `fee' or a license `tax' is worthy of little consideration, since
its real nature is the test."
Following these rules, in Chesapeake & Potomac Telephone Co. v. Morgantown (W. Va. 1958), 105 S. E. (2d) 260, the court held "use fees"
involving no regulatory features which would bring them within the category of license fees were imposed purely for revenue purposes, and in
the absence of any delegation by the state to the municipality of the power to exact such fees the ordinance which attempted to do so was invalid.
Apparently the trial court took the view that it is sufficient in order to bring the charge under the police power for the city to show that by
adopting the conversion ordinances it assumed expenses and inconveniences not previously borne by it. That does not satisfy the test. In the first
place, we do not read out of these ordinances the same evidence of expense and disadvantage to the city that the trial court did. In most of the
instances where the city agreed to restore the track zone and where expenses for repairs or supervision were anticipated, the company either paid
a lump sum in discharge of its obligations in that respect or agreed to pay in the future as the expenses were incurred. In one ordinance the lump-
sum payment by the company amounted to $275,000.
The trial court also attributed the city's need to acquire off-street parking lots, at least in part, to the prohibition of parking at the curb for 50 feet
at trackless trolley loading *307 zones and other parking restrictions along the routes. We cannot take judicial notice of such fact. All cities in the
state have been faced with parking problems, necessitating the acquisition of off-street parking facilities for various reasons such as the increased
use of automobiles, the increased number of automobiles, and the increased population of cities.
At $10 per passenger seat the annual fees charged under these ordinances amount to over $100,000. This, we repeat, is in addition to all charges
for repaving, etc., referred to above. In Milwaukee v. Milwaukee E. R. & L. Co. (1911), 147 Wis. 458, 462, 133 N.W. 593, where the city
attempted to impose an annual license fee of $15 per streetcar, this court said:
"It is apparent on the face of the ordinance and from the amount of the fee imposed that it is an imposition for the purpose of revenue, and hence
it cannot be treated as an exaction for the purpose of covering the expense incident to the supervision and regulation of the street railway
business."
In another such case, Milwaukee E. R. & L. Co. v. Milwaukee (1918), 167 Wis. 384, 387, 167 N.W. 428, where the city again attempted to
impose the $15 fee, it was said:
"Under the ordinance in question the fee exacted was a revenue measure, therefore the ordinance cannot be upheld. ...
"Whether under the police power the city still has authority to regulate street railways by ordinance we need not consider, because it is clear that
the ordinance under consideration was not passed as a regulation but as a revenue measure."
In holding the ordinances here to be regulatory measures, the trial court relied upon Oshkosh v. Eastern Wisconsin E. Co. (1920), 172 Wis. 85,
89, 178 N.W. 308. There the city, in granting a franchise to the defendant to extend its interurban electric railroad from Fond du Lac to Oshkosh,
required the payment of $35,000 in annual instalments of *308 $1,000 each for thirty-five years. The court held that "upon the pleadings as they
stand we cannot now say as a matter of law that it clearly appears or is to be presumed" that the provision for the annual payment was a revenue-
producing measure. In that instance the city of Oshkosh had no authority to tax for revenue purposes. Thus, the court was forced to presume the
legality of the charges under the conditions set forth, and this distinguishes the case from the instant one. At the time the ordinances involved here
were adopted the city of Milwaukee had the authority to tax both for revenue and for regulation.
The factors presented in this case are, (1) the fact that at the time the ordinances were adopted the city had authority to impose upon the company
both a tax for revenue and fees for regulation; (2) the large amount of the fees; and (3) the fact that the city has not attempted to show that the fees
bear a relation to, or are an approximation of, the expenses suffered and the services rendered by the city, directly attributable to the operation of
the trackless trolley service. From a consideration of these factors we are compelled to conclude that the charges imposed constitute a tax for
revenue and are thus invalid under sec. 76.54, Stats.
In the past ten or more years while the city of Milwaukee was authorized to tax the company for revenue, municipalities generally have been
seeking new sources of revenue. Under such circumstances it is difficult to believe that the city took no advantage of its authority and that the
charges imposed by these ordinances in no way constituted the exaction of such a tax.
The basic argument of the city on appeal is that the ordinances in question are binding contracts entered into between the city and the company,
effective only upon acceptance of their terms by the company, and that the legislature has no power to impair the obligation of such contracts.
*309 It is well established that the control of streets and highways is a governmental function. As stated in 10 McQuillin, Mun. Corp. (3d ed.),
Streets and Alleys, p. 603, sec. 30.39:
"The use of streets is designed for the public at large, as distinguished from the legal entity known as the city, or municipal corporation. The
management of highways may be characterized as a municipal duty relating to governmental affairs. ... In this country the control of highways is
primarily a state duty, subject to the property rights and easements of the abutting owner, except to the extent that such control has been delegated
to the municipality. ... The reason for this is that `the highways belong to the state,' and are subject to its control and regulation."
In sec. 30.40 of the same text the author states that the extent of a city's control of its streets depends upon the legislative grant of authority, its
control pursuant to such delegation being exercised as the state's agent. In 12 McQuillin, Mun. Corp. (3d ed.), Franchises, p. 45, sec. 34.13, it is
stated:
"Primarily the legislature, representing the people at large, possesses full and paramount power over all highways, streets, and alleys in the state.
Therefore, the power to grant franchises to use the streets resides primarily in the legislature, and it has the power to grant to a public service
corporation the right to use streets without compensation to, or the consent of, the municipality, unless the particular state constitution provides
for such consent."
Further, in sec. 34.14, p. 51:
"It is undisputed that a municipal corporation has no inherent power to grant a franchise or license to use the streets and that its authority is
limited to that conferred upon it expressly or by implication by the state constitution or the legislature."
*310 See also Frederick v. Douglas County (1897), 96 Wis. 411, 71 N.W. 798; Commissioners v. Lucas (1876), 93 U.S. 108, 23 L. Ed. 822.
This fundamental concept is the basis of the rule, as stated in Douglas County v. Industrial Comm. (1957), 275 Wis. 309, 314, 81 N. W. (2d) 807:
"... the legislature may, with the consent of the other party, revoke any contract entered into by a county or other municipal corporation in
performance of a governmental function, and in so doing there is no violation of the constitutional prohibition against a state taking action to
impair the obligation of a contract. This rule is stated in 37 Am. Jur., Municipal Corporations, pp. 699, 700, sec. 89, as follows:
"`A contract to which a municipal corporation is a party, relating to a public and governmental matter, may, however, be revoked by the
legislature with the consent of the other party without thereby violating the right of the municipality.'"
The court in that case went on to discuss the decision in Worcester v. Worcester Consolidated Street R. Co. (1905), 196 U.S. 539, 25 Sup. Ct.
327, 49 L. Ed. 591, enunciating the rule, and which was cited with approval in Madison Metropolitan Sewerage Dist. v. Committee (1951), 260
Wis. 229, 50 N. W. (2d) 424. It further quoted from Trenton v. New Jersey (1923), 262 U.S. 182, 188, 43 Sup. Ct. 534, 67 L. Ed. 937, as follows:
"`The power of the state, unrestrained by the contract clause or the Fourteenth amendment, over the rights and property of cities held and used for
"governmental purposes" cannot be questioned.'"
And from Holland v. Cedar Grove (1939), 230 Wis. 177, 189, 282 N.W. 111, 282 N. W. 448:
"`Municipal corporations have no private powers or rights as against the state. They may have lawfully entered into contracts with third persons
which contracts will be protected *311 by the constitution, but beyond that they hold their powers from the state and they can be taken away by
the state at pleasure.'" (Citing cases.)
Then the court in the Douglas County Case, supra, page 315, went on to say:
"The contract rights arising under an agreement entered into by a municipality, acting in a governmental capacity, and third persons, which are
protected by the constitution against impairment by the legislature, are those of the third persons, not those of the municipality. Worcester v.
Worcester Consolidated Street R. Co., supra. This is because whenever a municipal corporation makes a contract in its governmental capacity
with a third party it is the same as if the state itself were one of the two contracting parties, the municipality being but an arm of the state."
Respondent city places a great deal of significance on the fact that the conversion ordinances called for acceptance by the company before they
would become effective, arguing that the fees therein agreed upon cannot be considered a tax because the power to tax is not exercised subject to
approval of the taxpayer. This argument would seem to ignore the fact that in a case such as this the company always has the right to contest the
reasonableness of a license fee. State ex rel. Cream City R. Co. v. Hilbert (1888), 72 Wis. 184, 39 N.W. 326. The approval of the company in
these ordinances was merely a waiver of its right to contest the reasonableness of the fees. It was certainly to the advantage of the city to obtain
such a waiver, since it thereby avoided the expense and delay of litigation.
Franchise ordinances may (as they did here) combine contractual and governmental regulations, without changing the result or affecting the
essential character of the power exercised. See 5 McQuillin, Mun. Corp. (3d ed.), Requisites and Operation of Ordinances, p. 80, sec. 15.13. The
contractual aspects of these ordinances do not change the character of the *312 fees therein imposed as the exercise of the city's authority to tax.
The city argues that it had the right to insist upon the payment of reasonable compensation for granting the company valuable rights which it
needed in order to effectuate its substitution of service, and that the reasonableness of the compensation is attested to by the fact that the company
accepted the terms and paid the fees for many years. We see no particular significance in this. At the time the ordinances were adopted by the
common council and accepted by the company, the city had the authority to tax for revenue. The company's acceptance, under those
circumstances, could only mean that it considered the fees reasonable as a tax for revenue.
Nor can we see how the nature of the license fees changed in any way because the compensation provided for in the ordinances was paid for in
annual instalments rather than a lump sum. There is no evidence that a lump-sum compensation was ever considered by the parties as due the
city, with the exception of those instances in which, the city having agreed to take over repaving of the track zones, the company obligated itself
to pay certain lump sums in discharge of its obligations with respect to the abandoned railway lines. The nature of the fees is not determined by
the method of payment but by the test, as dealt with above, of whether or not they bear any relation to the city's cost of regulationa relationship
which the city has failed to show.
The same answer applies to the city's argument that the license fees are in effect a charge for rental of the streets. Cases from other jurisdictions
are cited but we do not consider it necessary to discuss them. There are no cases in this state supporting such a view. Calling the fees a rental
charge does not change the fact that there is no evidence showing a relationship between the charge imposed and the cost to the city.
*313 The only power the city has over the use of the streets, aside from its regulatory or police power, must be delegated to it by the state.
Without such delegation of authority the city has no power to prevent the company's use of the streets in a reasonable manner consistent with
public use. We find nowhere any authority to exact from the company a price for the privilege of operating its lines, except that the state had
delegated to the city the right to tax the company for revenue. This is the only authority it had to levy on the company. The city has no right to
call such a levy a consideration for a "valuable right" which it has and which the company wants, and exact a price for it. La Crosse v. La Crosse
Gas & Electric Co. (1911), 145 Wis. 408, 130 N.W. 530. If the $10 per seat fee is a legal assessment, it necessarily must be as a tax authorized by
the state for revenue.
By the Court.Judgment reversed, and cause remanded with directions to dismiss plaintiff's complaint.

Mactan Cebu Intl Airport Authority V. Ferdinand Marcos

Since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority.
The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which
then becomes contractual and is thus covered by the non- impairment clause of the Constitution.
FACTS:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to “principally
undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City, and such other airports as may be established in the Province of Cebu. Since the time of its creation,
petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter:
“Sec. 14. Tax Exemptions. — The Authority shall be exempt from realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities.”
On October 11, 1994, however, the Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which
exempts it from payment of realty taxes.  It was also asserted that it is an instrumentality of the government performing governmental functions,
citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units:
“Section 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxx
o)    Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units”
Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government-controlled corporation
whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on January
1, 1992:
“Section 193. Withdrawal of Tax Exemption Privilege.— Unless otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
Section 234.     Exemptions from Real Property Taxes. — x x x
(a)             x x x
xxx
(e)                 x x x
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.”
ISSUE:
1.     Whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and
2.     Whether the petitioner is a “taxable person.”
HELD:
1.     NO. Section 15 of the petitioner’s Charter provides:
“Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands, buildings and other
properties, movable or immovable, belonging to or presently administered by the airports, and all assets, powers, rights, interests and privileges
relating on airport works or air operations, including all equipment which are necessary for the operations of air navigation, aerodrome control
towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways communication, the approach control office, and the area control center shall
be retained by the Air Transportation Office. No equipment, however, shall be removed by the Air Transportation Office from Mactan without
the concurrence of the Authority. The Authority may assist in the maintenance of the Air Transportation Office equipment.”
It may be reasonable to assume that the term “lands” refer to “lands” in Cebu City then administered by the Lahug Air Port and included the
parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a “transfer” of the “lands,” among other
things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the
Philippines.
This “transfer” is actually an absolute conveyance of the ownership thereof because the petitioner’s authorized capital stock consists of, inter alia,
“the value of such real estate owned and/or administered by the airports.” Hence, the petitioner is now the owner of the land in question and the
exception in Section 234(c) of the LGC is inapplicable.
2.     YES. Moreover, the petitioner cannot claim that it was never a “taxable person” under its Charter.  It was only exempted from the payment
of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person
subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had
already become, even if it be conceded to be an “agency” or “instrumentality” of the Government, a taxable person for such purpose in view of
the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies
to the petitioner.

Phil Health Care Providers Inc V. CIR

FACTS:
Petitioner Philippine Health Care Providers, Inc. is a domestic corporation engaged in providing the medical services enumerated below to
individuals who enter into health care agreements with it:
– Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet,
exercise and other healthy habits, and immunization;
– Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and
– Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on
the part of the enrolled member.

On January 27, 2000, respondent Commissioner of Internal Revenue (CIR) sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total
amount of P224,702,641.18.

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health
care program pursuant to Section 185 of the 1997 Tax Code

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

CTA’s decision: Cancelled the DST assessment. Ordered the payment of VAT deficiency.

CIR appealed the decision to the CA contending that petitioner’s health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code.

CA’s decision: The health care agreement was in the nature of a non-life insurance contract subject to DST.

SC’s decision on Petition for Review: Denied on the ground that petitioner’s health care agreement during the pertinent period was in the nature
of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares and Philamcare Health Systems, Inc. v.
CA. It ruled that petitioner’s contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because
contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax
on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business.

Petitioner filed a motion for reconsideration and supplemental motion for reconsideration.

ISSUES:
1. Whether or not petitioner as an HMO is engaged in an insurance business.
2. Whether or not petitioner is liable for the payment of DST on Health Care Agreement of HMOS in accordance with Section 185.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) – Stamp tax on fidelity bonds and other insurance policies. – On all
policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association
or company or corporation transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body
or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four
pesos (P4.00), or fractional part thereof, of the premium charged.
RULING:
1. No. Health Maintenance Organizations are not engaged in the insurance business. Under RA 7875 (or “The National Health Insurance Act of
1995”), an HMO is an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed
prepaid premium. To determine whether an HMO is an insurance business or not, one test – principal object and purpose test – may be applied,
that is to determine whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal
object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance. HMO’s principal object
and purpose is service rather than indemnity.
Additionally, petitioner is not supervised by the Insurance Commission but by the Department of Health.

2. No. Health care agreements are not subject to DST. From the language of Section 185, it is evident that two requisites must concur before the
DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be
transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).

NOTES:

Even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of
insurance.

Distinctions between a minute resolution and a decision

The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the
judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only
by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike
decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.
Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members
of the Court and certified by the Chief Justice.

Related Jurisprudence:
In Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a
contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health
service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in
favor of the member and strictly against the HMO. For this reason, SC’s ruling in Blue Cross and Philamcare are applicable in the present case.

Sison V. Ancheta

Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the
imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal
protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. Where the differentiation conforms to the practical dictates of justice and equity, similar to the standards
of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified   into different
categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make
deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or
expenses necessaryh to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income,
while continuing the system of net income taxation as regards professional and business income.
 
1.   The Constitution provides restrictions to the power to tax. 
Adversely affecting as it does property rights, both the due process and equal protection clauses may
properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that “the power to tax
involves the power to destroy.”
 
In a separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an “unfortunate
remark,” characterized it as “a flourish of rhetoric [attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes.”
 
This is merely to emphasize that it is not and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: “The web of unreality spun from Marshall’s famous dictum was
brushed away by one stroke of Mr. Justice Holmes’s pen: ‘The power to tax is not the power to destroy
while this Court sits.’
 
So it is in the Philippines.
 
  
2.   The SC ruled that, a bare allegation that Batas 135, which sets different income tax schedules for
fixed income earners and business or professional income earners, is arbitrary does not suffice to
invalidate said tax statute.
 
In the present case, the difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void on its face, he has not made out
a case. This is merely to adhere to the authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is
a need for proof of such persuasive character as would lead to such a conclusion.
 
Absent such a showing, the presumption of validity must prevail.
 
 
3.   It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that
it finds no support in the Constitution.
 
An obvious example is where it can be shown to amount to the confiscation of property. That would be a
clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to
the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum.
 
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not
for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack
on due process grounds.
 
 
4.   The Constitution does not require things which are different in fact or opinion to be treated in law as
though they were the same.”
 
Hence the constant reiteration of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz V. Araneta, this Court, through Justice J.B.L. Reyes, went so far
as to hold “at any rate, it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.’ ”
5.   Uniformity in taxation quite similar to the standard of equal protection.
 
Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: “The rule of
taxation shall be uniform and equitable.”
 
This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in
1940, when the tax “operates with the same force and effect in every place where the subject may be
found.” He likewise added: “The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable.”
 
The problem of classification did not present itself in that case. It did not arise until nine years later, when
the Supreme Court held: “Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.”
 
As clarified by Justice Tuason, where “the differentiation” complained of “conforms to the practical
dictates of justice and equity” it “is not discriminatory within the meaning of this clause and is therefore
uniform.” There is quite a similarity then to the standard of equal protection for all that is required is that
the tax “applies equally to all persons, firms and corporations placed in similar situation.”
 
 
6.   Taxpayers may be classified into different categories where it rests on real differences.
 
In this case, what misled petitioner is his failure to take into consideration the distinction between a tax
rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into
different categories. To repeat, it is enough that the classification must rest upon substantial distinctions
that make real differences.
 
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all
of them.
 
 Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no
overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because
they are in the same situation more or less.
 
On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It would not be just then to
disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the
same tax rates on the basis of gross income.
 
There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards professional and
business income.

Tio V. Videogram Regulatory Board

PD No. 1994 amended the National Internal Revenue Code providing, inter alia:  SEC. 134. There shall be collected on each processed video-
tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax.
The rationale  relates to: 1)  the proliferation  and unregulated circulation of videograms that have greatly prejudiced the operations of movie
houses and theaters, and have caused a sharp decline in theatrical attendance by at least 40% and a tremendous drop in the collection of sales,
contractor’s specific, amusement  and other taxes, thereby resultingcollectively 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) proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie
industry upon which  more than 75,000 families and 500,00 workers depend for their livelihood, but also provide an additional source of revenue
for the Government, and at the same time rationalize the heretofore distribution of videograms; 4) the rampant and unregulated showing of
obscene videogram features  constitutes a clear andpresent danger to the moral and spiritual well-being of the youth, 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 being; etc.
Tio claimed that Section 10 was unconstitutional because the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade
in violationof the due process clause of the Constitution, etc.
Issue:
Whether or not the power of taxation was validly exercised.
Ruling:
Yes.  It is  beyond serious  question that a  tax does not cease  to be valid merely because  it regulates, discourages, or  even definitely deters the
activities  taxed. The power to impose taxes is one  so unlimited in force and so searching in extent, that the courts scarcely venture to declare that
it  is subject to any restrictions whatever, except such as rest in the discretion of the authority   which exercises it. The tax imposed by the
DECREE is not only a regulatory but also a revenue measure prompted by the  realization that earnings of videogram establishments of around
P600 million per annum have not been subjected to  tax, thereby depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers  for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne
by the movie industry  which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax  burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% 
tax is 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 DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax was to favor one industry  over another.”It is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has been repeatedly held that “inequities which result from a singling out of one particular class
for taxation  or exemption infringe no constitutional limitation’.”Taxation has been made the implement of the state’s police power. At bottom,
the rate of tax is a matter better addressed to the taxing legislature.
The Supreme Court held that PD No. 1987 is constitutional. The tax provision of PD No. 1987 is not a rider.In fact, said provision is not  allied
and germane to, and is reasonably necessary for the accomplishment of, the general object of the decree, 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.
The tax imposed is not harsh and oppressive, confiscatory, and in restraint of trade.
The levy of the 30% tax is 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 Decree to protect the movie industry, the tax remains a valid imposition. That being said, the rate of tax is a
matter better addressed to the taxing legislature.
The Decree does not constitute an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD 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 to perform enforcement functions for the Board" 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 Decree is not an ex post facto law.
An ex post facto law is one which alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense. Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that the
prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore,
neither retrospective in character.
The video industry is not being over-regulated.
The video industry being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to
protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the
drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of
Mayor's permit and municipal license fees are required to engage in business.

Tolentino V. Secretary of Finance

The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have
been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT while maintaining those granted to
others, the law discriminates against the press. At any rate, it is averred, “even nondiscriminatory taxation of constitutionally guaranteed freedom
is unconstitutional”, citing in support of the case of Murdock v. Pennsylvania.Chamber of Real Estate and Builders Associations, Invc.,
(CREBA), on the other hand, asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a progressive system
of taxation”.Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would,
therefore, be to infringe a constitutional policy.
ISSUE:
Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added Tax Law should be declared
unconstitutional.
RULING:
No. With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the
privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise
of its sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. The PPI asserts that it does not really matter that the law does not discriminate against the press because
“even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional.” The Court was speaking in that case ( Murdock v.
Pennsylvania) of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it
lays a prior restraint on the exercise of its right. The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and
the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an early case that even though such taxation may affect particular contracts, as it may
increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of
another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in
its true legal sense. It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products,
food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale
of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under Section 103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to
these transactions while subjecting those of petitioner to the payment of the VAT. Finally, it is contended that R.A. No. 7716 also violates Art.
VI, Section 28(1) which provides that “The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation”. Nevertheless, equality and uniformity of taxation mean that all taxable articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement
it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in similar situation. Furthermore, the
Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress
shall “evolve a progressive system of taxation.” The constitutional provision has been interpreted to mean simply that “direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized.” The mandate to Congress is not to prescribe, but to evolve, a
progressive tax system.
It is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law
discriminates against the press.
It would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in
withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject.
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on
constitutionally guaranteed freedom is unconstitutional.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is
valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and
pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite
another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, which invalidated a city ordinance requiring a business
license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the
American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed
on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.

CREBA asserts that R.A. No. 7716

a.     impairs the obligations of contracts,
It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is
something that the buyer did not anticipate at the time he entered into the contract. Even though such taxation may affect particular contracts, as it
may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens
of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract
in its true legal sense."  Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts
as a postulate of the legal order."  Contracts must be understood as having been made in reference to the possible exercise of the rightful authority
of the government and no obligation of contract can extend to the defeat of that authority.

b.        classifies transactions as covered or exempt without reasonable basis and

That while §4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum, and medical and veterinary
services, it grants no exemption on the sale of real property which is equally essential. The sale of real property for socialized and low-cost
housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under §103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to
these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor"
and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to rent houses in the
meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax
that the State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.

c.     Violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
R.A. No. 7716 also violates Art. VI, §28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and corporations placed in similar situation.
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of the
tax.
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . . The sales tax adopted in EO 273 is applied similarly on
all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sarisari stores are consequently exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.The CREBA claims that the VAT is regressive. The law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are .
. . to be preferred [and] as much as possible, indirect taxes should be minimized." Indeed, the mandate to Congress is not to prescribe, but to
evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions.
The transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income
groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or
privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific equipment,
motion picture films, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of telephone
and telegraph.

Antonio Roxas, Eduardo Roxas V. CTA

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS,
petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and
Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Facts: Don Pedro Roxas and Dona Carmen Ayala,
Spanish subjects, transmitted to their grandchildren by hereditary succession several properties. To manage the above-mentioned properties, said
children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. At the conclusion of the
WW2, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels
which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and
apportion them among landless tenant-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas brothers agree to sell 13,500 hectares to the Goavernment for distribution to actual
occupants for a price of P2,079,048.47 plus P300,000 for survey and distribution expenses. It turned out however that the Government did not
have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y
Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement,
Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance
Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers.
The CIR demanded from Roxas y Cia. the payment of deficiency income taxes resulting from the inclusion as income of Roxas y Cia. of the
unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farmlands to the tenants, and the disallowance of
deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason
that Roxas y CIa. subdivided its Nasugbu farmlands and sold them to the farmers on installment, the Commissioner considered the partnership as
engaged in the business of real estate, hence, 100% of the profits derived there from was taxed. The Roxas brothers protested the assessment but
inasmuch as said protest was denied, they instituted an appeal in the CTA which sustained the assessment. Hence, this appeal. Issue: I. Is the gain
derived from the Nasugbu farm lands an ordinary 100% taxable? And is Roxas y Cia liable for the deficiency income for the sale farmlands?
sale of the gain, hence payment of of Nasugbu

Issue: Are the deductions for business expenses and contributions deductible?

Ruling: I. NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar circumstances inspite of the
fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for the period of 10 years, it would
nevertheless make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in mind that the sale of
the Nasugbu farmlands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request
and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable
terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the
Government’s burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been
the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the
people’s gratitude. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to section 34 of the Tax
Code, the land sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.
II. DISALLOWED DEDUCTIONS Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of
Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses.
Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business.
In the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax
Appeals must therefore be sustained (disallowed deduction). The petitioners also claim deductions for contributions to the Pasay City Police,
Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families
and Our Lady of Fatima chapel at Far Eastern University. The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen
and Baguio City Police are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the
families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for
public purposes. For this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an
allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines Herald is not
a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the contributions were not made
to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no
question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a
group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern University on the
ground that the said university gives dividends to its stockholders (it should be non-profit institution. Located within the premises of the
university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the lower
court found that it belongs to the Far Eastern University, contributions to which are notndeductible under Section 30(h) of the Tax Code for the
reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be sustained. Doctrines: I. Sale of
property by landowners to tenants under government policy to allocate lands to the landless subject not subject to real estate dealer’s tax.
II. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the “hen that lays the golden egg”.

CIR V. Algue, Inc & CTA

The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation purchased the PSEDC properties.
For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were
paid to the aforenamed individuals.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary
business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid
by the private respondent for actual services rendered. The payment was in the form of promotional fees.

ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as
legitimate business expenses in its income tax returns.

RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. 
1.   As a rule, the collection of taxes should be made in accordance with law.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should
be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved.
2.   An appeal from a decision of the Commissioner of Internal Revenue with the Court of Tax Appeals is 30 days from receipt thereof.
The chronology as shown in the case indicates that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made
within thirty days after receipt of the decision or ruling challenged.
3.   As a general rule, the warrant of distraint and levy is proof of the finality of the assessment. An exception to this rule, however, is
where there is a letter of protest after receipt of notice of assessment.
It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and "renders hopeless a request for
reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance
in the case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be served.
4.   As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not pro forma and was based on strong legal
considerations.
It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of
the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20
days of the reglementary period had been consumed.
5.   The burden rests on the taxpayer to prove validity of the claimed deduction successfully discharged.
In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the
fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in
an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
6.   What is the purpose or rationale of taxation?
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government, for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values, This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.

CIR V. Pilipinas Shell Petroleum Corp

For resolution is the Motion for Reconsideration filed by respondent Petroleum Corporation against the Decision of the SC ruling that the CTA
erred in granting Petroleum Corporation’s claim for tax refund because the IT failed to establish a tax exemption in its favor under Section 135(a)
of the NIRC. Respondent’s arguments are as follows: First, Section 135 intended the tax exemption to apply to petroleum products at the point of
production; Second, the cases of Philippine Acetylene Co., Inc. v. CIR and Maceda v. Macaraig, Jr. are inapplicable in the light of previous
rulings of the BIR and the CTA that excise tax on petroleum products sold to international carriers for the use or consumption outside the
Philippines attaches to the article when sold to said international carriers, as it is the article which is exempt from the tax and not the international
carrier; and Third, the Decision of the Court will not only have adverse impact of the domestic oil industry but also in violation of international
agreements on aviation. In his Comment, the Solicitor General cited Exxonmobil Petroleum & Chemical Holdings, Inc. v. CIR, which held that
the excise tax, when passed on to the purchaser, becomes part of the purchase price, and claimed that this refutes the respondent’s theory that the
exemption attaches to the petroleum product itself and not to the purchaser.

ISSUE: Whether Petroleum Corporation is entitled to its claim for tax refund.

RULING:
Motion Granted. Under Section 129 of the NIRC, excise taxes are those applied to goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported. Excise taxes as used in our Tax Code fall under two types – (1)
specific tax which is based on weight or volume capacity and other physical unit of measurement, and (2) ad valorem tax which is based on
selling price or other specified value of the goods. Aviation fuel is subject to specific tax under Section 148 (g) which attaches to said product as
soon as they are in existence as such. That excise tax as presently understood is a tax on property has no bearing at all on the issue of
respondent’s entitlement to refund. Nor does the nature of excise tax as an indirect tax supports respondent’s postulation that the tax exemption
provided in Sec. 135 attaches to the petroleum products themselves and consequently the domestic petroleum manufacturer is not liable for the
payment of excise tax at the point of production. As already discussed in our Decision, the accrual and payment of the excise tax on the goods
enumerated under Title VI of the NIRC prior to their removal at the place of production are absolute and admit of no exception. This also
underscores the fact that the exemption from payment of excise tax is conferred on international carriers who purchased the petroleum products
of respondent. On the basis of Philippine Acetylene, we held that a tax exemption being enjoyed by the buyer cannot be the basis of a claim for
tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. The excise tax imposed on petroleum
products under Section 148 is the direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who
are international carriers. And following our pronouncement in Maceda v. Macarig, Jr.we further ruled that Section 135(a) should be construed as
prohibiting the shifting of the burden of the excise tax to the international carriers who buy petroleum products from the local manufacturers. Said
international carriers are thus allowed to purchase the petroleum products without the excise tax component which otherwise would have been
added to the cost or price fixed by the local manufacturers or distributors/sellers. Excise tax on aviation fuel used for international flights is
practically nil as most countries are signatories to the 1944 Chicago Convention on International Aviation (Chicago Convention). Article 24 of
the Convention has been interpreted to prohibit taxation of aircraft fuel consumed for international transport. Taxation of international air travel is
presently at such low level that there has been an intensified debate on whether these should be increased to “finance development rather than
simply to augment national tax revenue” considering the “cross–border environmental damage” caused by aircraft emissions that contribute to
global warming, not to mention noise pollution and congestion at airports. Mutual exemptions given under bilateral air service agreements are
seen as main legal obstacles to the imposition of indirect taxes on aviation fuel. In response to present realities, the International Civil Aviation
Organization (ICAO) has adopted policies on charges and emission–related taxes and charges. Section 135(a) of the NIRC and earlier
amendments to the Tax Code represent our Governments’ compliance with the Chicago Convention, its subsequent resolutions/annexes, and the
air transport agreements entered into by the Philippine Government with various countries. Indeed, the avowed purpose of a tax exemption is
always “some public benefit or interest, which the law–making body considers sufficient to offset the monetary loss entailed in the grant of the
exemption.” The exemption from excise tax of aviation fuel purchased by international carriers for consumption outside the Philippines fulfills a
treaty obligation pursuant to which our Government supports the promotion and expansion of international travel through avoidance of multiple
taxation and ensuring the viability and safety of international air travel. Under the basic international law principle of pacta sunt servanda, we
have the duty to fulfill our treaty obligations in good faith. This entails harmonization of national legislation with treaty provisions. In this case,
Sec. 135(a) of the NIRC embodies our compliance with our undertakings under the Chicago Convention and various bilateral air service
agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers. In our
Decision in this case, we interpreted Section 135 (a) as prohibiting domestic manufacturer or producer to pass on to international carriers the
excise tax it had paid on petroleum products upon their removal from the place of production, pursuant to Article 148 and pertinent BIR
regulations. Ruling on respondent’s claim for tax refund of such paid excise taxes on petroleum products sold to tax–exempt international
carriers, we found no basis in the Tax Code and jurisprudence to grant the refund of an “erroneously or illegally paid” tax. Section 135 (a), in
fulfillment of international agreement and practice to exempt aviation fuel from excise tax and other impositions, prohibits the passing of the
excise tax to international carriers who buys petroleum products from local manufacturers/sellers such as respondent. However, we agree that
there is a need to reexamine the effect of denying the domestic manufacturers/sellers’ claim for refund of the excise taxes they already paid on
petroleum products sold to international carriers, and its serious implications on our Government’s commitment to the goals and objectives of the
Chicago Convention. The Chicago Convention, which established the legal framework for international civil aviation, did not deal
comprehensively with tax matters. Article 24 (a) of the Convention simply provides that fuel and lubricating oils on board an aircraft of a
Contracting State, on arrival in the territory of another Contracting State and retained on board on leaving the territory of that State, shall be
exempt from customs duty, inspection fees or similar national or local duties and charges. Subsequently, the exemption of airlines from national
taxes and customs duties on spare parts and fuel has become a standard element of bilateral air service agreements (ASAs) between individual
countries. In view of the foregoing reasons, we find merit in respondent’s motion for reconsideration. We therefore hold that respondent, as the
statutory taxpayer who is directly liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the excise taxes it paid
for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Sec. 135
(a) of the NIRC.

CIR V. Basf Coating

2/3 of BC's board members and stockholders decided to dissolve the corporation by cutting its 50-year term of existence (from 1990) short (only
until March 31, 2001). Subsequently, BC moved out of its address in Las Piñas City and transferred to Carmelray Industrial Park, Canlubang,
Calamba, Laguna
On June 26, 2001, BC submitted 2 letters to BIR. The first was a notice of dissolution. The send was a manifestation with documents supporting
said dissolution such as BIR Form 1905 which refers to an update of information contained in its tax registration. Thereafter, a FAN was sent to
BC's former address in Las Piñas City. The FAN indicated an amount of 18 million pesos representing income tax, VAT, WTC, EWT and DST
for the taxable year of 1999.
On March 5, 2004, BIR's RDO No. 39, South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint and Levy (FNB), which
was sent to the residence of one of BC's directors.
On March 19, 2004, BC filed a protest letter citing lack of due process and prescription as grounds.
After 180 days without action on the part of the CIR, BC filed a petition for review with the CTA. Trial ensued.
The CTA 1D ruled that since the CIR was actually aware of BC's new address and such error in sending should not be taken against BC.
According to the CTA 1D, since there are no valid notices sent to BC, the subsequent assessments against it are considered void.
CIR filed an MR. It was denied. So, it went to CTA en banc. The CTA En Banc held that CIR's right to assess respondent for deficiency taxes for
the taxable year 1999 has already prescribed and that the FAN issued to respondent never attained finality because BC did not receive it.
CIR filed an MR. Denied.

ISSUE #1: Was the running of the 3-year prescriptive period to assess suspended when BC failed to notify the CIR of its change of address?

No, the 3-year prescriptive period to assess was not suspended in favor of the CIR even if BC failed notify regarding its change of address.
It is true that, under the Tax Code, the running of the Statute of Limitations shall be suspended when the taxpayer cannot be located in the address
given in the return filed upon which a tax is being assessed or collected. In addition, Section 11 of RR 12-85 states that, in case of change of
address, the taxpayer is required to give a written notice thereof to the RDO or the district having jurisdiction over his former legal residence
and/or place of business. However, the Supreme Court ruled that the above-mentioned provisions on the suspension of the 3-year period to assess
apply only if the CIR is not aware of the whereabouts of the taxpayer.
In the present case, the CIR, by all indications, was well aware that BC had moved to its new address in Calamba, Laguna, as shown by the
documents which formed part of respondent's records with the BIR.
Moreover, before the FAN was sent to BC's old address, the RDO sent BC a letter regarding the results of its investigation and an invitation to an
information conference. This could not have been done without being aware of BC's new address. Finally, the PAN was "returned to sender"
before the FAN was sent. Hence, despite the absence of a formal written notice of Bc's change of address, the fact remains that petitioner became
aware of respondent's new address as shown by documents replete in its records. As a consequence, the running of the three-year period to assess
respondent was not suspended and has already prescribed.

ISSUE #2: Section 3.1.7 of BIR Revenue Regulation No. 12-99 allows "constructive service" if the assessment notice is served by registered
mail. This constructive service rule was upheld in Nava v. Commissioner of Internal Revenue. Isn't there constructive service in BC's case?
No there is none.The CIR's reliance on the provisions of Section 3.1.7 of BIR RR No. 12-9944 as well as on the case of Nava v. Commissioner of
Internal Revenue is misplaced, because in the said case, one of the requirements of a valid assessment notice is that the letter or notice must be
properly addressed. It is not enough that the notice is sent by registered mail as provided under the said RR. In the instant case, the FAN was sent
to the wrong address. Thus, the CTA is correct in holding that the FAN never attained finality because BC never received it, either actually or
constructively.

CIR V. Nippon Express Phils

Nippon is a domestic corporation. 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.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.The CTA Division partially granted Nippon's claim for tax refund, and thereby ordered the CIR to issue a tax credit certificate
in the reduced amount of P2,614,296.84It found that while Nippon timely filed its administrative and judicial claims within the two (2)-year
prescriptive period,[17] it, however, failed to show that the recipients of its services -... which, in this case, were mostly Philippine Economic
Zone Authority registered enterprises - were non-residents "doing business outside the Philippines. "Before its receipt of the August 10, 2011
Decision, or on August 12, 2011, Nippon filed a motion to withdraw,[19] considering that the BIR, acting on its administrative claim, already
issued a tax credit certificate... the CIR moved for reconsideration[20] of the August 10, 2011 Decision and filed its comment/opposition[21] to
Nippon's motion to withdraw... the CTA Division granted Nippon's motion to withdraw and, thus, considered the case closed and terminated. The
CTA En Banc affirmed the July 31, 2012 Resolution of the CTA Division granting Nippon's motion to withdraw.
Issues:
Whether the CTA properly granted Nippon's motion to withdraw.
Ruling:
A perusal of the Revised Rules of the Court of Tax Appeals[35] (RRCTA) reveals the lack of provisions governing the procedure for the
withdrawal of pending appeals before the CTA.Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules
42, 43, 44, and 46 of the Rules of Court which are equally adopted in the RRCTA[36] - states that when the case is deemed submitted for
resolution, withdrawal... of appeals made after the filing of the appellee's brief may still be allowed in the discretion of the court... withdrawal
may be allowed in the discretion of the court. While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the
authority of the foregoing legal provisions, the attendant circumstances in this case should have incited it to act otherwise. The August 10, 2011
Decision was rendered by the CTA Division after a full-blown hearing in which the parties had already ventilated their claims. The findings
contained therein were the results of an exhaustive study of the pleadings... and a judicious evaluation of the evidence... the fact that the CTA
Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled to refund the reduced amount of P2,614,296.84
since it... failed to prove that the recipients of its services were non-residents "doing business outside the Philippines"; hence, Nippon's purported
sales therefrom could not qualify as zero-rated sales, necessitating the reduction in the amount of refund claimed. The massive discrepancy alone
between the administrative and judicial determinations of the amount to be refunded to Nippon should have already raised a red flag to the CTA
Division. Clearly, the interest of... the government, and, more significantly, the public, will be greatly prejudiced by the erroneous grant of refund
- at a substantial amount at that - in favor of Nippon. In this relation, it deserves mentioning that the CIR is not estopped from assailing the
validity of the July 27, 2011 Tax Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the government
cannot be estopped by the mistakes, errors or... omissions of its agents for upon it depends the ability of the government to serve the people for
whose benefit taxes are collected. Finally Nippon's administrative claim... was already time-barred... for being filed on April 22, 2004, or beyond
the two (2)-year... prescriptive period pursuant to Section 112(A)[42] of the National Internal Revenue Code of 1997.The August 10, 2011
Decision of the CTA Division should therefore be reinstated, without prejudice, however, to the right of either party to appeal the same in
accordance with the
RRCTA.

CIR V. Dash Engineering Phils

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. 
RULING:
NO. The two-year period in Sec. 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 above quoted provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling in  San
Roque, where the Court En 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.

The Philippine Guaranty Co, Inc V. CIR & CTA

The Philippine Guaranty Co., Inc., entered into reinsurance contracts, on various dates, with foreign insurance companies not doing business in
the Philippines, thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the
Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks insured. Said reinsurrance contracts
were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in Switzerland. The reinsurance contracts made the commencement of the reinsurers'
liability simultaneous with that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to keep a
register in Manila where the risks ceded to the foreign reinsurers where entered, and entry therein was binding upon the reinsurers. A
proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The
foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine
Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty
Co., Inc. ceded to the foreign reinsurers premiums. Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it
filed its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated April 13, 1959,
the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums.
Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in
the Philippines are not subject to withholding tax. Its protest was denied and it appealed to the Court of Tax Appeals. The Court of Tax Appeals
rendered judgment ordering petitioner Philippine Guaranty Co., Inc. to pay to the CIR the withholding income taxes for the years 1953 and 1954,
plus the statutory delinquency penalties thereon. Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of
Internal Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers. Petitioner
maintains that the reinsurance premiums in question did not constitute income from sources within the Philippines because the foreign reinsurers
did not engage in business in the Philippines, nor did they have office here.

ISSUE: Whether or not the reinsurance premiums in question constitute income from sources within the Philippines?

RULING: Yes. The reinsurance contracts show that the transactions or activities that constituted the undertaking to reinsure Philippine Guaranty
Co., Inc. against lose arising from the original insurances in the Philippines was performed in the Philippines. Section 24 of the Tax Code
subjects foreign corporations to tax on their income from sources within the Philippines. The word "sources" has been interpreted as the activity,
property or service giving rise to the income. The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances. Such undertaking, as explained above,
took place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate
income tax. The foreign insurers' place of business should not be confused with their place of activity. Business should not be continuity and
progression of transactions while activity may consist of only a single transaction. An activity may occur outside the place of business. Section 24
of the Tax Code does not require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the
activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but the place of
activity that created an income. Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines
because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it merely directs
that the kinds of income mentioned therein should be treated as income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise. 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 reinsurer’s exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state. In respect to the question of whether or not reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax
Code, suffice it to state that this question has already been answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal
Revenue, L-19393, April 14, 1965. Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to
the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no
withholding tax was due. Section 54 of the Tax Code allows no deduction from the income therein enumerated in determining the amount to be
withheld. According, in computing the withholding tax due on the reinsurance premium in question, no deduction shall be recognized.

Batangas City V. Pilipinas Shell Petroleum Corp

Batangas City sent Shell a notice of assessment demanding the payment of P92,373,720.50 and P312,656,253.04 as business taxes for its
manufacture and distribution of petroleum products. In addition, Shell was required and assessed to pay the amount of P4,299,851.00 as Mayor's
Permit Fee based on the gross sales of its Tabagao Refinery.
Shell protested the assessment saying that it is not liable to pay the amount and that the Mayor's Permit Fees are exorbitant, confiscatory,
arbitrary, unreasonable and not commensurable with the cost of issuing a license. Shell paid under protest.
ISSUE: Does Batangas have the power to collect taxes from Shell on its manufacture and distribution of petroleum products?
HELD: No, Batangas does not have said power under the Local Government Code.Section 133 of the LGC puts a limitation on LGUs power to
tax. They shall have no power to levy taxes, fees or charges on petroleum products. Thus, the omnibus grant of power to LGUs under Section
143(h) of the LGC cannot overcome the specific exception or exemption in Section 133(h) of the same Code.

Film Development Council of the Phils V. Colon Heritage Realty Corp

On 1993 Cebu City passed City Ordinance No. LXIX: Revised Omnibus Tax Ordinance of the City of Cebu, Sections 42 and 43, Chapter XI of
the Ordinance required proprietors, lessees or operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement
to pay amusement tax equivalent to 30% of the gross receipts of the admission fees to the Office of the City Treasurer of Cebu City.On June 7,
2002, Congress passed RA 9167 creating FDCP.  Sections 13 and 14 thereof provide that the amusement tax on certain graded films which would
otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in the
Philippines during the period the graded film is exhibited, should be deducted and withheld by the proprietors, operators or lessees of theaters or
cinemas and remitted to the FDCP which shall reward the same to producers of the graded films.  
RTC: Granted Cebu City and CHRC separate petition for declaratory relief before the RTC Cebu City which sought to declare Sections 13 and 14
of RA 9167 invalid and unconstitutional.
ISSUE: W/N doctrine of operative fact in relation to the declaration of Sections 13 and 14 of RA 9167 as invalid and unconstitutional.

RULING:  YES.  The operative fact doctrine equally applies to the non-remittance by proprietors since the law produced legal effects prior to the
declaration of the nullity of Sections 13 and 14 of RA 9167.
The operative fact doctrine recognizes the existence and validity of a legal provision prior its being declared as unconstitutional and legitimizes
otherwise invalid acts done pursuant thereto because of considerations of practicality and fairness.  In this regard, certain acts done pursuant to a
legal provision which was just recently declared as unconstitutional by the Court cannot be anymore undone because not only would it be highly
impractical to do so, but more so, unfair to those who have relied on the said legal provision prior to the time it was struck down.The right to
receive the amusement taxes accrued the moment the taxes were deemed payable under the provisions of the Omnibus Tax Ordinance of Cebu
City. 
 Taxes, once due, must be paid without delay to the taxing authority
 Taxes are the lifeblood of Government and their prompt and certain availability is an imperious need.  This flows
from the truism that without taxes, the government would be paralyzed for lack of the motive power to activate and
operate it.  
 The prompt payment of taxes to the rightful authority, cannot be left to the whims of taxpayers.  To rule otherwise
would be to acquiesce to the norm allowing taxpayers to reject payment of taxes under the supposition that the law
imposing the same is illegal or unconstitutional.  This would unduly hamper government operations. 

Pepsi Cola Bottling Co V. Municipality of Tanauan Leyte

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved Ordinance No. 23 which
levies and collects “from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked.”In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects “on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume capacity.”Pepsi Cola assailed the
validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers
the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose
percentage or specific taxes.Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers
to local government units; that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive.The Municipality
assailed the arguments presented by Pepsi Cola. It argued, among others, that only Ordinance No. 27 is being enforced and that the latter law is
an amendment of Ordinance No. 23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double taxation.
RULING: 
No.  There is no undue delegation. The Constitution even allows such delegation. Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to tax. Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to levy taxes.Section 5, Article XI provides: “Each
local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by
law.” Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and
vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Cola’s assertion that the delegation of taxing power in
itself constitutes double taxation cannot be merited. It must be observed that the delegating authority specifies the limitations and enumerates the
taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious
only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in
a case where one tax is imposed by the State and the other by the city or municipality.
The power of taxation may be delegated to local governments in respect of matters of local concern. This is sanctioned by immoral practice. By
necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to
confer on such local governmental agencies the power to tax.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant’s pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not limited to the exact measure of that which is exercised by itself.When it
is said that the taxing power may be delegated to municipalities and the like, it is meant taxes there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the State has not deemed wise to tax for more general purposes.
The taking of property without due process of law may not be passed over under the guise of taxing power, except when the latter is exercised
lawfully.This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when: the tax is for a
public purpose; the rule on uniformity of taxation is observed; either the person or property taxed is within the jurisdiction of the government
levying the tax; and in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided.
 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised.
Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against
double taxation found in the Constitution of the United States and some states of the Union.Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where
one tax is imposed by the State and the other by the city of municipality.
The imposition of “a tax of one centavo (P0.01) on each gallon (128 flued ounces, U.S.) of volume capacity” on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The
tax is levied on the produce (whether sold or not) and not on the sales.
The volume capacity of the taxpayer’s production of soft drinks is considered solely for purposes of determining the tax rate on the products, but
there is no set ratio between the volume of sales and the amount of the tax.Specific taxes are those imposed on specified articles, such as distilled
spirits, wines, cigars and cigarettes, matches, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs.Soft drinks is not one of those specified.
The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft drinks, produced or manufactured, or an
equivalent of 1½ centavos per case, cannot be considered unjust and unfair.An increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable taxes.This is in
line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is
given expression in the Local Tax Code. Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable.
The municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners imposed on manufacturers, producers,
importers and dealers of soft drinks and/or mineral waters appears not to affect the resolution of the validity of Ordinance No. 27.Municipalities
are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality.

Pepsi V. City of Butuan

Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of softdrinks or carbonated drinks. The tax was
imposed upon dealers engeged in selling softdrinks or carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee
of any person, association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with “agent or consignee”
being particularly defined on the inserted provision Section 3-A. In effect, merchants engaged in the sale of softdrinks, etc. are not subject to the
tax unless they are agents or consignees of another dealer who must be one engaged  in business outside the City. Pepsi-Cola Bottling Co. filed
suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.

ISSUE: Whether the Ordinance is discriminatory.

RULING: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside dealers would be subject to the
tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if the same exceeded
those made by said agents or consignees of producers or merchants established outside the city, would be exempt from the tax. The classification
made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial
distinctions which makes real differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to
present conditions but also to future conditions substantially identical to those of the present; and the classification applies equally to all those
who belong to the same class. These conditions are not fully met by the ordinance in question.
Hon. Exec Sec V. Southwing Heavy Industries, et al

This instant consolidated petitions seek to annul the decisions of the Regional Trial Court which declared Article 2, Section 3.1 of Executive
Order 156 unconstitutional. Said EO 156 prohibits the importation of used vehicles in the country inclusive of the Subic Bay Freeport Zone.
FACTS  On December 12, 2002, President Gloria Macapagal Arroyo issued Executive Order 156 entitled "Providing for a comprehensive
industrial policy and directions for the motor vehicle development program and its implementing guidelines." The said provision prohibits the
importation of all types of used motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone, subject to a few exceptions.
Consequently, three separate actions for declaratory relief were filed by Southwing Heavy Industries Inc, Subic Integrated Macro Ventures Corp,
and Motor Vehicle Importers Association of Subic Bay Freeport Inc. praying that judgment be rendered declaring Article 2, Section3.1 of the EO
156 unconstitutional and illegal.
The RTC rendered a summary judgment declaring that Article 2, Section 3.1 of EO 156 constitutes an unlawful usurpation of legislative power
vested by the Constitution with Congress and that the proviso is contrary to the mandate of Republic Act 7227(RA 7227) or the Bases Conversion
and Development Act of 1992 which allows the free flow of goods and capital within the Freeport.The petitioner appealed in the CA but was
denied on the ground of lack of any statutory basis for the President to issue the same. It held that the prohibition on the importation of use motor
vehicles is an exercise of police power vested on the legislature and absent any enabling law, the exercise thereof by the President through an
executive issuance is void.

ISSUE Whether or not Article2, Section 3.1 of EO 156 is a valid exercise of the President’s quasi-legislative power.
RULING:
Yes. Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general
welfare of society. It is lodged primarily with the legislature. By virtue of a valid delegation of legislative power, it may also be exercised by the
President and administrative boards, as well as the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers
upon the President quasi-legislative power which may be defined as the authority delegated by the law-making body to the administrative body to
adopt rules and regulations intended to carry out the provisions of the law and implement legislative policy provided that it must comply with the
following requisites: (1) Its promulgation must be authorized by the legislature; (2) It must be promulgated in accordance with the prescribed
procedure; (3) It must be within the scope of the authority given by the legislature; and (4) It must be reasonable. The first requisite was actually
satisfied since EO 156 has both constitutional and statutory bases. Anent the second requisite, that the order must be issued or promulgated in
accordance with the prescribed procedure, the presumption is that the said executive issuance duly complied with the procedures and limitations
imposed by law since the respondents never questioned the procedure that paved way for the issuance of EO 156 but instead, what they
challenged was the absence of substantive due process in the issuance of the EO.
In the third requisite, the Court held that the importation ban runs afoul with the third requisite as administrative issuances must not be ultra vires
or beyond the limits of the authority conferred. In the instant case, the subject matter of the laws authorizing the President to regulate or forbid
importation of used motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its application by extending the prohibition
on the importation of used cars to the Freeport, which RA 7227, considers to some extent, a foreign territory. The domestic industry which the
EO seeks to protect is actually the "customs territory" which is defined under the Rules and Regulations Implementing RA 7227 which states:
"the portion of the Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of the Philippines and other national tariff and
customs laws are in force and effect."
Regarding the fourth requisite, the Court finds that the issuance of EO is unreasonable. Since the nature of EO 156 is to protect the domestic
industry from the deterioration of the local motor manufacturing firms, the Court however, finds no logic in all the encompassing application of
the assailed provision to the Freeport Zone which is outside the customs territory of the Philippines. As long as the used motor vehicles do not
enter the customs territory, the injury or harm sought to be prevented or remedied will not arise.
The Court finds that Article 2, Section 3.1 of EO 156 is VOID insofar as it is made applicable within the secured fenced-in former Subic Naval
Base area but is declared VALID insofar as it applies to the customs territory or the Philippine territory outside the presently secured fenced-in
former Subic Naval Base area as stated in Section 1.1 of EO 97-A (an EO executed by Pres. Fidel V. Ramos in 1993 providing the Tax and Duty
Free Privilege within the Subic Freeport Zone). Hence, used motor vehicles that come into the Philippine territory via the secured fenced-in
former Subic Naval Base area may be stored, used or traded therein, or exported out of the Philippine territory, but they cannot be imported into
the Philippine territory outside of the secured fenced-in former Subic Naval Base area. Petitions are PARTIALLY GRANTED provided that said
provision is declared VALID insofar as it applies to the Philippine territory outside the presently fenced-in former Subic Naval Base area and
VOID with respect to its application to the secured fenced-in former Subic Naval Base area.

Cervantes V. Auditor Gen

This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters allowance as manager of the National Abaca
and Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a resolution of the Board of Directors of
this corporation approved on January 19 of that year, he was granted quarters allowance of not exceeding P400 a month effective the first of that
month. Submitted the Control Committee of the Government Enterprises Council for approval, the said resolution was on August 3, 1949,
disapproved by the said Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the Auditor General, (1) that
quarters allowance constituted additional compensation prohibited by the charter of the NAFCO, which fixes the salary of the general manager
thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial condition of the corporation did not warrant the granting of
such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim for allowance for January to June
15, 1949, amounting to P1,650. The claim was again referred by the Control Committee to the auditor General for comment. The latter, in turn
referred it to the NAFCO auditor, who reaffirmed his previous recommendation and emphasized that the fact that the corporation's finances had
not improved. In view of this, the auditor General also reiterated his previous opinion against the granting of the petitioner's claim and so
informed both the Control Committee and the petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on June 19,
1950, of his refusal to modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital stock of P20,000,000, 51 per cent of
which was to be able to be subscribed by the National Government and the remainder to be offered to provincial, municipal, and the city
governments and to the general public. The management the corporation was vested in a board of directors of not more than 5 members appointed
by the president of the Philippines with the consent of the Commission on Appointments. But the corporation was made subject to the provisions
of the corporation law in so far as they were compatible with the provisions of its charter and the purposes of which it was created and was to
enjoy the general powers mentioned in the corporation law in addition to those granted in its charter. The members of the board were to receive
each a per diem of not to exceed P30 for each day of meeting actually attended, except the chairman of the board, who was to be at the same time
the general manager of the corporation and to receive a salary not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among other things, to effect such reforms
and changes in government owned and controlled corporations for the purpose of promoting simplicity, economy and efficiency in their operation
Pursuant to this authority, the President on October 4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises Council to
be composed of the President of the Philippines as chairman, the Secretary of Commerce and Industry as vice-chairman, the chairman of the
board of directors and managing heads of all such corporations as ex-officio members, and such additional members as the President might
appoint from time to time with the consent of the Commission on Appointments. The council was to advise the President in the excercise of his
power of supervision and control over these corporations and to formulate and adopt such policy and measures as might be necessary to
coordinate their functions and activities. The Executive Order also provided that the council was to have a Control Committee composed of the
Secretary of Commerce and Industry as chairman, a member to be designated by the President from among the members of the council as vice-
chairman and the secretary as ex-officio member, and with the power, among others (1) To supervise, for and under the direction of the President,
all the corporations owned or controlled by the Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the respective Boards of Directors of the said
corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the approval of the President. (Sec. 3,
Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its directors vested in the President of the Philippines, there can
be no question that the NAFCO is Government controlled corporation subject to the provisions of Republic Act No. 51 and the executive order
(No. 93) promulgated in accordance therewith. Consequently, it was also subject to the powers of the Control Committee created in said
executive order, among which is the power of supervision for the purpose of insuring efficiency and economy in the operations of the corporation
and also the power to pass upon the program of activities and the yearly budget of expenditures approved by the board of directors. It can hardly
be questioned that under these powers the Control Committee had the right to pass upon, and consequently to approve or disapprove, the
resolution of the NAFCO board of directors granting quarters allowance to the petitioners as such allowance necessarily constitute an item of
expenditure in the corporation's budget. That the Control Committee had good grounds for disapproving the resolution is also clear, for, as
pointed out by the Auditor General and the NAFCO auditor, the granting of the allowance amounted to an illegal increase of petitioner's salary
beyond the limit fixed in the corporate charter and was furthermore not justified by the precarious financial condition of the corporation.
ISSUE: Whether Executive Order No. 93 is null and void
RULING: It’s obvious that under the above rule the said executive order was promulgated within the period given. The second ground ignores
the rule that in the computation of the time for doing an act, the first day is excluded and the last day included (Section 13 Rev. Ad. Code.) As the
act was approved on October 4, 1946, and the President was given a period of one year within which to promulgate his executive order and that
the order was in fact promulgated on October 4, 1947.As to the first ground, the rule is that so long as the Legislature "lays down a policy and a
standard is established by the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes in government-controlled corporations, lays down a standard and policy that the purpose
shall be to meet the exigencies attendant upon the establishment of the free and independent government of the Philippines and to promote
simplicity, economy and efficiency in their operations. The standard was set and the policy fixed. The President had to carry the mandate. This he
did by promulgating the executive order in question which, tested by the rule above cited, does not constitute an undue delegation of legislative
power.

Maceda V. Macaraig

1.    On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic
power and the production of power from other sources.
2.       On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges - exempt from all taxes, duties, fees, imposts,
charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities.
3.       On January 22, 1974, Presidential Decree No. 380 amended it - the exemption of NPC from such taxes, duties, fees, imposts and other
charges imposed "directly or indirectly," on all petroleum products used by NPC in its operation. 
4.       On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of government-owned or controlled
corporations including their subsidiaries. However, said law empowered the President and/or the then Minister of Finance, upon recommendation
of the FIRB to restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and coverage of any applicable tax and duty.
5.       On January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges effective July 1,
1985.
6.       However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty incentives granted to government and
private entities which had been restored under Presidential Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the
scope and prescribe the date of effectivity of such tax and/or duty exemptions.
7.       On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective March 10, 1987. 

Issues:
Whether petitioner have the standing to challenge the questioned orders and resolution.
Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment of P.D. No. 938 on May 27, 1976
which amended P.D. No. 380, issued on January 11, 1974.
Ruling:
First issue:
Petitioner, as a taxpayer, may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The
petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil
companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.
Difference between Direct tax and an Indirect Tax:
A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in. Examples are the custom duties and  ad
valorem taxes paid by the oil companies to the Bureau of Customs for their importation of crude oil, and the specific and  ad valorem taxes they
pay to the Bureau of Internal Revenue after converting the crude oil into petroleum products.On the other hand, "indirect taxes are taxes primarily
paid by persons who can shift the burden upon someone else ." For example, the excise and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the
"cash" and/or "selling price."

Second Issue:
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all  taxes, duties, fees, imposts, charges,
etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380,
made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products
used in its operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts
NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in
any court or administrative proceedings. The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the NPC "shall devote all its returns from its
capital investment as well as excess revenues from its operation, for expansion. 
Petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax exemptions to NPC.Moreover, it is
a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision
or instrumentality.

CIR V. Central Luzon Drug

Respondents operated six drugstores under the business name Mercury Drug. From January to December 1996 respondent granted 20% sales
discount to qualified senior citizens on their purchases of medicines pursuant to RA 7432 for a total of ₱ 904,769. On April 15, 1997, respondent
filed its annual Income Tax Return for taxable year 1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim
for tax refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals. The court dismissed the same but upon reconsideration, the latter reversed its earlier
ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon
Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there are other
situations which may warrant a tax credit/refund.CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on their purchase of medicine from any
private establishment in the country. The latter may then claim the cost of the discount as a tax credit. Such credit can be claimed even if the
establishment operates at a loss.
A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an “allowance against the tax itself” or “a
deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is subtraction “from income for tax
purposes,” or an amount that is “allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is
due.” In other words, whereas a tax credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable
income.
A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be applied.  Without that
liability, any tax credit application will be useless.  There will be no reason for deducting the latter when there is, to begin with, no existing
obligation to the government.  However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as the
availment or use of such credit.  While the grant is mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are
currently due from, a business establishment, there will obviously be no tax liability against which any tax credit can be applied.  For the
establishment to choose the immediate availment of a tax credit will be premature and impracticable.
Secretary V. Lazatin

In response to reports of smuggling of petroleum and petroleum products and to ensure the correct taxes are paid and collected, petitioner
Secretary of Finance Cesar V. Purisima - pursuant to his authority to interpret tax laws  and upon the recommendation of petitioner Commissioner
of Internal Revenue (CIR) Kim S. Jacinto-Henares signed RR 2-2012 on February 17, 2012.The RR requires the payment of value-added tax
(VAT) and excise tax on the importation of all petroleum and petroleum products coming directly from abroad and brought into the
Philippines, including Freeport and economic zones (FEZs).It then allows the credit or refund of any VAT or excise tax paid if the taxpayer
proves that the petroleum previously brought in has been sold to a duly registered FEZ locator and used pursuant to the registered activity of such
locator. In other words, an FEZ locator must first pay the required taxes upon entry into the FEZ of a petroleum product, and must thereafter
prove the use of the petroleum product for the locator's registered activity in order to secure a credit for the taxes paid. On March 7, 2012,
Carmelo F. Lazatin, in his capacity as Pampanga First District Representative, filed a petition for prohibition and injunction  against the
petitioners to annul and set aside RR 2-2012.Lazatin posits that Republic Act No. (RA) 9400  treats the Clark Special Economic Zone and Clark
Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate customs territory and allows tax and duty-free importations of raw
materials, capital and equipment into the zone. Thus, the imposition of VAT and excise tax, even on the importation of petroleum products into
FEZs (like Clark FEZ), directly contravenes the law. The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in the
proceedings as a co-petitioner and accordingly entered its appearance and moved for leave of court to file its petition-in-intervention. EPEC
claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is implemented. EPEC insists that RR 2-2012's mechanism of requiring
even locators to pay the tax first and to subsequently claim a credit or to refund the taxes paid effectively removes the locators' tax-exempt status.
The RTC initially issued a temporary restraining order to stay the implementation of RR 2-2012. It eventually issued a writ of preliminary
injunction in its order dated April 4, 2012.The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a petition
for certiorari9 before the Court of Appeals (CA) assailing the RTC's order. The CA granted the and denied the respondents' subsequent motion
for reconsideration.The respondents stood their ground by filing a petition for review on  certiorari before this Court (G.R. No. 208387) to
reinstate the RTC's injunction against the implementation of RR 2-2012, and by moving for the issuance of a temporary restraining order and/or
writ of preliminary injunction. We denied the motion but nevertheless required the petitioners to comment on the petition. The proceedings before
the RTC in the meanwhile continued. On April 18, 2012, petitioner Lazatin amended his original petition, converting it to a petition for
declaratory relief. The RTC admitted the amended petition and allowed EPEC to intervene In its decision dated November 8, 2013, the RTC
ruled in favor of Lazatin and EPEC. First, on the procedural aspect, the RTC held that the original petition's amendment is allowed by the rules
and that amendments are largely preferred; it allowed the amendment in the exercise of its sound judicial discretion to avoid multiplicity of suits
and to give the parties an opportunity to thresh out the issues and finally reach a conclusion. Second, the RTC held that Lazatin and EPEC had
legal standing to question the validity of RR 2-2012. Lazatin's allegation that RR 2-2012 effectively amends and modifies RA 9400 gave him
standing as a legislator: the amendment of a tax law is a power that belongs exclusively to Congress. Lazatin's allegation, according to the RTC,
sufficiently shows how his rights, privileges, and prerogatives as a member of Congress were impaired by the issuance of RR 2-2012.The RTC
also ruled that the case warrants a relaxation on the rules on legal standing because the issues touched upon are of transcendental importance. The
trial court considered the encompassing effect that RR 2-2012 may have in the numerous freeport and economic zones in the Philippines, as well
as its potential impact on hundreds of investors operating within the zones. The RTC then held that even if Lazatin does not have legal standing,
EPEC's intervention cured this defect: EPEC, as a locator within the Clark FEZ, would be adversely affected by the implementation of RR 2-
2012.Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400 because it imposes taxes that, by law, are not due in
the first place.14 Since RA 9400 clearly grants tax and duty-free incentives to Clark FEZ locators, a revocation of these incentives by an RR
directly contravenes the express intent of the Legislature.15 In effect, the petitioners encroached upon the prerogative to enact, amend, or repeal
laws, which the Constitution exclusively granted to Congress.
The Petition
The petitioners anchor their present petition on two arguments: 1) respondents have no legal standing, and 2) RR 2-2012 is valid and
constitutional.
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail the validity of RR 2-2012.
First, the petitioners claim that Lazatin does not have the requisite legal standing as he failed to exactly show how the implementation of RR 2-
2012 would impair the exercise his official functions. Respondent Lazatin merely generally alleged that his constitutional prerogatives to pass or
amend laws were gravely impaired or were about to be impaired by the issuance of RR 2-2012. He did not specify the power that he, as a
legislator, would be encroached upon.
While the Clark FEZ is within the district that respondent Lazatin represents, the petitioners emphasize that Lazatin failed to show that he is
authorized to file a case on behalf of the locators in the FEZ, the local government unit, or his constituents in general.  To the petitioners, if RR 2-
2012 ever caused injury to the locators or to any of Lazatin's constituents, only these injured parties possess the personality to question the
petitioners' actions; respondent Lazatin cannot claim this right on their behalf.
The petitioners claim, too, that the RTC should not have brushed aside the rules on standing on account of transcendental importance. To them,
this case does not involve public funds, only a speculative loss of profits upon the implementation of RR 2-2012; nor is Lazatin a party with more
direct and specific interest to raise the issues in his petition. 18 Citing Senate v. Ermita, the petitioners argue that the rules on standing cannot be
relaxed.
Second, petitioners also argue that EPEC does not have legal standing to intervene. That EPEC will ultimately bear the VAT and excise tax as an
end-user, is misguided. The burden of payment of VAT and excise tax may be shifted to the buyer 21 and this burden, from the point of view of the
transferee is no longer a tax but merely a component of the cost of goods purchased. The statutory liability for the tax remains with the seller.
Thus, EPEC cannot say that when the burden is passed on to it, RR 2-2012 effectively imposes tax on it as a Clark FEZ locator.
The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers of petroleum products. If EPEC is indeed a locator, then
it enjoys tax and duty exemptions granted by RA 9400 so long as it does not bring the petroleum or petroleum products to the Philippine customs
territory.
The petitioners legally argue that RR 2-2012 is valid and constitutional.
First, petitioner submit that RR 2-2012's issuance and implementation are within their powers to undertake.  RR 2-2012 is an administrative
issuance that enjoys the presumption of validity in the manner that statutes enjoy this presumption; thus, it cannot be nullified without clear and
convincing evidence to the contrary.
Second, petitioners contend that while RA 9400 does grant tax and customs duty incentives to Clark FEZ locators, there are conditions before
these benefits may be availed of. The locators cannot invoke outright exemption from VAT and excise tax on its importations without first
satisfying the conditions set by RA 9400, that is, the importation must not be removed from the FEZ and introduced into the Philippine customs
territory.
These locators enjoy what petitioners call a qualified tax exemption. They must first pay the corresponding taxes on its imported petroleum. Then,
they must submit the documents required under RR 2-2012. If they have sufficiently shown that the imported products have not been removed
from the FEZ, their earlier payment shall be subject to a refund.
The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax exemption privilege. The regulation simply requires proof that a
locator has complied with the conditions for tax exemption. If the locator cannot show that the goods were retained and/or consumed within the
FEZ, such failure creates the presumption that the goods have been introduced into the customs territory without the appropriate permits. 26 On the
other hand, if they have duly proven the disposition of the goods within the FEZ, their "advance payment" is subject to a refund. Thus, to the
petitioners, to the extent that a refund is allowable, there is in reality a tax exemption.27
Counter-arguments
Respondents Lazatin and EPEC, maintaining that they have standing to question its validity, insist that RR 2-2012 is unconstitutional.
Respondents have standing asdlawmaker and FEZ locator.
The respondents argue that a member of Congress has standing to protect the prerogatives, powers, and privileges vested by the Constitution in
his office.28 As a member of Congress, his standing to question executive issuances that infringe on the right of Congress to enact, amend, or
repeal laws has already been recognized. He suffers substantial injury whenever the executive oversteps and intrudes into his power as a
lawmaker. On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs. Thus, being a Clark FEZ locator, EPEC is among
the many businesses that would have been directly affected by its implementation.RR 2-2012 illegally imposes taxes
on Clark FEZs.The respondents underscore that RA 9400 provides FEZ locators certain incentives, such as tax- and duty-free importations of raw
materials and capital equipment. These provisions of the law must be interpreted in a way that will give full effect to law's policy and objective,
which is to maximize the benefits derived from the FEZs in promoting economic and social development.They admit that the law subjects to
taxes and duties the goods that were brought into the FEZ and subsequently introduced to the Philippine customs territory. However, contrary to
petitioners' position that locators' tax and duty exemptions are qualified, their incentives apply automatically.
According to the respondents, petitioners' interpretation of the law contravenes the policy laid down by RA 9400, because it makes the incentives
subject to a suspensive condition. They claim that the condition — the removal of the goods from the FEZ and their subsequent introduction to
the customs territory — is resolutory; locators enjoy the granted incentives  upon bringing the goods into the FEZ. It is only when the goods are
shown to have been brought into the customs territory will the proper taxes and duties have to be paid. RR 2-2012 reverses this process by
requiring the locators to pay "advance" taxes and duties first and to subsequently prove that they are entitled to a refund, thereafter. RR 2-2012
indeed allows a refund, but a refund of taxes that were not due in the first place.The respondents add that even the refund mechanism under RR 2-
2012 is problematic. They claim that RR 2-2012 only allows a refund when the petroleum products brought into the FEZ are subsequently  sold to
FEZ locators or to entities that similarly enjoy exemption from direct and indirect taxes. The issuance does not envision a situation where the
petroleum products are directly brought into the FEZ and are consumed by the same entity/locator. Further, the refund process takes a
considerable length of time to secure, thus requiring cash outlay on the part of locators; even when the claim for refund is granted, the refund will
not be in cash, but in the form of a Tax Credit Certificate (TCC).As the challenged regulation directly contravenes incentives legitimately granted
by a legislative act, the respondents argue that in issuing RR 2-2012, the petitioners not only encroached upon congressional prerogatives and
arrogated powers unto themselves; they also effectively violated, brushed aside, and rendered nugatory the rigorous process required in enacting
or amending laws.
ISSUES:
I. Whether respondents Lazatin and EPEC have legal standing to bring the action of declaratory relief; and
II. Whether RR 2-2012 is valid and constitutional.
RULING:
We do not find the petition meritorious. Respondents have legal standing to file petition for declaratory relief.
The party seeking declaratory relief must have a  legal interest in the controversy for the action to prosper. This interest must be material not
merely incidental. It must be an interest that which will be affected by the challenged decree, law or regulation. It must be a present substantial
interest, as opposed to a mere expectancy or a future, contingent, subordinate, or consequential interest. Moreover, in case the petition for
declaratory relief specifically involves a question of constitutionality, the courts will not assume jurisdiction over the case unless the person
challenging the validity of the act possesses the requisite legal standing to pose the challenge.Locus standi is a personal and substantial interest in
a case such that the party has sustained or will sustain direct injury as a result of the challenged governmental act. The question is whether the
challenging party alleges such personal stake in the outcome of the controversy so as to assure the existence of concrete adverseness that would
sharpen the presentation of issues and illuminate the court in ruling on the constitutional question posed.We rule that the respondents satisfy these
standards.
Lazatin has legal standing as a legislator.Lazatin filed the petition for declaratory relief before the RTC in his capacity as a member of Congress.
He alleged that RR 2-2012 was issued directly contravening RA 9400, a legislative enactment. Thus, the regulation encroached upon the
Congress' exclusive power to enact, amend, or repeal laws. According to Lazatin, a member of Congress has standing to challenge the validity of
an executive issuance if it tends to impair his prerogatives as a legislator. We agree with Lazatin. In Biraogo v. The Philippine Truth
Commission, we ruled that legislators have the legal standing to ensure that the prerogatives, powers, and privileges vested by the Constitution in
their office remain inviolate. To this end, members of Congress are allowed to question the validity of any official action that infringes on their
prerogatives as legislators.Thus, members of Congress possess the legal standing to question acts that amount to a usurpation of the legislative
power of Congress. Legislative power is exclusively vested in the Legislature. When the implementing rules and regulations issued by the
Executive contradict or add to what Congress has provided by legislation, the issuance of these rules amounts to an undue exercise of legislative
power and an encroachment of Congress' prerogatives.
To the same extent that the Legislature cannot surrender or abdicate its legislative power without violating the Constitution, so also is a
constitutional violation committed when rules and regulations implementing legislative enactments are contrary to existing statutes. No law can
be amended by a mere administrative rule issued for its implementation; administrative or executive acts are invalid if they contravene the laws or
to the Constitution.
Thus, the allegation that RR. 2-2012 — an executive issuance purporting to implement the provisions of the Tax Code — directly contravenes
RA 9400 clothes a member of Congress with legal standing to question the issuance to prevent undue encroachment of legislative power by the
executive.
EPEC has legal standing as a
Clark FEZ locator.
EPEC intervened in the proceedings before the RTC based on the allegation that, as a Clark FEZ locator, it will be directly affected by the
implementation of RR 2-2012.
We agree with EPEC.
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and applies to all petroleum and petroleum products that are
imported directly from abroad to the Philippines, including FEZs.53
As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum products will be directly affected by RR 2-2012. Thus, its
interest in the subject matter — a personal and substantial one — gives it legal standing to question the issuance's validity.
In sum, the respondents' respective interests in this case are sufficiently substantial to be directly affected by the implementation of RR 2-2012.
The RTC therefore did not err when it gave due course to Lazatin's petition for declaratory relief as well as PEC's petition-in-intervention.
In light of this ruling, we see no need to rule on the claimed transcendental importance of the issues raised.
II. RR 2-2012 is invalid and
unconstitutional.
On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional because: a) it illegally imposes taxes upon FEZ enterprises,
which, by law, enjoy tax-exempt status, and b) it effectively amends the law (i.e., RA 7227, as amended by RA 9400) and thereby encroaches
upon the legislative authority reserved exclusively by the Constitution for Congress.
FEZ enterprises enjoy tax- and duty-free incentives on its importations.
In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and Development Act of 1992" to enhance the benefits to be
derived from the Subic and Clark military reservations. RA 7227 established the Subic Special economic zone and granted such special territory
various tax and duty incentives.
To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the legislature enacted RA 9400 to amend RA 7227. 55 Subsequently,
the Department of Finance issued Department Order No. 3-200856 to implement RA 9400 (Implementing Rules).
Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs territory separate and distinct from the Philippines customs
territory. Thus, as opposed to importations into and establishments in the Philippines customs territory, which are fully subject to Philippine
customs and tax laws, importations into and establishments located within the Clark FEZ (FEZ Enterprises) enjoy special incentives, including
tax and duty-free importation. More specifically, Clark FEZ enterprises shall be entitled to the freeport status of the zone and a 5% preferential
income tax rate on its gross income, in lieu of national and local taxes.
RA 9400 and its Implementing Rules grant the following:
First, the law provides that importations of raw materials and capital equipment into the FEZs shall be tax- and duty-free. It is the specific
transaction (i.e., importation) that is exempt from taxes and duties.
Second, the law also grants FEZ enterprises tax- and duty-free importation and a preferential rate in the payment of income tax, in lieu of all
national and local taxes. These incentives exempt the establishment itself from taxation.
Thus, the Legislature intended FEZs to enjoy tax incentives in general — whether with respect to the  transactions that take place within its
special jurisdiction, or the persons/establishments within the jurisdiction. From this perspective, the tax incentives enjoyed by FEZ
enterprises must be understood to necessarily include the tax exemption of importations of selected articles into the FEZ.
We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted within the context and in a manner that promotes the
legislative intent of RA 7227 and, by extension, RA 9400. Thus, we recognized that FEZ enterprises are exempt from both direct and indirect
internal revenue taxes. In particular, they are considered VAT-exempt entities.
In line with this comprehensive interpretation, we rule that the tax exemption enjoyed by FEZ enterprises covers internal revenue taxes imposed
on goods brought into the FEZ, including the Clark FEZ, such as VAT and excise tax.
RR 2-2012 illegally imposes VAT and excise tax on goods brought into the FEZs.
Section 3 of RR 2-2012 provides the following:
First, whenever petroleum and petroleum products are  imported and/or brought directly to the Philippines, the  importer of these goods is
required to pay the corresponding VAT and excise tax due on the importation.
Second, the importer, as the payor of the taxes, may subsequently seek a refund of the amount previously paid by filing a corresponding claim
with the Bureau of Customs (BOC).
Third, the claim shall only be granted upon showing that the necessary condition has been fulfilled.
At first glance, this imposition — a mere tax administration measure according to the petitioners — appears to be consistent with the taxation of
similar imported articles under the Tax Code, specifically under its Sections 107 and 14865 (in relation with Sections 12966 and 13167) .
However, RR 2-2012 explicitly covers even petroleum and petroleum products imported and/or brought into the various FEZs in the Philippines.
Hence, when an FEZ enterprise brings petroleum and petroleum products into the FEZ, under RR 2-2012, it shall be considered an importer liable
for the taxes due on these products.
The crux of the controversy can be found in this feature of the challenged regulation.
The petitioners assert that RR 2-2012 simply implements the provisions of the Tax Code on collection of internal revenue taxes, more specifically
VAT and excise tax, on the importation of petroleum and petroleum products. To them, FEZ enterprises enjoy a qualified tax exemption such that
they have to pay the tax due on the importation first, and thereafter claim a refund, which shall be allowed only upon showing that the goods were
not introduced to the Philippine customs territory.
On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises, which in the first place are not liable for taxes.
They emphasize that the tax incentives under RA 9400 apply automatically upon the importation of the goods. The proper taxes on the
importation shall only be due if the enterprises can later show that the goods were subsequently introduced to the Philippine customs territory.
Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise tax, as we discussed above, it follows and we
accordingly rule that the taxes imposed by Section 3 of RR 2-2012 directly contravene these exemptions. First, the regulation erroneously
considers petroleum and petroleum products brought into a FEZ as taxable importations. Second, it unreasonably burdens FEZ enterprises by
making them pay the corresponding taxes — an obligation from which the law specifically exempts them — even if there is a subsequent
opportunity to refund the payments made.
Petroleum and petroleum products brought into the FEZ and which remain therein are not taxable importations.
RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and petroleum products into FEZs. Strictly speaking, however,
articles brought into these FEZs are not taxable importations under the law based on the following considerations:
First, importation refers to bringing goods from abroad into the Philippine customs jurisdiction. It begins from the time the goods enter the
Philippine jurisdiction and is deemed terminated when the applicable taxes and duties have been paid or the goods have left the jurisdiction of the
BOC.
Second, under the Tax Code,  imported goods are subject to VAT and excise tax. These taxes shall be paid prior to the release of the goods
from customs custody. Also, for VAT purposes, an importer refers to any person who brings goods  into the Philippines.
Third, the Philippine VAT system adheres to the cross border doctrine. Under this rule, no VAT shall be imposed to form part of the cost of the
goods destined for consumption outside the Philippine customs territory. Thus, we have already ruled before that an FEZ enterprise cannot
be directly charged for the VAT on its sales, nor can VAT be passed on to them  indirectly as added cost to their purchases.
Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special areas as separate customs territories. In this regard, we
have already held that such jurisdictions, such as the Clark FEZ, are, by legal fiction, foreign territories.
Fifth, the Implementing Rules provides that goods  initially introduced into the FEZs and subsequently brought out  therefrom and introduced into
the Philippine customs territory shall be considered as importations and thereby subject to the VAT. One such instance is the sale by any FEZ
enterprise to a customer located in the customs territory, which the VAT regulations refer to as a  technical importation.
We find it clear from all these that when goods (e.g., petroleum and petroleum products) are brought into an FEZ, the goods remain to be in
foreign territory and are not therefore goods introduced into Philippine customs territory subject to Philippine customs and tax laws.
Stated differently, goods brought into and traded within an FEZ are generally beyond the reach of national internal revenue taxes and customs
duties enforced in the Philippine customs territory. This is consistent with the incentive granted to FEZs exempting the importation itself  from
taxes and duties.
Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As long as the goods remain (e.g., sale and/or consumption of
the article within the FEZ) in the FEZ or re-exported to another foreign jurisdiction, they shall continue to be tax-free. However, once the goods
are introduced into the Philippine customs territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be considered as
an importation subject to all applicable national internal revenue taxes and customs duties.
The tax exemption granted to FEZ enterprises is an immunity from tax liability and  from the payment of the tax.
The respondents claim that when RR 2-2012 was issued, petroleum and petroleum products brought into the FEZ by FEZ enterprises suddenly
became subject to VAT and excise tax, in direct contravention of RA 9400 (with respect to Clark FEZ enterprises). Such imposition is not
authorized under any law, including the Tax Code.
On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax exemption privileges of FEZ enterprises. As their tax
exemption is merely qualified, they cannot invoke outright exemption. Thus, FEZ enterprises are required to pay internal revenue taxes first on
their imported petroleum under RR 2-2012. They may then refund their previous payment upon showing that the condition under RA 9400 has
been satisfied — that is, the goods have not been introduced to the Philippines customs territory. 81 To the petitioners, to the extent that a refund is
allowable, there is still in reality a tax exemption.
We disagree with this contention.
First, FEZ enterprises bringing goods into the FEZ should not be considered as importers subject to tax in the same manner that the very act of
bringing goods into these special territories does not make them  taxable importations. We emphasize that the exemption from taxes and duties
under RA 9400 are granted not only to importations into the FEZ, but also specifically to each FEZ enterprise. As discussed, the tax exemption
enjoyed by FEZ enterprises necessarily includes the tax exemption of the importations of selected articles into the FEZ.
Second, the essence of a tax exemption is the immunity or  freedom from a charge or burden to which others are subjected. It is a waiver of the
government's right to collect the amounts that would have been collectible under our tax laws. Thus, when the law speaks of a tax exemption, it
should be understood as freedom from the imposition and payment of a particular tax.
Based on this premise, we rule that the  refund mechanism provided by RR 2-2012 does not amount to a tax exemption. Even if the possibility of a
subsequent refund exists, the fact remains that FEZ enterprises must still spend money and other resources to pay for something they should be
immune to in the first place. This completely contradicts the essence of their tax exemption. In the same vein, we cannot agree with the view that
FEZ enterprises have the duty to prove their entitlement to tax exemption first before fully enjoying the same; we find it illogical to determine
whether a person is exempted from tax without first determining if he is subject to the tax being imposed. We have reminded the tax authorities to
determine first if a person is liable for a particular tax, applying the rule of strict interpretation of tax laws, before asking him to prove his
exemption therefrom. Indeed, as entities exempted on taxes on importations, FEZ enterprises are clearly beyond the coverage of any law
imposing those very charges. There is no justifiable reason to require them to prove that they are exempted from it.
More importantly, we have also recognized that the exemption from local and national taxes granted under RA 7227, as amended by RA 9400,
are ipso facto accorded to FEZs. In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of these special
territories.
RR 2-2012 is unconstitutional.
According to the respondents, the power to enact, amend, or repeal laws belong exclusively to Congress. In passing RR 2-2012, petitioners
illegally amended the law — a power solely vested on the Legislature.
We agree with the respondents.
The power of the petitioners to interpret tax laws is not absolute. The rule is that regulations may not enlarge, alter, restrict, or otherwise go
beyond the provisions of the law they administer; administrators and implementors cannot engraft additional requirements not contemplated by
the legislature.
It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision it wishes to implement. While it purportedly establishes
mere administration measures for the collection of VAT and excise tax on the importation of petroleum and petroleum products, not once did it
mention the pertinent chapters of the Tax Code on VAT and excise tax.
While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures proposed by the issuance cannot be implemented at the
expense of entities that have been clearly granted statutory tax immunity.
Tax exemptions are granted for specific public interests that the Legislature considers sufficient to offset the monetary loss in the grant of
exemptions.89 To limit the tax-free importation privilege of FEZ enterprises by requiring them to pay subject to a refund clearly runs counter to
the Legislature's intent to create a free port where the "free flow of goods or capital within, into, and out of the zones" is ensured. 90
Finally, the State's inherent power to tax is vested exclusively in the Legislature.91 We have since ruled that the power to tax includes the power to
grant tax exemptions.92 Thus, the imposition of taxes, as well as the grant and withdrawal of tax exemptions, shall only be valid pursuant to a
legislative enactment.
As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly accorded by the legislative to FEZ enterprises,
the *petitioners have arrogated upon themselves a power reserved exclusively to Congress, in violation of the doctrine of separation of powers.
In these lights, we hereby rule and declare that RR 2-2012 is null and void.

Abakada Guro Party List Officers V. The Honorable Executive Sec. Eduardo Ermita

G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue
Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes
under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6
of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an
undue delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions
being satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year;
and (3) the increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP
of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is a violation
of the "no-amendment rule" upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas  Shell Dealers, Inc., et al., assailing the following
provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized over a 60-month
period, if the acquisition, excluding the VAT components, exceeds One Million Pesos (₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property without due process of law under
Article III, Section 1 of the Constitution. According to petitioners, the contested sections impose limitations on the amount of input tax that may
be claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without
due process of law. Petitioners further contend that like any other property or property right, the input tax credit may be transferred or disposed
of, and that by limiting the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3)
has several transactions with the government, is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is
the smaller businesses with higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins
the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition for  certiorari on June 30, 2005. They
question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article VI, Section 28(2) of the
Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151, 236, 237 and 288, which were
present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of
the law on the ground that the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes
they collect, thus violating the principle that tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner
Garcia further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents contend that R.A. No. 9337
enjoys the presumption of constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of
revenue measures and the power of the Senate concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month
amortization on the purchase or importation of capital goods exceeding ₱1,000,000.00, and the 5% final withholding tax by government agencies,
is arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A reform in the value-added system of
taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES:
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the
Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending
Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING:
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the confusion and inevitably,
litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. 8 Being an
indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, 9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden
to someone else.11 Examples are individual and corporate income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the system was a
single-stage tax computed under the "cost deduction method" and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine the value-added tax
payable.13 Under the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by imposing a
multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the Improved VAT Law, 17 R.A. No. 8424 or the
Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero,  et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by
Justice Story, "[i]f the power did not exist, it would be utterly impracticable to transact the business of the nation, either at all, or at least
with decency, deliberation, and order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each House may determine the
rules of its proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the respective
rules of each house of Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the amendment to any bill or joint resolution, the
differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House Bill. If the differences
with the Senate are so substantial that they materially impair the House Bill, the panel shall report such fact to the House for the latter’s
appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon. The House shall vote on
the Conference Committee Report in the same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or amendments to the subject
measure, and shall be signed by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the explanatory statement of the
conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any constitutional provision, where the two
houses of Congress find themselves in disagreement over changes or amendments introduced by the other house in a legislative bill. Given that
one of the most basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to discipline its members,
may the Court then delve into the details of how Congress complies with its internal rules or how it conducts its business of passing legislation?
Note that in the present petitions, the issue is not whether provisions of the rules of both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference committee has strictly complied with the rules of both houses, thereby remaining
within the jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and emphasized its adherence to the
"enrolled bill doctrine," thus, declining therein petitioners’ plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was
Congress’s creation of two sets of bicameral conference committees, the lack of records of said committees’ proceedings, the alleged violation of
said committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and the certification of the
Secretaries of both Houses of Congress that it was passed are conclusive of its due enactment. A review of cases reveals the Court’s consistent
adherence to the rule. The Court finds no reason to deviate from the salutary rule in this case where the irregularities alleged by the
petitioners mostly involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the
House. This Court is not the proper forum for the enforcement of these internal rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their observance the courts have no concern. Whatever doubts there may be as to
the formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into allegations that, in
enacting a law, a House of Congress failed to comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the
rules adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting them.’ And it has been
said that "Parliamentary rules are merely procedural, and with their observance, the courts have no concern. They may be waived or
disregarded by the legislative body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action (taken
by a deliberative body) when the requisite number of members have agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by the conference
committee in introducing changes or deleting provisions in the House and Senate bills. Akin to the  Fariñas  case,22 the present petitions also raise
an issue regarding the actions taken by the conference committee on matters regarding Congress’ compliance with its own internal rules. As
stated earlier, one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and the discipline of
its members. Congress is the best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said members violated any of its rules
of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the
Court is wont to deny a review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23 the Court already made the
pronouncement that "[i]f a change is desired in the practice [of the Bicameral Conference Committee] it must be sought in Congress since
this question is not covered by any constitutional provision but is only an internal rule of each house. " 24 To date, Congress has not seen it
fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral conference committee to
be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference committees, the Court
deems it necessary to dwell on the issue. The Court observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements.
As pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555   House Bill No.3705   Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every sale of   Provides for 12% VAT in general on sales of   Provides for a single rate of 10% VAT on
goods or properties (amending Sec. 106 goods or properties and reduced rates for sale sale of goods or properties (amending Sec.
of NIRC); 12% VAT on importation of of certain locally manufactured goods and 106 of NIRC), 10% VAT on sale of
goods (amending Sec. 107 of NIRC); and petroleum products and raw materials to be services including sale of electricity by
12% VAT on sale of services and use or used in the manufacture thereof (amending generation companies, transmission and
lease of properties (amending Sec. 108 of Sec. 106 of NIRC); 12% VAT on importation distribution companies, and use or lease of
NIRC) of goods and reduced rates for certain imported properties (amending Sec. 108 of NIRC)
products including petroleum products
(amending Sec. 107 of NIRC); and 12% VAT
on sale of services and use or lease of
properties and a reduced rate for certain
services including power generation (amending
Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision   Provides that the VAT imposed on power   Provides that the VAT imposed on sales of
generation and on the sale of petroleum electricity by generation companies and
products shall be absorbed by generation services of transmission companies and
companies or sellers, respectively, and shall not distribution companies, as well as those of
be passed on to consumers franchise grantees of electric utilities shall
not apply to residential
end-users. VAT shall be absorbed by
generation, transmission, and distribution
companies.
With regard to 70% limit on input tax credit
Provides that the input tax credit for   No similar provision   Provides that the input tax credit for capital
capital goods on which a VAT has been goods on which a VAT has been paid shall
paid shall be equally distributed over 5 be equally distributed over 5 years or the
years or the depreciable life of such depreciable life of such capital goods; the
capital goods; the input tax credit for input tax credit for goods and services
goods and services other than capital other than capital goods shall not exceed
goods shall not exceed 5% of the total 90% of the output VAT.
amount of such goods and services; and
for persons engaged in retail trading of
goods, the allowable input tax credit shall
not exceed 11% of the total amount of
goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision   No similar provision   Provided for amendments to several NIRC
provisions regarding corporate income,
percentage, franchise and excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT is to be imposed; (2)
whether only the VAT imposed on electricity generation, transmission and distribution companies should not be passed on to consumers, as
proposed in the Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on
sale of petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner input tax credits should be
limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral Conference Committee
was mandated by the rules of both houses of Congress to act on the same by settling said differences and/or disagreements. The Bicameral
Conference Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference Committee Report that the Bicameral
Conference Committee tried to bridge the gap in the difference between the 10% VAT rate proposed by the Senate, and the various rates with
12% as the highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate would be retained until
certain conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%,
or National Government deficit as a percentage of GDP of the previous year exceeds 1½%, when the President, upon recommendation of the
Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and distribution companies should
not be passed on to consumers or whether both the VAT imposed on electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement
by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference Committee decided to adopt
the position of the House by putting a limitation on the amount of input tax that may be credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, however, that
if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread
over such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that
the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and excise taxes, the
conference committee decided to include such amendments and basically adopted the provisions found in Senate Bill No. 1950, with some
changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral Conference Committee is mandated to
settle the differences between the disagreeing provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original
provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time that
certain conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the difference in
the rate of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference Committee held on May 10,
2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no pass-on  provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be a beneficiary of legislative
grace, neither should any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not
confuse the bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a
VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, let’s keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee came to a compromise on the
percentage rate of the limitation or cap on such input tax credit, but again, the change introduced by the Bicameral Conference Committee was
totally within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the major objectives was to
"plug a glaring loophole in the tax policy and administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y
introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed our collection efforts at an apparent
disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. 1950, since said provisions were
among those referred to it, the conference committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary
of Finance,30 the Court recognized the long-standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or
in the Senate bill. If the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose
several provisions, collectively considered as an "amendment in the nature of a substitute," so long as such amendment is germane to the subject
of the bills before the committee. After all, its report was not final but needed the approval of both houses of Congress to become valid as an act
of the legislative department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without
any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form
have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete provisions in the House bill and the
Senate bill after these had passed three readings is in effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987
Constitution), fails to convince the Court to deviate from its ruling in the Tolentino  case that:
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone three readings in each of the two houses. If
that be the case, there would be no end to negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house of Congress, not to
the conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each house of Congress with regard
to bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence or amendment.
Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as
this would mean that the other house of Congress would be deprived of its constitutional power to amend or introduce changes to said bill. Thus,
Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments
and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income taxes and percentage, excise
taxes. Petitioners refer to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver that House Bill No.
3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments
only to Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue that since the
proposed amendments did not originate from the House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of the
NIRC dealing mainly with the value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is
the introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of tax being amended in the
House bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill
that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute – and not only the bill which initiated the legislative process culminating in the enactment of the
law – must substantially be the same as the House bill would be to deny the Senate’s power not only to " concur with amendments" but
also to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
…
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which
are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public
debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on
the extent of the amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills are still in
furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House
bill introduced on the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the country’s serious financial problems. To
do this, government expenditures must be strictly monitored and controlled and revenues must be significantly increased. This may be easier said
than done, but our fiscal authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact, several
measures that will result to significant expenditure savings have been identified by the administration. It is supported with a credible package
of revenue measures that include measures to improve tax administration and control the leakages in revenues from income taxes and
the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our agenda must be the restoration
of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year 2009,  we need to seize
windows of opportunities which might seem poignant in the beginning, but in the long run prove effective and beneficial to the overall
status of our economy. One such opportunity is a review of existing tax rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government
to supplement our country’s serious financial problems, and improve tax administration and control of the leakages in revenues from income
taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter, approaching the measures from the point of national
perspective, can introduce amendments within the purposes of those bills. It can provide for ways that would soften the impact of the VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional revenues annually even while by
mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on twelve goods and services. The rest of
the tab – ₱10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter bear all the pain? Why
should the fiscal salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008 only. This will raise
₱10.5 billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be in effect for 1,200 days,
while we put our fiscal house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would like to assure them that
not because there is a light at the end of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share the burden. 35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on income of corporations
are germane to the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers. Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there
is a need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the effect of a VAT on this
product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will however bring down the
excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right. Rather, these sprang from
our concern of softening the impact of VAT, so that the people can cushion the blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for the implementation of the changes in
the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house bills, which is to supplement our
country’s fiscal deficit, among others. Thus, the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the
Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO  Party List, et al., Pimentel, Jr.,  et al., and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10%
to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added
tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%) after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services: provided, that the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). (Emphasis
supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its
exclusive power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services,
which cannot be included within the purview of tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute payable
upon merchandise to the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List,  et al., further contend that delegating to the President the legislative power to tax is contrary to
republicanism. They insist that accountability, responsibility and transparency should dictate the actions of Congress and they should not pass to
the President the decision to impose taxes. They also argue that the law also effectively nullified the President’s power of control, which includes
the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided by the law to bring
about either or both the conditions precedent.
On the other hand, petitioners Escudero,  et al. find bizarre and revolting the situation that the imposition of the 12% rate would be subject to the
whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation and he may not even give his recommendation. Moreover, they allege
that no guiding standards are provided in the law on what basis and as to how he will make his recommendation. They claim, nonetheless, that
any recommendation of the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter,
such that, ultimately, it is the President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance of and is supreme in
matters falling within its own constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata
non delegari potest which means "what has been delegated, cannot be delegated." 38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall be vested in the Congress of
the Philippines which shall consist of a Senate and a House of Representatives." The powers which Congress is prohibited from delegating are
those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been described as
the authority to make a complete law – complete as to the time when it shall take effect and as to whom it shall be applicable – and to
determine the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely legislative in nature – that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of
its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in
itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; 41 and (b) fixes a standard — the limits of which
are sufficiently determinate and determinable — to which the delegate must conform in the performance of his functions. 42 A sufficient standard
is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. 43 Both tests are intended to prevent a total transference of legislative
authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. 44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the statute was complete in
all its terms and provisions when it left the hands of the legislature so that nothing was left to the judgment of any other appointee or delegate of
the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which necessarily involves a discretion as
to what it shall be, and conferring an 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.’
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature. It is true that laws may
be made effective on certain contingencies, as by proclamation of the executive or the adoption by the people of a particular community. In
Wayman vs. Southard, the Supreme Court of the United States ruled that the legislature may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority
on account of the complexity arising from social and economic forces at work in this modern industrial age, the orthodox pronouncement of
Judge Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in
the following language — speaking of declaration of legislative power to administrative agencies: The principle which permits the legislature
to provide that the administrative agent may determine when the circumstances are such as require the application of a law is defended
upon the ground that at the time this authority is granted, the rule of public policy, which is the essence of the legislative act, is
determined by the legislature. In other words, the legislature, as it is its duty to do, determines that, under given circumstances, certain
executive or administrative action is to be taken, and that, under other circumstances, different or no action at all is to be taken. What is
thus left to the administrative official is not the legislative determination of what public policy demands, but simply the ascertainment of
what the facts of the case require to be done according to the terms of the law by which he is governed. The efficiency of an Act as a
declaration of legislative will must, of course, come from Congress, but the ascertainment of the contingency upon which the Act shall
take effect may be left to such agencies as it may designate. The legislature, then, may provide that a law shall take effect upon the
happening of future specified contingencies leaving to some other person or body the power to determine when the specified contingency
has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the test is the completeness of the
statute in all its terms and provisions when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its
functions when it describes what job must be done, who is to do it, and what is the scope of his authority. For a complex economy, that may
be the only way in which the legislative process can go forward. A distinction has rightfully been made between delegation of power to make
the laws which necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of authority
or discretion as to its execution to be exercised under and in pursuance of the law, to which no valid objection can be made.  The
Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies
or limitations on their authority. 49 While the power to tax cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation
depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function,
but is simply ancillary to legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity
which the legislature may perform through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated
problems of modern society is impossible in the absence of accurate information on the part of the legislators, and any reasonable method of
securing such information is proper. 51 The Constitution as a continuously operative charter of government does not require that Congress find for
itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite
to application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the
common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent
with the idea of discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice
but to see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by
Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion
by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time
of taking into effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts
or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO  Party List, et al. that the law effectively nullified the President’s
power of control over the Secretary of Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary
of Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the recommendation of the Secretary of
Finance." Neither does the Court find persuasive the submission of petitioners Escudero,  et al. that any recommendation by the Secretary of
Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the
assistant and agent of the Chief Executive. The multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the language of
Thomas Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General Cushing, is "subject to the direction
of the President."55
In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is
not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality
in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot
alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½%). If either of these two
instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to
the execution of a law. This is constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way
in which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List,  et al. that delegating to the President the legislative power to tax is contrary to the
principle of republicanism, the same deserves scant consideration. Congress did not delegate the power to tax but the mere implementation of the
law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative
policy. That Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions to bring about
either or both the conditions precedent does not deserve any merit as this argument is highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the
Court acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people. Petitioners
also argue that the 12% increase, dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state
if the VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President
shall increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the
President to so revert if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that the
national government deficit as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners’ argument is, at
best, purely speculative. There is no basis for petitioners’ fear of a fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is
clear and unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial
addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition, i.e., the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means that government has
weak or no capability of implementing the VAT or that VAT is not effective in the function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has reached a relatively sound
position or is towards the direction of a balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in
a relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate. 62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it unconstitutional so long as there
is a public purpose for which the law was passed, which in this case, is mainly to raise revenue. In fact,  fiscal adequacy dictated the need for a
raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his  Canons of Taxation (1776),
as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it
brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their variations. 64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral Conference Committee
hearing, then Finance Secretary Purisima bluntly depicted the country’s gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our revenue is used for
debt service. So, for every peso of revenue that we currently raise, 90 goes to debt service. That’s interest plus amortization of our debt. So
clearly, this is not a sustainable situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from that international
financial markets. Our debt to GDP is approximately equal to our GDP. Again, that shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as benign as what it used to be the past five
years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global growth and low interest rates. The past few
months, we have seen an inching up, in fact, a rapid increase in the interest rates in the leading economies of the world. And, therefore, our ability
to borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least based on the forecast of most financial
institutions. So, we were assuming that raising 80 billion would put us in a position where we can then convince them to improve our ability to
borrow at lower rates. But conditions have changed on us because the interest rates have gone up. In fact, just within this room, we tried to access
the market for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have
borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not as
favorable and up to now we have not accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction. Because it is deficit that is
causing the increase of the debt and we are in what we call a debt spiral. The more debt you have, the more deficit you have because interest and
debt service eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt
spiral is really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to
answer the state’s economic dilemma is not for the Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political branches of the
government. It is not for this Court to look into the wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to achieve the desired results, whether, in short, the legislative
discretion within its prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given that it is not for the judiciary to
"pass upon questions of wisdom, justice or expediency of legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas  Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and
Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is
premised on the constitutional right against deprivation of life, liberty of property without due process of law, as embodied in Article III, Section
1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be credited against
the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-
registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a portion of the input
tax that has already been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70%
remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains creditable in the succeeding quarter/s.
This is explicitly allowed by Section 110(B), which provides that "if the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. Their analysis of the
effect of the 70% limitation is incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given
quarter. It does not proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by
the carry-over provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to
petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect,
which violates the principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax
due to the person when he sells goods. In computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes
result from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayer’s option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of
70% of the output tax. In layman’s term, the value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be credited
up to 70% of the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller. 71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes,
as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc.,  et al. also argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered person’s
entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The
state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by
virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it
becomes part of the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on
all sales, it was then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against
the output tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A. No.
8424).75 The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in
this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC,
which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation
is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided, however, That if
the estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or importation of capital goods
with acquisition cost of ₱1 Million pesos, exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input tax.
Petitioners’ argument is without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to
the government.76 In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of
22.6 billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other
tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in
which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No.
9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to
the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of
the gross payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to
ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government
in this case is constituted as a withholding agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on gross payments for purchases of
goods; 6% on gross payments for services supplied by contractors other than by public works contractors; 8.5% on gross payments for services
supplied by public work contractors; or 10% on payment for the lease or use of properties or property rights to nonresident owners. Under the
present Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform
rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final,  as opposed to creditable, means full. Thus, it is provided in
Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income
was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted
as full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the
payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected
from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal
or at least approximate the tax due of the payee on said income. … Taxes withheld on income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in
nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which constitutes as full
payment of the tax payable on the transaction. This represents the net VAT payable of the seller. The other 5% effectively accounts for the
standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable transactions with the
government.80 This is supported by the fact that under the old provision, the 5% tax withheld by the government remains creditable against the tax
liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax
liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be
eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall
be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be
considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was
made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to treat transactions with the
government differently. Since it has not been shown that the class subject to the 5% final withholding tax has been unreasonably narrowed, there
is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It
applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated
Value-Added Tax Regulations 2005 issued by the BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may
form part of the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where premises are
what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes life
in Macbeth,82 "full of sound and fury, signifying nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws
which is enjoyed by other persons or other classes in the same place and in like circumstances." 83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to
the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has
several transactions with the government, is not based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the kind of property, the
rates to be levied or the amounts to be raised, the methods of assessment, valuation and collection. Petitioners’ alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield varying end results depending on one’s profit margin
and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. –
Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this
score, suffice it to say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may
be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular
class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding ₱1,500,000.00. 88 Also, basic marine and agricultural food products in their
original state are still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran
ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross
annual sales exceeding ₱200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with high profit margins.
Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage
tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding ₱1.5 Million. This acts
as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on
petroleum products91 and natural gas92 were reduced. Percentage tax on domestic carriers was removed. 93 Power producers are now exempt from
paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of taxation. Domestic, foreign,
and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. 95 Intercorporate dividends of non-resident foreign
corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporation’s domicile was increased to 20%. 96 The
Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by an artist of his works
or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers. It cannot
therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business with higher input tax-
output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from Adam Smith’s Canons of
Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the
VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of
income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by
VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower
income group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress
shall "evolve a progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that
Congress shall ‘evolve a progressive system of taxation.’ The constitutional provision has been interpreted to mean simply that ‘direct taxes are . .
. to be preferred [and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1) of the
1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, §4 amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the
law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready to afford relief. There
are undoubtedly many wrongs the judicature may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social ills; We should not
forget that the Constitution has judiciously allocated the powers of government to three

Francia V. Intermediate Appellate Court

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.

RULING:

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.

Emilio Y. Hilado V. The Collector of Internal Revenue & CTA

On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things,
the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal
Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the basis of said return, an assessment
notice demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthly installments, the last payment having been made on
January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which
not only revoked and declared void his general Circular No. V-123 but laid down the rule that losses of property which occurred during the
period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of
actual loss or destruction of said property.   As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income of
petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said
year. When the petition for reconsideration filed by petitioner was denied, he filed a petition for review with the Court of Tax Appeals. In due
time, this court rendered decision affirming the assessment made by respondent Collector of Internal Revenue. This is an appeal from said
decision. It appears that petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion
of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of
1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will
not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a ''business
asset" within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951.   This claim is untenable. To begin with,
assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a
loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no
further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950
gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of
law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S.
government. Note that, as of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of
his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims
by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which
cannot give rise to any enforceable right, for, under said Act, "All findings, of the Commission concerning the amount of loss or damage
sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost
or damaged, shall be conclusive and shall not be reviewable by any court", (section 113).It is true that under the authority of section 338 of the
National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular
No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed
to be deducted "in the year the last installment was received with notice that no further payment would be made until the United States Congress
makes further appropriation therefor", but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the
soundness or validity of such circular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion
the pertinent portion oi which reads as follows: 

"Yet it might be argued that war losses were not included as deductions for the year when they were sustained because the taxpayers had
prospects that losses would be compensated for by the United States Government; that since only uncompensated losses are deductible, they had
to wait until after the determination by the Philippine War Damage Commission as to the compensability in part or in whole of their war losses so
that they could exclude from the deductions those compensated for by the said Commission; and that, of necessity, such determination could be
complete only much later than in the year 'when the loss was sustained. This contention falls to the ground when it is considered that the
Philippine Rehabilitation Act which authorized the payment by the United States Government of war losses suffered by property owners in the
Philippines was passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the property owners had
any. conclusive assurance during the years said losses were sustained, that the compensation was to be paid therefor. Whatever assurance they
could have had,4 could have been based only on some information less reliable and less conclusive than the passage of the Act itself. Hence, as
diligent property owners, they should adopt the safest alternative by considering such losses deductible during the year when they were sustained.
"In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-I39 which not only
revoked and declared void his previous Circular No. V 123 but laid down the rule that losses; of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in
the year of actual destruction of said property. We can hardly argue against this opinion. Since we have already stated that the amount claimed
does not represent a "business asset" that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could
only be deducted in the year it was actually sustained. This is in line with section 30 ( d) of the National Internal Revenue Code which prescribes
that losses sustained are allowable as deduction only within the corresponding taxable year. Petitioner's contention that during the last war and as
a consequence of enemy occupation in the Philippines "there was no taxable year" within the meaning of our internal revenue laws because
during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such
were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of
fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of the occupying enemy. "Furthermore, it is a legal maxim, that excepting that of a
political nature, 'Law once established continues until changed by some competent legislative power. It is not changed merely by change of
sovereignty.' (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the
same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131): 'There can be no break or interregnun in law. From the
time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society.
Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever.
Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new
sovereign by legislative act creates a change.'" (Co Kim Chan vs. Valdez Tan Keh and Dizon, 75 Phil., 113, 142-143.)

It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view of the
principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revoking it and approving in lieu
thereof General Circular No. V-139. It cannot be denied, however, that; the Secretary of Finance is vested with authority to revoke, repeal or
abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on
their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees  vs.
Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.] "When the Commissioner determined in 1937 that the petitioner
was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of
limitation.   The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the petitioner from
tax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710." (Southern Maryland
Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554),With regard to the contention that General Circular
No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by petitioner under the previous
circular, suffice it to say that General Circular No. V-123, having been, issued on a wrong construction of the law, cannot give rise to a vested
right that can be invoked by a taxpayer. The reason, is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to
require elaboration. "It seems too clear for serious argument that an administrative officer can not change a law enacted by Congress. A
regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous
construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting
a tax which is legally due."    (Ben Stocker, et al., 12 B. T. A., 1351.) "Art. 2254. No vested or acquired right can arise from acts or omissions
which are against the law or which infringe upon the rights of others."    (Article 2254, New Civil Code.) Wherefore, the decision appealed from
is affirmed Without pronouncement as to costs.

Esso Std Eastern Inc V. Acting Commissioner of Customs

Claim for the refund of P722.84 paid in 1956 as special import tax on pump parts imported by petitioner. Petitioner's ground: The imported
articles "consist of equipment and spare parts for its own exclusive use and therefore were exempt from special import tax", by the terms of
Section 6, Republic Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent Acting Commissioner of Customs, on appeal,
affirmed the rejection. Petitioner's case suffered the same fate in the Court of Tax Appeals. 2 We are asked to review the Court on Tax Appeals'
judgment.
The interrelated errors assigned in petitioner's brief funnel down to one controlling legal issue: Are the imported pump parts exempt from the
payment of special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed "on all goods, articles or products imported or brought into the Philippines"
during the period from 1956 up to and including 1965 in accordance with the schedule of rates therein provided. Exempt from this tax, by express
mandate of Section 6 of the same law, inter alia, are "machinery, equipment, accessories, and spare parts, for the use of industries, miners,
mining enterprises, planters and farmers".
Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating oil, grease and tin containers. Petitioner owns gasoline
stations with pumps, which are leased to and operated by gasoline dealers. It sells gasoline to these dealers. The pump parts imported by
petitioner in 1956 were intended, installed and actually used by gasoline dealers in pumping gasoline from under around tanks into customers'
motor vehicles. These pump parts, in other words, are used in the sale at retail of gasoline — not by petitioner but by lessees of gasoline stations.
In this factual environment, it is quite evident that the pump parts are not used in petitioner's  industry of processing gasoline, or manufacturing
lubricating oil, grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline product "is corollary to or incidental to its industrial operations." 3 But this
contention runs smack against the familiar rules that exemption from taxation is not favored, 4 and that exemptions in tax statutes are never
presumed.5 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. 6 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. In comparable factual backdrop, this Court has held that tax exemption in connection with the manufacture of asbestos roof does not extend
to the installation thereof.7
Upon the facts and the law, we vote to affirm the decision of the Court of Tax Appeals under review. Costs against petitioner. So ordered.

Planters Products Inc V. FertiPhil Corp

Petitioner PPI and respondent Fertiphil are private corporations incorporated under Philippinelaws, both engaged in the importation and
distribution of fertilizers, pesticides and agriculturalchemicals.Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery
component of Php10.00 perbag of fertilizer. The levy was to continue until adequate capital was raised  to make PPI financially viable. Fertiphil
remitted to the Fertilizer and Pesticide Authority (FPA), which was then remitted thedepository bank of PPI. Fertiphil paid P6,689,144 to FPA
from 1985 to 1986.After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Fertiphildemanded from PPI a
refund of the amount it remitted, however PPI refused. Fertiphil filed a complaintfor collection and damages, questioning the constitutionality of
LOI 1465, claiming that it was unjust,unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of  due process.PPI
argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because itdoes not have a “personal and substantial
interest in the case or will sustain direct injury as a result of its enforcement.” It asserts that Fertiphil did not suffer any damage from the
imposition because“incidence of the levy fell on the ultimate consumer or the farmers themselves, not on the sellerfertilizer company.

 ISSUE:
W/N Fertiphil has locus standi
W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

RULING:

1. Yes.  In private suits, locus standi requires a litigant to be a "real party in interest" or party who stands to be benefited or injured by the
judgment in the suit.  In public suits, there is the right of the ordinary citizen to petition the courts to be freed from unlawful government intrusion
and illegal official action subject to the  direct injury test or where there must be personal and substantial interest in the case such that he has
sustained or will sustain direct injury as a result.  Being a mere procedural technicality, it has also been held that locus standi may be waived in
the public interest such as cases of transcendental importance or with far-reaching implications whether  private or public suit, Fertiphil has locus
standi.
2. As a seller, it bore the ultimate burden of paying the levy which made its products more expensive and harm its business.  It is also of
paramount public importance since it involves the constitutionality of a tax law and use of taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the state but distinct and have different tests for validity.  Police power is
the power of the state to enact the legislation that may interfere with personal liberty on property in order to promote general welfare.  While, the
power of taxation is the power to levy taxes as to be used for public purpose.  The main purpose of police power is the regulation of a behavior or
conduct, while taxation is revenue generation. The lawful subjects and lawful means tests are used to determine the validity of a law enacted
under the police power.  The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.
In this case, it is for purpose of revenue.  But it is a robbery for the State to tax the citizen and use the funds generation for a private purpose. 
Public purpose does NOT only pertain to those purpose which are traditionally viewed as essentially governmental function such as  building
roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
Bagatsing V. Ramirez

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522.The petitioner City Mayor, Ramon D. Bagatsing, approved the
ordinance... respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787 before the Court of First Instance of Manila,
presided over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the... publication requirement
under the Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the
enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock
and animal products. Respondent Judge issued an order denying the plea for failure of the respondent Federation of Manila Market Vendors, Inc.
to exhaust the administrative remedies outlined... in the Local Tax Code. 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. Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax
Code; and (b) private respondent failed to exhaust all administrative remedies before instituting an action in court. Respondent Judge denied the
motion.

Issues:

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)... or the Local Tax Code (P.D. No. 231)

Ruling:

The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Manila and the Local Tax Code on the
manner of publishing a tax ordinance enacted by the Municipal Board of Manila. 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" either in a
newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall
or... premises and in two other conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance with the
Local Tax Code rather than with the Revised Charter of the City spawned this litigation. The fact that one is special and the other general creates
a presumption that the special is to be considered as remaining an exception to the general, one as a general law of the land, the other as the law
of a particular case. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute
treats in particular. That 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.The principle of exhaustion of administrative remedies is strongly asserted by
petitioners as having been violated by private respondent in bringing a direct suit in court.The petition below plainly shows that the controversy
between the parties is deeply rooted in a pure question of law:... the dispute is sharply focused on the applicability of the Revised City Charter or
the Local Tax Code on the point at issue, and not on the legality of the imposition of the tax.  Exhaustion... of administrative remedies before
resort to judicial bodies is not an absolute rule.  It admits of exceptions.  Where the question litigated upon is purely a legal one, the rule does not
apply.The non-participation of the Market Committee in the enactment of Ordinance.The function of the committee is purely recommendatory as
the underscored phrase suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor.  Its prior
acquiescence of an intended or proposed city ordinance is not a condition sine qua non before... the Municipal Board could enact such ordinance.

Principles:

published at all in two daily newspapers of general circulation in the City of Manila before its enactment.  Neither was it published in the same
manner after approval, although it was posted in the... legislative hall and in all city public markets and city public libraries.  There being no
compliance with the mandatory requirement of publication before and after approval, the ordinance in question is invalid and, therefore, null and
void." The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception to the
general, one as a general law of the land, the other as the law of a particular case. However, the rule readily yields to a situation where the special
statute refers to a subject in general, which the general statute treats in particular. A chartered city is not an independent sovereignty.  The state
remains supreme in all matters not purely local.  Otherwise stated, a charter must yield to the constitution and general laws... of the state, it is to
have read into it that general law which governs the municipal corporation and which the corporation cannot set aside but to which it must yield. 
When a city adopts a charter, it in effect adopts as part of its charter general law of such character.

Exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule.  It admits of exceptions.  Where the question
litigated upon is purely a legal one, the rule does not apply. The principle may also be disregarded when it... does not provide a plain, speedy and
adequate remedy.  It may and should be relaxed when its application may cause great and irreparable damage. Potestas delegata non delegare
potest The right to tax depends upon the ultimate use, purpose and object for which the fund is raised.  It is not dependent on the nature or
character of the person or corporation whose intermediate agency is to be used in applying it.  The people may be... taxed for a public purpose,
although it be under the direction of an individual or private corporation.

Gomez V. Palomar

Petitioner Gomez here appealed for the issue of constitutionality of RA 1635 as amended by RA 2631 also known as Anti-TB Stamp Law.
Responded Enrico Palomar as the Postmaster General, in implementation of the law issued 4 administrative orders with the approval of the
respondent Secretary of Public Works and Communications. On September 15, 1963, Benjamin Gomez mailed a letter at the post office in San
Fernando Pampanga, addressed to a certain Agustin Aquino which did not bear the special anti-TB stamp required by the statute, so it was
returned to the petitioner. In line with this, Gomez brought suit for declaratory relief in CFI Pampanga to test the constitutionality of the statute,
as well as the implementing administrative orders issued. He contended that it violates the equal protection clause of the Constitution as well as
the rule of uniformity and equality of taxation. The CFI declared the statute and administrative orders as unconstitutional and an appeal was made
by the respondents.

ISSUES:
1.Whether or not the Anti-TB Stamp Law violates the equal protection clause of the Constitution.
2.Whether or not the Anti-TB Stamp Law violates the rule of uniformity and equality of taxation.
3.Whether or not the administrative orders issued by the respondents exceeded beyond their powers.

RULING:

1.No, its settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been
described as ‘of wide range and flexibility.’. Indeed it is said that in the field of taxation, more than in other areas, the legislature possesses the
greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs
and usages in order to achieve an equitable distribution of the tax burden. The classification of mail users is based on ability to pay, let alone the
enjoyment of a privilege, and on administrative convenience. In the allocation of the tax burden, Congress must have concluded that the
contribution to the anti-TB fund can be assured by those who can afford the use of mails. It is a settled principle of law that ‘consideration of
practical administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized
and defined class. In the case of the anti-TB Stamps, the single most important and influential consideration that led the legislature to select mail
users as subjects of the tax is the relative ease and convenience of collecting the tax through the post offices. Mail users were already a class by
themselves even before the enactment of the statute