FRANCIA VS.

IAC
Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977,
a portion of his land (125 square meter) was expropriated by the government for P4,116.00.
The expropriation was made to give way to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963 amounting to
P2,400.00. So in December 1977, the remaining 203 square meters of his land was sold at
a public auction (after due notice was given him). The highest bidder was a certain Ho
Fernandez who paid the purchase price of P2,400.00 (which was lesser than the price of
the portion of his land that was expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the selling price
was grossly inadequate.  He further argued that his land should have never been auctioned
because the P2,400.00 he owed the government in taxes should have been set-off by the
debt the government owed him (legal compensation). He alleged that he was not paid by
the government for the expropriated portion of his land because though he knew that the
payment therefor was deposited in the Philippine National Bank, he never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off by the “debt” owed him by
the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the
contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code).
This is not applicable in taxes. There can be no off-setting of taxes against the claims that
the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit against the
government.
The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the money. Had
he done that, he could have paid his tax obligations even before the auction sale or could
have exercised his right to redeem – which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not
tenable. The Supreme Court said: “alleged gross inadequacy of price is not material when
the law gives the owner the right to redeem as when a sale is made at public auction, upon
the theory that the lesser the price, the easier it is for the owner to effect redemption.” If
mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered altogether
impracticable. “Where land is sold for taxes, the inadequacy of the price given is not a valid
objection to the sale.” This rule arises from necessity, for, if a fair price for the land were
essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the
prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of
the land.
 

We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that
his property was sold at public auction without notice to him and that the price paid for the property
was shockingly inadequate, amounting to fraud and deprivation without due process of law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of October 15, 1977.

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). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:

(1) that each one of the obligors be bound principally and that he be at the same time
a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

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

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:

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. ... (80 C.J.S.,
7374). "The general rule based on grounds of public policy is well-settled that no set-
off admissible against demands for taxes levied for general or local governmental
purposes. The reason on which the general rule is based, is that taxes are not in the
nature of contracts between the party and party but grow out of duty to, and are the
positive acts of the government to the making and enforcing of which, the personal
consent of individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer
are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and
a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the
amount of P4,116.00 paid by the national government for the 125 square meter portion of his
lot was deposited with the Philippine National Bank long before the sale at public auction of
his remaining property. Notice of the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the
P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to
withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at
public auction.

Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was
followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof
therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review,
Rollo p. 18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by

proof and the general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)

There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction
sale. The records sustain the lower court's finding that:
 [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As
long as there was substantial compliance with the requirements of the notice, the
validity of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho

Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?

A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation
Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo
Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "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." In Velasquez v. Coronel (5 SCRA 985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold
are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of
inadequacy of price, or when such inadequacy shocks one's conscience as to justify
the courts to interfere, such does not follow when the law gives to 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 the redemption. And so it was aptly
said: "When there is the right to redeem, inadequacy of price should not be material,
because the judgment debtor may reacquire the property or also sell his right to
 redeem and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):

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. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "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. (Rothchild Bros. v. Rollinger, 32 Wash. 307,
73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):

Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules
and lead to uncertainty and difficulty in the collection of taxes which are the life blood
of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14
years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from
the expropriation payment deposited with the Philippine National Bank an amount sufficient
to pay for the back taxes. The petitioner did not pay attention to another notice sent by the
City Treasurer on November 3, 1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain
the property by belatedly asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision
of the respondent court is affirmed.
Domingo vs. Garlitos
GR L-18993
29 June 1963

FACTS:
In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and
executory the order of the Court of First Instance of Leyte for the payment of estate and
inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of the
late Walter Scott Price. The petition for execution filed by the fiscal, however, was
denied by the lower court. The Court held that the execution is unjustified as the
Government itself is indebted to the Estate for 262,200; and ordered the amount of
inheritance taxes be deducted from the Government’s indebtedness to the Estate.

ISSUE:
Whether a tax and a debt may be compensated.

HELD:
The court having jurisdiction of the Estate had found that the claim of the Estate against
the Government has been recognized and an amount of P262,200 has already been
appropriated by a corresponding law (RA 2700). Under the circumstances, both the
claim of the Government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with Article
1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent
amount. 

The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which
to settle claims of indebtedness against the estate of a deceased person, as an inheritance
tax, is for the claimant to present a claim before the probate court so that said court may
order the administrator to pay the amount thereof. To such effect is the decision of this Court in
Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

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

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

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

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

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

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

The petition is, therefore, dismissed, without costs.

Valentin Tio vs Videogram
Regulatory Board
In 1985, Presidential Dedree No. 1987 entitled “An Act Creating the Videogram Regulatory
Board” was enacted which gave broad powers to the VRB to regulate and supervise the
videogram industry. The said law sought to minimize the economic effects of piracy. There
was a need to regulate the sale of videograms as it has adverse effects to the movie
industry. The proliferation of videograms has significantly lessened the revenue being
acquired from the movie industry, and that such loss may be recovered if videograms are to
be taxed. Section 10 of the PD imposes a 30% tax on the gross receipts payable to the
LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it is unconstitutional on the
following grounds:
1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a rider and is not
germane to the subject matter of the law.
2. There is also undue delegation of legislative power to the VRB, an administrative body,
because the law allowed the VRB to deputize, upon its discretion, other government
agencies to assist the VRB in enforcing the said PD.
ISSUE: Whether or not the Valentin Tio’s arguments are correct.
HELD: No.
1. The Constitutional requirement that “every bill shall embrace only one subject which shall
be expressed in the title thereof” is sufficiently complied with if the title be comprehensive
enough to include the general purpose which a statute seeks to achieve. In the case at bar,
the questioned provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the PD, which is the regulation of the video
industry through the VRB as expressed in its title . The tax provision is not inconsistent
with, nor foreign to that general subject and title. As a tool for regulation it is simply one of
the regulatory and control mechanisms scattered throughout the PD.
2. There is no undue delegation of legislative powers to the VRB. VRB is not being tasked
to legislate. What was conferred to the VRB was the authority or discretion to seek
assistance in the execution, enforcement, and implementation of the law. Besides, in the
very language of the decree, the authority of the BOARD to solicit such assistance is for a
“fixed and limited period” with the deputized agencies concerned being “subject to the
direction and control of the [VRB].”

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof"   is sufficiently complied with if the title be comprehensive enough to
1

include the general purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is satisfied if all
the parts of the statute are related, and are germane to the subject matter expressed in the title, or
as long as they are not inconsistent with or foreign to the general subject and title.  An act having a
2

single general subject, indicated in the title, may contain any number of provisions, no matter how
diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and
may be considered in furtherance of such subject by providing for the method and means of carrying
out the general object."   The rule also is that the constitutional requirement as to the title of a bill
3

should not be so narrowly construed as to cripple or impede the power of legislation.   It should be
4

given practical rather than technical construction.  5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any

provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED,
That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.

x x x           x x x          x x x

The foregoing provision is 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. As a tool for regulation   it is simply one
6

of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose
of the DECREE to include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE,
which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to
express all those objectives in the title or that the latter be an index to the body of the DECREE.  7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, 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
8

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.    In 9

imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.   10

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.  11

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
12

made the implement of the state's police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in
the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires immediate action, he may,
in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which
shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise of legislative power under the said
Amendment still pends resolution in several other cases, we reserve resolution of the question
raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains 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 true distinction is between the delegation
of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring authority or discretion as to its execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid objection can be made."   Besides, in the very
14

language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and
limited period" with the deputized agencies concerned being "subject to the direction and control of
the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will
not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, 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." It is
petitioner's position that Section 15 of the DECREE in providing that:
 All videogram establishments in the Philippines are hereby given a period of forty-five (45)
days after the effectivity of this Decree within which to register with and secure a permit from
the BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an  ex post
facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 
15

... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been
proved that they shall be prima facie evidence of the existence of the guilt of the accused
and shift the burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of connection between the two in
common experience".  16

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.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased
out of existence as if it were a nuisance. 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. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of
the DECREE. These considerations, however, are primarily and exclusively a matter of legislative
concern.

Only congressional power or competence, not the wisdom of the action taken, may be the
basis for declaring a statute invalid. This is as it ought to be. The principle of separation of
powers has in the main wisely allocated the respective authority of each department and
confined its jurisdiction to such a sphere. There would then be intrusion not allowable under
the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack
on the validity of the challenged provision likewise insofar as there may be objections, even if
valid and cogent on its wisdom cannot be sustained.  18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

British American Tobacco Corporation v. Finance Secretary Camacho,

BIR Commissioner Parayno (2009)
Doctrine: A levy of tax is not unconstitutional because it is not intrinsically equal and uniform
in its operation.The uniformity rule does not prohibit classification for purposes of taxation

Facts:
 British American Tobacco filed a Motion for Reconsideration for the Court’s decision in 2008
 Petitioner interposes that the assailed provisions:
(1) violate the equal protection and uniformity of taxation clauses of the Constitution,
(2) contravene Section 19,[1] Article XII of the Constitution on unfair competition, and
(3) infringe the constitutional provisions on regressive and inequitable taxation. 
 Petitioner further argues that assuming the assailed provisions are constitutional, it is entitled to
a downward reclassification of Lucky Strike from the premium-priced to the high-priced tax
bracket.
 Lucky Strike reiterates in its MR that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because older brands are taxed based on their
1996 net retail prices while new brands are taxed based on their present day net retail prices.

HELD: Petition is denied

 Without merit and a rehash of petitioner’s previous arguments before this Court
 The rational basis test was properly applied to gauge the constitutionality of the assailed law in
the face of an equal protection challenge
The classification is considered valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all
things being equal, to both present and future conditions; and (4) it applies equally to
all those belonging to the same class.
  The classification freeze provision was inserted in the law for reasons of practicality and
expediency. 
o since a new brand was not yet in existence at the time of the passage of RA 8240, then
Congress needed a uniform mechanism to fix the tax bracket of a new brand. 
o The current net retail price, similar to what was used to classify the brands under Annex
“D” as of October 1, 1996, was thus the logical and practical choice
 The classification freeze provision was in the main the result of Congress’s earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to
balance the same with other State interests

The Court is not persuaded.

 
The assailed law does not violate the equal
protection and uniformity of taxation
clauses.
 
Petitioner argues that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because Annex D brands are taxed
based on their 1996 net retail prices while new brands are taxed based on their
present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc City,
[2]
 petitioner asserts that the assailed provisions accord a special or privileged status
to Annex D brands while at the same time discriminate against other brands.
 
These contentions are without merit and a rehash of petitioners previous arguments
before this Court. As held in the assailed Decision, the instant case neither
involves a suspect classification nor impinges on a fundamental
right. Consequently, the rational basis test was properly applied to gauge the
constitutionality of the assailed law in the face of an equal protection challenge. It
has been held that in the areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor infringes constitutional
rights must be upheld against equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational basis for the classification.
[3]
 Under the rational basis test, it is sufficient that the legislative classification is
rationally related to achieving some legitimate State interest. As the Court ruled in
the assailed Decision, viz:
 
A legislative classification that is reasonable does not offend the
constitutional guaranty of the equal protection of the laws. The classification is
considered valid and reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it applies, all
things being equal, to both present and future conditions; and (4) it applies
equally to all those belonging to the same class.
 
The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency. That
is, since a new brand was not yet in existence at the time of the passage of RA
8240, then Congress needed a uniform mechanism to fix the tax bracket of a new
brand. The current net retail price, similar to what was used to classify the brands
under Annex D as of October 1, 1996, was thus the logical and practical
choice. Further, with the amendments introduced by RA 9334, the freezing of the
tax classifications now expressly applies not just to Annex D brands but to newer
brands introduced after the effectivity of RA 8240 on January 1, 1997 and any
new brand that will be introduced in the future. (However, as will be discussed
later, the intent to apply the freezing mechanism to newer brands was already in
place even prior to the amendments introduced by RA 9334 to RA 8240.) This
does not explain, however, why the classification is frozen after its determination
based on current net retail price and how this is germane to the purpose of the
assailed law. An examination of the legislative history of RA 8240 provides
interesting answers to this question.
 
xxxx
 
From the foregoing, it is quite evident that the classification freeze
provision could hardly be considered arbitrary, or motivated by a hostile or
oppressive attitude to unduly favor older brands over newer brands. Congress was
unequivocal in its unwillingness to delegate the power to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify
the cigarette brands based on the increase in the consumer price index to the DOF
and the BIR. Congress doubted the constitutionality of such delegation of power,
and likewise, considered the ethical implications thereof. Curiously,
the classification freeze provision  was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-
competitive atmosphere in the market. Yet, as it is, this same criticism is being
foisted by petitioner upon the classification freeze provision.
 
To our mind, the classification freeze provision  was in the main the result
of Congresss earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other State
interests. In particular, the questioned provision addressed Congresss
administrative concerns regarding delegating too much authority to the DOF and
BIR as this will open the tax system to potential areas for abuse and
corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address
the problems of tax avoidance and tax evasion.
 
To elaborate a little, Congress could have reasonably foreseen that, under
the DOF proposal and the Senate Version, the periodic reclassification of brands
would tempt the cigarette manufacturers to manipulate their price levels or bribe
the tax implementers in order to allow their brands to be classified at a lower tax
bracket even if their net retail prices have already migrated to a higher tax bracket
after the adjustment of the tax brackets to the increase in the consumer price
index. Presumably, this could be done when a resurvey and reclassification is
forthcoming. As briefly touched upon in the Congressional deliberations, the
difference of the excise tax rate between the medium-priced and the high-priced
tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately
popular brand which sells around 100 million packs per year, this easily translates
to P336,000,000. The incentive for tax avoidance, if not outright tax evasion,
would clearly be present. Then again, the tax implementers may use the power to
periodically adjust the tax rate and reclassify the brands as a tool to unduly
oppress the taxpayer in order for the government to achieve its revenue targets for
a given year.
 
Thus, Congress sought to, among others, simplify the whole tax system for
sin products to remove these potential areas of abuse and corruption from both the
side of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the
avowed objectives of the assailed law to simplify the tax administration and
compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion. RA 9334 did not alter this classification freeze provision of RA
8240. On the contrary, Congress affirmed this freezing mechanism by clarifying
the wording of the law. We can thus reasonably conclude, as the deliberations on
RA 9334 readily show, that the administrative concerns in tax administration,
which moved Congress to enact the classification freeze provision in RA 8240,
were merely continued by RA 9334. Indeed, administrative concerns may provide
a legitimate, rational basis for legislative classification. In the case at bar, these
administrative concerns in the measurement and collection of excise taxes on sin
products are readily apparent as afore-discussed.
 
Aside from the major concern regarding the elimination of potential areas
for abuse and corruption from the tax administration of sin products, the
legislative deliberations also show that the classification freeze provision was
intended to generate buoyant and stable revenues for government. With the frozen
tax classifications, the revenue inflow would remain stable and the government
would be able to predict with a greater degree of certainty the amount of taxes
that a cigarette manufacturer would pay given the trend in its sales volume over
time. The reason for this is that the previously classified cigarette brands would be
prevented from moving either upward or downward their tax brackets despite the
changes in their net retail prices in the future and, as a result, the amount of taxes
due from them would remain predictable. Theclassification freeze
provision would, thus, aid in the revenue planning of the government.
 
All in all, the classification freeze provision addressed Congresss
administrative concerns in the simplification of tax administration of sin products,
 elimination of potential areas for abuse and corruption in tax collection, buoyant
and stable revenue generation, and ease of projection of revenues. Consequently,
there can be no denial of the equal protection of the laws since the rational-basis
test is amply satisfied.
 
Moreover, petitioners contention that the assailed provisions violate the
uniformity of taxation clause is similarly unavailing. In Churchill v. Concepcion,
[4]
 we explained that a tax is uniform when it operates with the same force and
effect in every place where the subject of it is found. [5] It does not signify an
intrinsic but simply a geographical uniformity.[6] A levy of tax is not
unconstitutional because it is not intrinsically equal and uniform in its operation.
[7]
 The uniformity rule does not prohibit classification for purposes of taxation.
[8]
 As ruled in Tan v. Del Rosario, Jr.:[9]
 
Uniformity of taxation, like the kindred concept of equal protection,
merely requires that all subjects or objects of taxation, similarly situated, are
to be treated alike both in privileges and liabilities (citations omitted).
Uniformity does not forfend classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all things
being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class (citations
omitted).[10]
 
In the instant case, there is no question that the classification freeze
provision meets the geographical uniformity requirement because the assailed law
applies to all cigarette brands in the Philippines. And, for reasons already adverted
to in our August 20, 2008 Decision, the above four-fold test has been met in the
present case.
 
Petitioners reliance on Ormoc Sugar Co. is misplaced. In said case, the
controverted municipal ordinance specifically named and taxed only the Ormoc
Sugar Company, and excluded any subsequently established sugar central from its
coverage. Thus, the ordinance was found unconstitutional on equal protection
grounds because its terms do not apply to future conditions as well. This is not the
case here. The classification freeze provision uniformly applies to all cigarette
brands whether existing or to be introduced in the market at some future time. It
does not purport to exempt any brand from its operation nor single out a brand for
the purpose of imposition of excise taxes.
 
At any rate, petitioners real disagreement lies with the legitimate State
interests. Although it concedes that the Court utilized the rationality test and that
the classification freeze provision was necessitated by several legitimate State
interests, however, it refuses to accept the justifications given by Congress for
the classification freeze provision. As we elucidated in our August 20, 2008
Decision, this line of argumentation revolves around the wisdom and expediency
of the assailed law which we cannot inquire into, much less overrule. Equal
protection is not a license for courts to judge the wisdom, fairness, or logic of
legislative choices.[11] We reiterate, therefore, that petitioners remedy is with
Congress and not this Court.
The assailed provisions do not violate the
constitutional prohibition on unfair
competition.
 
Petitioner asserts that the Court erroneously applied the rational basis test
allegedly because this test does not apply in a constitutional challenge based on a
violation of Section 19, Article XII of the Constitution on unfair
competition. Citing Tatad v. Secretary of the Department of Energy,[12] it argues
that the classification freeze provision gives the brands under Annex D a decisive
edge because it constitutes a substantial barrier to the entry of prospective players;
that the Annex D provision is no different from the 4% tariff differential which we
invalidated in Tatad; that some of the new brands, like Astro, Memphis, Capri,
L&M, Bowling Green, Forbes, and Canon, which were introduced into the market
after the effectivity of the assailed law on January 1, 1997, were killed by Annex D
brands because the former brands were reclassified by the BIR to higher tax
brackets; that the finding that price is not the only factor in the market as there are
other factors like consumer preference, active ingredients, etc. is contrary to the
evidence presented and the deliberations in Congress; that the classification freeze
provision will encourage predatory pricing in contravention of the constitutional
prohibition on unfair competition; and that the cumulative effect of the operation
of the classification freeze provision is to perpetuate the oligopoly of intervenors
Philip Morris and Fortune Tobacco in contravention of the constitutional edict for
the State to regulate or prohibit monopolies, and to disallow combinations in
restraint of trade and unfair competition.
 
The argument lacks merit. While previously arguing that the rational basis test was
not satisfied, petitioner now asserts that this test does not apply in this case and that
the proper matrix to evaluate the constitutionality of the assailed law is the
prohibition on unfair competition under Section 19, Article XII of the
Constitution. It should be noted that during the trial below, petitioner did not
invoke said constitutional provision as it relied solely on the alleged violation of
the equal protection and uniformity of taxation clauses. Well-settled is the rule that
points of law, theories, issues and arguments not adequately brought to the
attention of the lower court will not be ordinarily considered by a reviewing court
as they cannot be raised for the first time on appeal. [13] At any rate, even if we were
to relax this rule, as previously stated, the evidence presented before the trial court
is insufficient to establish the alleged violation of the constitutional proscription
against unfair competition.
 
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry
and exit of new players in our downstream oil industry may be struck down for
being violative of Section 19, Article XII of the Constitution. [14] However, we went
on to say in that case that if they are insignificant impediments, they need not be
stricken down.[15] As we stated in our August 20, 2008 Decision, petitioner failed to
convincingly prove that there is a substantial barrier to the entry of new brands in
the cigarette market due to the classification freeze provision. We further observed
that several new brands were introduced in the market after the assailed law went
into effect thus negating petitioners sweeping claim that the classification freeze
provision is an insurmountable barrier to the entry of new brands. We also noted
that price is not the only factor affecting competition in the market for there are
other factors such as taste, brand loyalty, etc.
 
We see no reason to depart from these findings for the following reasons:
 
First, petitioner did not lay down the factual foundations, as supported by
verifiable documentary proof, which would establish, among others, the cigarette
brands in competition with each other; the current net retail prices of Annex D
brands, as determined through a market survey, to provide a sufficient point of
comparison with those covered by the BIRs market survey of new brands; and the
causal connection with as well as the extent of the impact on the competition in the
cigarette market of the classification freeze provision. Other than petitioners self-
serving allegations and testimonial evidence, no adequate documentary evidence
was presented to substantiate its claims. Absent ample documentary proof, we
cannot accept petitioners claim that the classification freeze provision is an
insurmountable barrier to the entry of new players.
 
Second, we cannot lend credence to petitioners claim that it cannot produce
cigarettes that can compete with Marlboro and Philip Morris in the high-priced tax
bracket. Except for its self-serving testimonial evidence, no sufficient documentary
evidence was presented to substantiate this claim. The current net retail price,
which is the basis for determining the tax bracket of a cigarette brand, more or less
consists of the costs of raw materials, labor, advertising and profit margin. To a
large extent, these factors are controllable by the manufacturer, as such, the
decision to enter which tax bracket will depend on the pricing strategy adopted by
the individual manufacturer. The same holds true for its claims that other new
brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and
Canon, were killed by Annex D brands due to the effects of the operation of
the classification freeze provision over time. The evidence that petitioner presented
before the trial court failed to substantiate the basis for these claims.
 
Essentially, petitioner would want us to accept its conclusions of law
without first laying down the factual foundations of its arguments. This Court,
which is not a trier of facts, cannot take judicial notice of the factual premises of
these arguments as petitioner now seems to suggest. The evidence should have
been presented before the trial court to allow it to examine and determine for itself
whether such factual premises, as supported by sufficient documentary evidence,
provide reasonable basis for petitioners conclusion that there arose an
unconstitutional unfair competition due to the operation of the classification freeze
provision. Petitioner should be reminded that it appealed this case from the adverse
ruling of the trial court directly to this Court on pure questions of law instead of
resorting to the Court of Appeals.
 
Third, Tatad is not applicable to the instant case. In Tatad, we found that the
4% tariff differential between imported crude oil and imported refined petroleum
products erects a high barrier to the entry of new players because (1) it imposes an
undue burden on new players to spend billions of pesos to build refineries in order
to compete with the old players, and (2) new players, who opt not to build
refineries, suffer from the huge disadvantage of increasing their product cost by
4%.[16] The tariff was imposed on the raw materials uniformly used by the players
in the oil industry. Thus, the adverse effect on competition arising from this
discriminatory treatment was readily apparent. In contrast, the excise tax under the
assailed law is imposed based on the current net retail price of a cigarette brand. As
previously explained, the current net retail price is determined by the pricing
strategy of the manufacturer. This Court cannot simply speculate that the reason
why a new brand cannot enter a specific tax bracket and compete with the brands
therein was because of the classification freeze provision, rather than the
manufacturers own pricing decision or some other factor solely attributable to the
manufacturer. Again, the burden of proof in this regard is on petitioner which it
failed to muster.
 
Fourth, the finding in our August 20, 2008 Decision that price is not the only
factor which affects consumer behavior in the cigarette market is based on
petitioners own evidence. On cross-examination, petitioners witness admitted that
notwithstanding the change in price, a cigarette smoker may prefer the old brand
because of its addictive formulation.[17] As a result, even if we were to assume that
the classification freeze provision distorts the pricing scheme of the market
players, it is not clear whether a substantial barrier to the entry of new players
would thereby be created because of these other factors affecting consumer
behavior.
 
Last, the claim that the assailed provisions encourage predatory pricing was
never raised nor substantiated before the trial court. It is merely an afterthought
and cannot be given weight.
 
In sum, the totality of the evidence presented by petitioner before the trial
court failed to convincingly establish the alleged violation of the constitutional
prohibition on unfair competition. It is a basic postulate that the one who
challenges the constitutionality of a law carries the heavy burden of proof for laws
enjoy a strong presumption of constitutionality as it is an act of a co-equal branch
of government. Petitioner failed to carry this burden.
 
The assailed law does not transgress the
constitutional provisions on regressive and
inequitable taxation.
 
Petitioner argues that the classification freeze provision  is a form of
regressive and inequitable tax system which is proscribed under Article VI,
Section 28(1)[18] of the Constitution. It claims that people in equal positions
should be treated alike. The use of different tax bases for brands under Annex D
vis--vis new brands is discriminatory, and thus, iniquitous. Petitioner further posits
that the classification freeze provision is regressive in character. It asserts that the
harmonization of revenue flow projections and ease of tax administration cannot
override this constitutional command.
 
We note that the points raised by petitioner with respect to alleged
inequitable taxation perpetuated by the classification freeze provision are a mere
reformulation of its equal protection challenge. As stated earlier, the assailed
provisions do not infringe the equal protection clause because the four-fold
test is satisfied. In particular, the classification freeze provision  has been found
to rationally further legitimate State interests consistent with rationality
review. Petitioners repackaged argument has, therefore, no merit.
 
 Anent the issue of regressivity, it may be conceded that the assailed law
imposes an excise tax on cigarettes which is a form of indirect tax, and thus,
regressive in character. While there was an attempt to make the imposition of the
excise tax more equitable by creating a four-tiered taxation system where higher
priced cigarettes are taxed at a higher rate, still, every consumer, whether rich or
poor, of a cigarette brand within a specific tax bracket pays the same tax rate. To
this extent, the tax does not take into account the persons ability to
pay. Nevertheless, this does not mean that the assailed law may be declared
unconstitutional for being regressive in character because the Constitution does not
prohibit the imposition of indirect taxes but merely provides that Congress shall
evolve a progressive system of taxation. As we explained in Tolentino v. Secretary
of Finance:[19]
 
[R]egressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation."
This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of
social, economic and political inequalities [Art. XIII, Section 1] or for the
promotion of the right to "quality education" [Art. XIV, Section 1]. These
provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.[20]
 
 
Petitioner is not entitled to a downward
reclassification of Lucky Strike.
 
Petitioner alleges that assuming the assailed law is constitutional, its Lucky
Strike brand should be reclassified from the premium-priced to the high-priced tax
bracket. Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it
timely sought redress from the BIR to have the market survey conducted within
three months from product launch, as provided for under Section 4(B) [21] of
Revenue Regulations No. 1-97, in order to determine the actual current net retail
price of Lucky Strike, and thus, fix its tax classification. Further, the upward
reclassification of Lucky Strike amounts to deprivation of property right without
due process of law. The conduct of the market survey after two years from product
launch constitutes gross neglect on the part of the BIR. Consequently, for failure of
the BIR to conduct a timely market survey, Lucky Strikes classification based on
its suggested gross retail price should be deemed its official tax classification.
Finally, petitioner asserts that had the market survey been timely conducted
sometime in 2001, the current net retail price of Lucky Strike would have been
found to be under the high-priced tax bracket.
  
These contentions are untenable and misleading.
 
First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose
of fixing Lucky Strikes initial tax classification based on its suggested gross retail
price relative to its planned introduction of Lucky Strike in the market sometime in
2001 and not for the conduct of the market survey within three months from
product launch. In fact, the said Ruling contained an express reservation that the
tax classification of Lucky Strike set therein is without prejudice, however, to the
subsequent conduct of a survey x x x in order to determine if the actual gross retail
price thereof is consistent with [petitioners] suggested gross retail price.[22] In short,
petitioner acknowledged that the initial tax classification of Lucky Strike may be
modified depending on the outcome of the survey which will determine the actual
current net retail price of Lucky Strike in the market.
 
Second, there was no upward reclassification of Lucky Strike because it was
taxed based on its suggested gross retail price from the time of its introduction in
the market in 2001 until the BIR market survey in 2003. We reiterate that Lucky
Strikes actual current net retail price was surveyed for the first time in 2003 and
was found to be from P10.34 to P11.53 per pack, which is within the premium-
priced tax bracket. There was, thus, no prohibited upward reclassification of Lucky
Strike by the BIR based on its current net retail price.
 
Third, the failure of the BIR to conduct the market survey within the three-
month period under the revenue regulations then in force can in no way make the
initial tax classification of Lucky Strike based on its suggested gross retail price
permanent. Otherwise, this would contravene the clear mandate of the law which
provides that the basis for the tax classification of a new brand shall be the current
net retail price and not the suggested gross retail price. It is a basic principle of law
that the State cannot be estopped by the mistakes of its agents.
 
Last, the issue of timeliness of the market survey was never raised before the
trial court because petitioners theory of the case was wholly anchored on the
alleged unconstitutionality of the classification freeze provision. As a consequence,
no documentary evidence as to the actual net retail price of Lucky Strike in 2001,
based on a market survey at least comparable to the one mandated by law, was
presented before the trial court. Evidently, it cannot be assumed that had the BIR
conducted the market survey within three months from its product launch
sometime in 2001, Lucky Strike would have been found to fall under the high-
priced tax bracket and not the premium-priced tax bracket. To so hold would run
roughshod over the States right to due process. Verily, petitioner prosecuted its
case before the trial court solely on the theory that the assailed law is
unconstitutional instead of merely challenging the timeliness of the market
survey. The rule is that a party is bound by the theory he adopts and by the cause of
action he stands on. He cannot be permitted after having lost thereon to repudiate
his theory and cause of action, and thereafter, adopt another and seek to re-litigate
the matter anew either in the same forum or on appeal. [23] Having pursued one
theory and lost thereon, petitioner may no longer pursue another inconsistent
theory without thereby trifling with court processes and burdening the courts with
endless litigation.
 
WHEREFORE, the motion for reconsideration is DENIED.

Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue

GR Number 188550

Petition: Petition for Review

Petitioner: Deutsche Bank AG Manila Branch
Respondent: Commissioner of Internal Revenue
Ponente: Sereno, C. J.
Date: August 28, 2013

Facts:
Pursuant to the National Internal Revenue Code of 1997, on October 21, 2003, the
petitioner remitted to the respondent the amount of Php 67,688,553.51, representing
fifteen (15) percent of the branch profit remittance tax (BPRT) on its regular banking unit
(RBU) net income remitted to the Deutsche Bank of Germany (DB Germany) for 2002
and prior taxable years.

Believing that they made an overpayment of the BPRT, on October 4, 2005, the
petitioner filed with the BIR Large Taxpayers Assessment and Investigation Division an
administrative claim for refund or a tax credit certificate representing the alleged excess
BPRT paid (amount of Php 22,562,851.17). The petitioners also requested from the
International Tax Affairs Division (ITAD) for a confirmation of its entitlement to a
preferential tax rate of 10% under the RP-Germany Tax Treaty.

Because of the alleged inaction of the BIR on the administrative claim, on October 18,
2005, the petitioner filed a petition for review with the Court of Tax Appeals (CTA),
reiterating its claim for refund or tax credit certificate representing the alleged excess
BPRT paid. The claim was denied on the ground that application for tax treaty relief was
not filed with ITAD prior to the payment of BPRT, thereby violating the fifteen-day
period mandated under Section III, paragraph 2 of the Revenue Memorandum Order No.
1-2000. Also, the CTA Second Division relied on an en banc decision of the CTA that
before the benefits of a tax treaty may be extended to a foreign corporation, the latter
should first invoke the provisions of the tax treaty and prove that they indeed apply to the
corporation (Mirant Operations Corporation v Commissioner of Internal Revenue).

Hence this petition.

Issue:
Whether or not the failure to strictly comply with the provisions of RMO No. 1-2000 will
deprive persons or corporations the benefit of a tax treaty.

Ruling:
No. The constitution provides for the adherence to the general principles of international
law as part of the law of the land (Article II, Section 2). Every treaty is binding upon the
parties, and obligations must be performed (Article 26, Vienna Convention on the Law
on Treaties). There is nothing in RMO 1-2000 indicating a deprivation of entitlement to a
tax treaty for failure to comply with the fifteen-day period. The denial of availment of tax
relief for the failure to apply within the prescribed period (under the administrative
issuance) would impair the value of the tax treaty. Also, the obligation to comply with the
tax treaty must take precedence over the objective of RMO 1-2000 because the non-
compliance with tax treaties would have negative implications on international affairs
and would discourage foreign investments.

Dispositive:
The petition was granted, the CTA en banc decision was set aside and reversed. The
respondent was ordered to refund or issue a tax credit certificate (the amount of Php
22,562,851.17) in favor of the petitioner.

The Petition is meritorious.

Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of
15% based on the total profits applied for or earmarked for remittance without any deduction of the
tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty,
which provides that where a resident of the Federal Republic of Germany has a branch in the
Republic of the Philippines, this branch may be subjected to the branch profits remittance tax
withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount
of the profits remitted by that branch to the head office.

By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines,
remitting to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.

On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax
treaty relief must be preceded by an application with ITAD at least 15 days before the transaction.
The Order was issued to streamline the processing of the application of tax treaty relief in order to
improve efficiency and service to the taxpayers. Further, it also aims to prevent the consequences of
an erroneous interpretation and/or application of the treaty provisions (i.e., filing a claim for a tax
refund/credit for the overpayment of taxes or for deficiency tax liabilities for underpayment). 13

The crux of the controversy lies in the implementation of RMO No. 1-2000.

Petitioner argues that, considering that it has met all the conditions under Article 10 of the RP-
Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000. The
filing of a tax treaty relief application is not a condition precedent to the availment of a preferential
tax rate. Further, petitioner posits that, contrary to the ruling of the CTA, Mirant is not a binding
judicial precedent to deny a claim for refund solely on the basis of noncompliance with RMO No. 1-
2000.

Respondent counters that the requirement of prior application under RMO No. 1-2000 is mandatory
in character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of the Secretary of
Finance to promulgate rules and regulations for the effective implementation of the NIRC. Thus,
courts cannot ignore administrative issuances which partakes the nature of a statute and have in
their favor a presumption of legality.

The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with this
prerequisite is fatal to the taxpayer’s availment of the preferential tax rate.

We disagree.

A minute resolution is not a binding precedent

At the outset, this Court’s minute resolution on Mirant is not a binding precedent. The Court has
clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner of Internal
Revenue14 as follows:

It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA
ruling being questioned. As a result, our ruling in that case has already become final. When a minute
resolution denies or dismisses a petition for failure to comply with formal and substantive
requirements, the challenged decision, together with its findings of fact and legal conclusions, are
deemed sustained. But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata. However, if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel, the Court noted that a previous case, CIR v. Baier-Nickel involving the same parties and the
same issues, was previously disposed of by the Court thru a minute resolution dated February 17,
2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no
bearing" on the latter case because the two cases involved different subject matters as they were
concerned with the taxable income of different taxable years.

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

Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind this
Court in cases of a similar nature. There are differences in parties, taxes, taxable periods, and
treaties involved; more importantly, the disposition of that case was made only through a minute
resolution.

Tax Treaty vs. RMO No. 1-2000

Our Constitution provides for adherence to the general principles of international law as part of the
law of the land.15The time-honored international principle of pacta sunt servanda demands the
performance in good faith of treaty obligations on the part of the states that enter into the agreement.
Every treaty in force is binding upon the parties, and obligations under the treaty must be performed
by them in good faith. 16 More importantly, treaties have the force and effect of law in this
jurisdiction.17

Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties
and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions." 18 CIR v.
S.C. Johnson and Son, Inc. further clarifies that "tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is defined as the imposition of comparable
taxes in two or more states on the same taxpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away with double taxation is to encourage the free
flow of goods and services and the movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic economies. Foreign investments will only
thrive in a fairly predictable and reasonable international investment climate and the protection
against double taxation is crucial in creating such a climate." 19

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international
juridical double taxation, which is why they are also known as double tax treaty or double tax
agreements.

"A state that has contracted valid international obligations is bound to make in its legislations those
modifications that may be necessary to ensure the fulfillment of the obligations undertaken." 20 Thus,
laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the
parties entitled thereto. The BIR must not impose additional requirements that would negate the
availment of the reliefs provided for under international agreements. More so, when the RP-
Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under
said agreement.

Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony
with the objectives of the contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty
relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith in complying with a tax treaty. The
denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value of the tax treaty. At most, the application
for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to
the relief.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-
2000.  Logically, noncompliance with tax treaties has negative implications on international relations,
1âwphi1

and unduly discourages foreign investors. While the consequences sought to be prevented by RMO
No. 1-2000 involve an administrative procedure, these may be remedied through other system
management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those
who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance
requiring prior application for tax treaty relief.

Prior Application vs. Claim for Refund

Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or application
of the treaty provisions. The objective of the BIR is to forestall assessments against corporations
who erroneously availed themselves of the benefits of the tax treaty but are not legally entitled
thereto, as well as to save such investors from the tedious process of claims for a refund due to an
inaccurate application of the tax treaty provisions. However, as earlier discussed, noncompliance
with the 15-day period for prior application should not operate to automatically divest entitlement to
the tax treaty relief especially in claims for refund.

The underlying principle of prior application with the BIR becomes moot in refund cases, such as the
present case, where the very basis of the claim is erroneous or there is excessive payment arising
from non-availment of a tax treaty relief at the first instance. In this case, petitioner should not be
faulted for not complying with RMO No. 1-2000 prior to the transaction. It could not have applied for
a tax treaty relief within the period prescribed, or 15 days prior to the payment of its BPRT, precisely
because it erroneously paid the BPRT not on the basis of the preferential tax rate under

the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior
application requirement becomes illogical. Therefore, the fact that petitioner invoked the provisions
of the RP-Germany Tax Treaty when it requested for a confirmation from the ITAD before filing an
administrative claim for a refund should be deemed substantial compliance with RMO No. 1-2000.

Corollary thereto, Section 229 21 of the NIRC provides the taxpayer a remedy for tax recovery when
there has been an erroneous payment of tax.  The outright denial of petitioner’s claim for a refund,
1âwphi1

on the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT, would
defeat the purpose of Section 229.

Petitioner is entitled to a refund

It is significant to emphasize that petitioner applied – though belatedly – for a tax treaty relief, in
substantial compliance with RMO No. 1-2000. A ruling by the BIR would have confirmed whether
petitioner was entitled to the lower rate of 10% BPRT pursuant to the RP-Germany Tax Treaty.

Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:
 Based on the evidence presented, both documentary and testimonial, petitioner was able to
establish the following facts:

a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a corporation
organized and existing under the laws of the Federal Republic of Germany;

b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income Taxes
Withheld under BIR Form No. 1601-F and remitted the amount of ₱67,688,553.51 as branch
profits remittance tax with the BIR; and

c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance,
petitioner remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or
₱330,175,961.88 at 63.804 Peso/Euro) representing its 2002 profits remittance. 22

The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its RBU net
income, due for remittance to DB Germany amounting to PHP 451,257,023.29 for 2002 and prior
taxable years.23

Likewise, both the administrative and the judicial actions were filed within the two-year prescriptive
period pursuant to Section 229 of the NIRC.24

Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT
in accordance with the RP-Germany Tax Treaty.

Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting
to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper
to grant petitioner a refund ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP
45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.

WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of
Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July 2009 are
REVERSED and SET ASIDE. A new one is hereby entered ordering respondent Commissioner of
Internal Revenue to refund or issue a tax credit certificate in favor of petitioner Deutsche Bank AG
Manila Branch the amount of TWENTY TWO MILLION FIVE HUNDRED SIXTY TWO THOUSAND
EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN CENTAVOS (PHP 22,562,851.17),
Philippine currency, representing the erroneously paid BPRT for 2002 and prior taxable years.

SO ORDERED.

CASE DIGEST: DOUBLE TAXATION

NURSERY CARE CORPORATION, ET AL, vs. ACEVEDO, G.R. No. 180651, July 30, 2014

FACTS OF THE CASE:

 The CITY OF MANILA assessed and collected taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila. At the same time, the CITY OF MANILA imposed additional taxes upon
the petitioners pursuant to Section 21 of the Revenue Code of Manila , as amended, as a condition for
the renewal of their respective business licenses for the year 1999. SECTION 21 OF THE REVENUE
CODE OF MANILA stated: Section 21. Tax on Business Subject to the Excise, Value-Added or
Percentage Taxes under the NIRC - On any of the following businesses and articles of commerce subject
 to the excise, VALUE-ADDED OR PERCENTAGE TAXES under the National Internal Revenue
Code, hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE
PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby
imposed: A) On person who sells goods and services in the course of trade or businesses; x x x
PROVIDED, that all registered businesses in the City of Manila already paying the aforementioned tax
shall be exempted from payment thereof.
 To comply with the City of Manila’s assessment of taxes under Section 21, the PETITIONERS paid
under protest the following amounts corresponding to the first quarter of 1999, to wit: (a) Nursery Care
Corporation ₱595,190.25; (b) Shoemart Incorporated ₱3,283,520.14; (c) Star Appliance Center
₱236,084.03; (d) H & B, Inc. ₱1,271,118.74; (e) Supplies Station, Inc. ₱239,501.25; (f) Hardware Work
Shop, Inc. ₱609,953.24. By letter dated March 1, 1999, the PETITIONERS formally requested the
Office of the City Treasurer for the tax credit or refund of the local business taxes paid under
protest. However, then City Treasurer Anthony Acevedo (Acevedo) denied the request.
 On April 8, 1999, the PETITIONERS, sought the reconsideration of the denial of their request. Still,
the CITY TREASURER did not reconsider. In the meanwhile, Liberty Toledo succeeded Acevedo as
the City Treasurer of Manila. PETITIONERS filed their respective petitions for certiorari in the
Regional Trial Court (RTC) in Manila.
 RTC held that it perceives NO INSTANCE OF THE CONSTITUTIONALLY PROSCRIBED
DOUBLE TAXATION, in the strict, narrow or obnoxious sense, imposed upon the petitioners under
Section 15 and 17, on the one hand, and under Section 21, on the other, of the questioned Ordinance.
The tax imposed under Section 15 and 17, as against that imposed under Section 21, are levied against
different tax objects or subject matter. The tax under Section 15 is imposed upon wholesalers,
distributors or dealers, while that under Section 17 is imposed upon retailers. In short, taxes imposed
under Section 15 and 17 is a tax on the business of wholesalers, distributors, dealers and retailers. On
the other hand, the tax imposed upon herein petitioners under Section 21 is not a tax against the
business of the petitioners (as wholesalers, distributors, dealers or retailers) but is rather a tax against
consumers or end-users of the articles sold by petitioners. CA affirmed the decision of the RTC.

ISSUE: Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as amended, constitutes
double taxation. YES

RULING:
 There is DOUBLE TAXATION when the same taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same taxing authority within the same jurisdiction during the
same taxing period, and the taxes are of the same kind or character. DOUBLE TAXATION is
obnoxious.
 DOUBLE TAXATION means taxing the same property twice when it should be taxed only once;
that is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "DIRECT
DUPLICATE TAXATION," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and
the taxes must be of the same kind or character.
 Using the aforementioned test, the COURT finds that there is INDEED DOUBLE TAXATION IF
RESPONDENT IS SUBJECTED TO THE TAXES UNDER BOTH SECTIONS 14 AND 21 OF
TAX ORDINANCE NO. 7794, since these are being imposed: (1) on the same subject matter – the
privilege of doing business in the City of Manila; (2) for the same purpose – to make persons
 conducting business within the City of Manila contribute to city revenues; (3) by the same taxing
authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the
same kind or character – a local business tax imposed on gross sales or receipts of the business.
 Based on the foregoing reasons, PETITIONER should not have been subjected to taxes under Section
21 of the Manila Revenue Code for the fourth quarter of 2001, considering that it had already been
paying local business tax under Section 14 of the same ordinance.
 Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. PETITIONER is
indeed liable to pay business taxes to the City of Manila; nevertheless, considering that the
FORMER has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt
from the same payments under Section 21 of the same code. Hence, payments made under Section 21
must be refunded in favor of petitioner. It is undisputed that PETITIONER paid business taxes based on
Sections 14 and 21 for the fourth quarter of 2001 in the total amount of ₱470,932.21 . Therefore, it is
ENTITLED TO A REFUND OF ₱164,552.04 corresponding to the payment under Section 21 of the
Manila Revenue Code.
 In fine, the IMPOSITION OF THE TAX UNDER SECTION 21 OF THE REVENUE CODE OF
MANILA constituted double taxation, and the taxes collected pursuant thereto must be refunded.

IMPORTANT PRINCIPLE: WHEN IS THERE DOUBLE TAXATION; REQUISITES OF DOUBLE

TAXATION

WHEN IS THERE DOUBLE TAXATION?

 There is DOUBLE TAXATION when the same taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same taxing authority within the same jurisdiction during the
same taxing period, and the taxes are of the same kind or character. DOUBLE TAXATION is
obnoxious.

 DOUBLE TAXATION means taxing the same property twice when it should be taxed only once;
that is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "DIRECT
DUPLICATE TAXATION," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and
the taxes must be of the same kind or character.

REQUISITES OF DOUBLE TAXATION:

Using the aforementioned test, the COURT finds that there is INDEED DOUBLE TAXATION IF
RESPONDENT IS SUBJECTED TO THE TAXES UNDER BOTH SECTIONS 14 AND 21 OF TAX
ORDINANCE NO. 7794, since these are being imposed:
(1) On the same subject matter – the privilege of doing business in the City of Manila;
(2) For the same purpose – to make persons conducting business within the City of Manila contribute to
city revenues;
(3) By the same taxing authority – petitioner City of Manila;
 (4) Within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila;
(5) For the same taxing periods – per calendar year; and
(6) Of the same kind or character – a local business tax imposed on gross sales or receipts of the
business.

Collection of taxes pursuant to Section 21 of the

Revenue Code of Manila constituted double taxation

The foregoing notwithstanding, the Court, given the circumstances obtaining herein and in light of
jurisprudence promulgated subsequent to the filing of the petition, deems it fitting and proper to
adopt a liberal approach in order to render a just and speedy disposition of the substantive issue at
hand. Hence, we resolve, bearing inmind the following pronouncement in Go v. Chaves: 30

Our rules of procedure are designed to facilitate the orderly disposition of cases and permit the
prompt disposition of unmeritorious cases which clog the court dockets and do little more than waste
the courts’ time. These technical and procedural rules, however, are intended to ensure, rather than
suppress, substantial justice. A deviation from their rigid enforcement may thus be allowed, as
petitioners should be given the fullest opportunity to establish the merits of their case, rather than
lose their property on mere technicalities. We held in Ong Lim Sing, Jr. v. FEB Leasing and Finance
Corporation that:

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful
of the duty to reconcile both the need to speedily put an end to litigation and the parties' right to due
process.In numerous cases, this Court has allowed liberal construction of the rules when to do so
would serve the demands of substantial justice and equity.

The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement against the petitioners constituted double taxation
because the local business taxes under Section 15 and Section 17 of the Revenue Code of Manila
were already being paid by them.  They contend that the proviso in Section 21 exempted all
31

registered businesses in the City of Manila from paying the tax imposed under Section 21;  and that 32

the exemption was more in accord with Section 143 of the Local Government Code,  the law that
33

vested in the municipal and city governments the power to impose business taxes.

The respondents counter, however, that double taxation did not occur from the imposition and
collection of the tax pursuant to Section 21 of the Revenue Code of Manila;  that the taxes imposed
34

pursuant to Section 21 were in the concept of indirect taxes upon the consumers of the goods and
services sold by a business establishment;  and that the petitioners did not exhaust their
35

administrative remedies by first appealing to the Secretary of Justice to challenge the

constitutionalityor legality of the tax ordinance.
36

In resolving the issue of double taxation involving Section 21 of the Revenue Code of Manila, the
Court is mindful of the ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,  which has
37

been reiterated in Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila.  In the 38

latter, the Court has held:

x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in The
City of Manila v. Coca-Cola Bottlers Philippines, Inc.,in this wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to
their own detriment.  Said exempting proviso was precisely included in said section so as to avoid
1âwphi1

double taxation.

Double taxation means taxingthe same property twice when it should be taxed only once; that is,
"taxing the same person twice by the same jurisdictionfor the same thing." It is obnoxious when the
taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the
same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are
being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila;
(2) for the same purpose – to make persons conducting business within the City of Manila contribute
tocity revenues; (3) by the same taxing authority – petitioner Cityof Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods –
per calendar year; and (6) of the same kind or character – a local business tax imposed on gross
sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business tax
imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc.of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc.to a business tax under
Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are
subject to excise tax, VAT, or percentagetax under the NIRC, and that are "not otherwise specified in
preceding paragraphs." In the same way, businesses such as respondent’s, already subject to a
local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of
the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax
Ordinance [which is based on Section 143(h) of the LGC].

Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section
21 of the ManilaRevenue Code for the fourth quarter of 2001, considering thatit had already been
paying local business tax under Section 14 of the same ordinance.

xxxx

Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is
indeed liable to pay business taxes to the City of Manila; nevertheless, considering that the former
has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt from the
same payments under Section 21 of the same code. Hence, payments made under Section 21 must
be refunded in favor of petitioner.

It is undisputed thatpetitioner paid business taxes based on Sections 14 and 21 for the fourth quarter
of 2001 in the total amount of ₱470,932.21. Therefore, it is entitled to a refund of ₱164,552.04
corresponding to the payment under Section 21 of the Manila Revenue Code.

On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines,
Inc., the Court now holds that all the elements of double taxation concurred upon the Cityof Manila’s
assessment on and collection from the petitioners of taxes for the first quarter of 1999 pursuant to
Section 21 of the Revenue Code of Manila.

Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold
goods and services in the course of trade or business based on a certain percentage ofhis gross
sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise imposed
the tax on a person who sold goods and services in the course of trade or business but only
identified such person with particularity, namely, the wholesaler, distributor or dealer (Section 15),
and the retailer (Section 17), all the taxes – being imposed on the privilege of doing business in the
City of Manila in order to make the taxpayers contributeto the city’s revenues – were imposed on the
same subject matter and for the same purpose.

Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the
same jurisdiction in the same taxing period (i.e., per calendar year).

Thirdly, the taxes were all in the nature of local business taxes.

We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc.
involved Section 21 vis-à-vis Section 14 (Tax on Manufacturers, Assemblers and Other
Processors)  of the Revenue Code of Manila, the legal principlesenunciated therein should similarly
39

apply because Section 15 (Tax on Wholesalers, Distributors, or Dealers)and Section 17 (Tax on

Retailers) of the Revenue Code of Manila imposed the same nature of tax as that imposed under
Section 14, i.e., local business tax, albeit on a different subject matter or group of taxpayers.

In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila constituted double
taxation, and the taxes collected pursuant thereto must be refunded.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the resolutions promulgated on June 18, 2007 and November 14, 2007 in CA-G.R. SP No.
72191; and DIRECTS the City of Manila to refund the payments made by the petitioners of the taxes
assessed and collected for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of
Manila.

No pronouncement on costs of suit.

CASE DIGEST
EN BANC
 
G.R. No. 99886 March 31, 1993
JOHN H. OSMEÑA, Petitioner, vs. OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his
capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy Affairs;
REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, Respondents.

FACTS:
1. The petitioner seeks the corrective, 1prohibitive and coercive remedies provided by Rule 65 of the Rules of Court
2. October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund,
designated as the Oil Price Stabilization Fund (OPSF). The OPSF was:
 designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting
from exchange rate adjustments and from increases in the world market prices of crude oil
 reclassified into a "trust liability account," in virtue of E.O. 1024 (issued on May 1985) and ordered released from
the National Treasury to the Ministry of Energy cha
3. President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987,
expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum productsla
 4. the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of
some P12.877 billion
5. December 10, 1990: the Energy Regulatory Board issued an order approving the increase in pump prices of petroleum
products, and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months,
but this notwithstanding, the respondents - Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his
capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs;
Chairman Rex V. Tantiongco and the Energy Regulatory Board - "are poised to accept, process and pay claims not
authorized under P.D. 1956.
6. The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such
purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any,
shall be transferred to the general funds of the Government.
7. The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL
FUND,' not as a 'trust account' or a 'trust fund,'
8. Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a
State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it
was created."
9. Petitioner also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI of the
Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits, and
subject to such limitations and restrictions as it 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;
and, inasmuch as the delegation relates to the exercise of the power of taxation, " the limits, limitations and
restrictions must be quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and)
what the tax is for, but also impose a specific limit on how much to tax."
10. The challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D.
1956, as amended, partake of the nature of the taxation power of the State.
ISSUE/S:
1. Whether or not the creation of the trust fund violates
29(3), Article VI of the Constitution,
2. Whether or not section 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, is constitutional,
for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board"
HELD: WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing
charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.chanroblesvirtualawlibrary
1. NO. It seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O.
137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account,"
the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures
comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent.ch
2. NO. With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the
authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which
the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing
and subsidizing domestic pump rates, Section 8(c) of P.D. 1956 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund. For a valid delegation of power, it is essential that the law delegating
the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it
must fix a standard - limits of which
are sufficiently determinate or determinable - to which the delegate must conform. The standard, as the Court has
already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition, inasmuch
as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. By
the same token, the proper exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the general public and the
petroleum industry from the adverse consequences of pump rate fluctuations.

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE

TREASURER OF MANILA and JOSEPHSANTIAGO, in his capacity as the
CHIEF OF THE LICENSE DIVISION OF CITY OF MANILA, - versus - COCA-
COLA BOTTLERS PHILIPPINES, INC.,
 G.R. No. 181845 August 4, 2009

FACTS This case is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Civil Procedure seeking to review and reverse the Decision
dated 18 January 2008 and Resolution2 dated 18 February 2008 of the Court of
Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307.

Petitioner City of Manila is a public corporation empowered to collect and

assess business taxes, revenue fees, and permit fees, through its officers,
petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of
the Licensing Division, respectively. Respondent Coca-Cola Bottlers Philippines,
Inc. is a corporation engaged in the business of manufacturing and selling
beverages, and which maintains a sales office in the City of Manila. Prior to 25
February 2000, respondent had been paying the City of Manila local business tax
only under Section 14 of Tax Ordinance No. 7794,6 being expressly exempted
from the business tax under Section 21 of the same tax ordinance. Tax
Ordinance No. 7794 provide:
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is
hereby imposed a graduated tax on manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and compounders of liquors, distilled
spirits, and wines or manufacturers of any article of commerce of whatever kind
or nature, in accordance with any of the following schedule:

over P6,500,000.00 up to P25,000,000.00 - - - - - - - - -P36,000.00 plus 50% of

1% in excess of P6,500,000.00

Petitioner City of Manila subsequently approved on 25 February 2000, Tax

Ordinance No. 7988,7 amending certain sections of Tax Ordinance No. 7794,
particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila;
and (2) Section 21, by deleting the proviso found therein, which stated that all
registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof

Tax Ordinances No. 7988 and No. 8011 were later declared by the Court
null and void (1) Tax Ordinance No. 7988 was enacted in contravention of the
provisions of the Local Government Code (LGC) of 1991 and its implementing
rules and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects
of Tax Ordinance No. 7988, which did not legally exist. However, before the
Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null
and void, petitioner City of Manila assessed respondent on the basis of Section
21 of Tax Ordinance No. 7794, as amended by the aforementioned tax
ordinances, for deficiency local business taxes, penalties, and interest, in the
total amount of P18,583,932.04, for the third and fourth quarters of the year 2000.
Respondent filed a protest with petitioner Toledo on the ground that the said
assessment amounted to double taxation, as respondent was taxed twice, i.e.,
under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax
Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the
protest of respondent. On 14 July 2006, the RTC rendered a Decision9
dismissing Civil Case No. 03-107088. The RTC ruled that the business taxes
imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No.
7988, as amended, were not of the same kind or character; therefore, there was
no double taxation. The RTC, though, in an Order10 dated 16 November 2006,
granted the Motion for Reconsideration of respondent, decreed the cancellation
and withdrawal of the assessment against the latter, and barred petitioners from
further imposing/assessing local business taxes against respondent under
Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988
and Tax Ordinance No. 8011 Petitioners filed an appeal before the Court of Tax
Appeal. However, CTA dismissed the appeal for failure to perfect the appeal.

ISSUES (1) Whether or not the enforcement of Section 21 of Tax Ordinance

No. 7794, as amended, constitutes Double Taxation.

HELD Petitioners insist that even with the declaration of nullity of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still be
made liable for local business taxes under both Sections 14 and 21 of Tax
Ordinance No. 7944 as they were originally read, without the amendment by the
null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 by petitioner City of Manila,
petitioners subjected and assessed respondent only for the local business tax
under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the
same. This was due to the clear and unambiguous proviso in Section 21 of Tax
Ordinance No. 7794, which stated that all registered business in the City of
Manila that are already paying the aforementioned tax shall be exempted from
payment thereof. The aforementioned tax referred to in said proviso refers to
local business tax. The aforementioned tax referred to in said proviso refers to
local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794
exempts from the payment of the local business tax imposed by said section,
businesses that are already paying such tax under other sections of the same tax
ordinance. The said proviso, however, was deleted from Section 21 of Tax
Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this
deletion, petitioners began assessing respondent for the local business tax under
Section 21 of Tax Ordinance No. 7794, as amended.

Accordingly, respondent should not have been subjected to the local

business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth
quarters of 2000, given its exemption therefrom since it was already paying the
local business tax under Section 14 of the same ordinance. Petitioners
obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No.
7794, to their own detriment. Said exempting proviso was precisely included in
said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be
taxed only once; that is, taxing the same person twice by the same jurisdiction for
the same thing. It is obnoxious when the taxpayer is taxed twice, when it should
be but once. Otherwise described as direct duplicate taxation, the two taxes must
be imposed on the same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the same taxing period; and
the taxes must be of the same kind or character.

The distinction petitioners attempt to make between the taxes under

Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits
Section 143 of the LGC, the very source of the power of municipalities and cities
to impose a local business tax, and to which any local business tax imposed by
petitioner City of Manila must conform. It is apparent from a perusal thereof that
when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of
commerce, pursuant to Section 143(a) of the LGC, said municipality or city may
no longer subject the same manufacturers, etc. to a business tax under Section
143(h) of the same Code.

Section 143(h) may be imposed only on businesses that are subject to

excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise
specified in preceding paragraphs. In the same way, businesses such as
respondents, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no
longer be made liable for local business tax under Section 21 of the same Tax
Ordinance [which is based on Section 143(h) of the LGC].

WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is hereby DENIED. No costs.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR.,

Facts:

The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for
deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and
outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an
amount of not less than P90 million.

On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the
same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced
by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to RMI,
Altonaga paid capital gains tax in the amount of P10 million. On 16 April 1990, CIC filed its corporate annual income
tax return for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of
P75,728.021. After crediting withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income of
P75,987,725.

On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a
Deed of Sale of Shares of Stocks. Three and a half years later, or on 16 January 1994, Toda died.

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to the CIC
for deficiency income tax for the year 1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and
not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken
to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989.

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan
and Mario Luza Bautista, received a Notice of Assessment dated 9 January 1995 from the Commissioner of Internal
Revenue for deficiency income tax for the year 1989 in the amount of P79,099,999.22.

The Estate thereafter filed a letter of protest. The CTA declared that the Estate is not liable for deficiency income tax
of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued by the Commissioner on 9
January 1995.

In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA, reasoning that
the CTA, being more advantageously situated and having the necessary expertise in matters of taxation, is “better
situated to determine the correctness, propriety, and legality of the income tax assessments assailed by the Toda
Estate.”

Issue:

Whether or not respondent Toda Estate is liable for the deficiency income tax of CIC for the year 1989

A corporation has a juridical personality distinct and separate from the persons owning or composing it.  Thus, the
owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and
vice versa.  There are, however, certain instances in which personal liability may arise.  It has been held in a number
of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach when:

1.  He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its
affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;

2.  He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;

3.  He agrees to hold himself personally and solidarily liable with the corporation; or

4.  He is made, by specific provision of law, to personally answer for his corporate action.
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily
held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. 
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or obligations,
contingent or otherwise, for taxes, sums of money or insurance claims other than those reported in its audited
financial statement as of December 31, 1989, attached hereto as “Annex B” and made a part hereof.  The business of
Cibeles has at all times been conducted in full compliance with all applicable laws, rules and regulations.  SELLER
undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles
for the fiscal years 1987, 1988 and 1989. [Underscoring Supplied].

When the late Toda undertook and agreed “to hold the BUYER and Cibeles free from any all income tax liabilities of
Cibeles for the fiscal years 1987, 1988, and 1989,” he thereby voluntarily held himself personally liable therefor. 
Respondent estate cannot, therefore, deny liability for CIC’s deficiency income tax for the year 1989 by invoking the
separate corporate personality of CIC, since its obligation arose from Toda’s contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.

WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED.  The decision of the Court of Appeals of
31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered
ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles
Insurance Corporation for the year 1989, plus legal interest from 1 May 1994 until the amount is fully paid.

Is this a case of tax evasion

or tax avoidance?

Tax avoidance and tax evasion are the two most common ways used by

taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. [23]

Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2)
an accompanying state of mind which is described as being evil, in bad faith,
willfull,or deliberate and not accidental; and (3) a course of action or failure of
action which is unlawful. [24]

All these factors are present in the instant case. It is significant to note that
as early as 4 May 1989, prior to the purported sale of the Cibeles property by
CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,  and [25]

not from Altonaga. That P40 million was debited by RMI and reflected in its
trial balance  as other inv. Cibeles Bldg. Also, as of 31 July 1989,
[26]

another P40 million was debited and reflected in RMIs trial balance as other
inv. Cibeles Bldg. This would show that the real buyer of the properties was
RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a
close business associate and one of the many trusted corporate executives of
Toda. This information was revealed by Mr. Boy Prieto, the assistant
accountant of CIC and an old timer in the company.  But Mr. Prieto did not
 [27]

testify on this matter, hence, that information remains to be hearsay and is

thus inadmissible in evidence. It was not verified either, since the letter-
request for investigation of Altonaga was unserved,  Altonaga having left for
[28]

the United States of America in January 1990. Nevertheless, that Altonaga

was a mere conduit finds support in the admission of respondent Estate that
the sale to him was part of the tax planning scheme of CIC. That admission is
borne by the records. In its Memorandum, respondent Estate declared:

Petitioner, however, claims there was a change of structure of the proceeds of sale.
Admitted one hundred percent. But isnt this precisely the definition of tax planning?
Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the
Tax Code exists, allowing tax free transfers of property for stock, changing the
structure of the property and the tax to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower tax is not against the law. It is
absolutely allowed.

Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely

petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to 5%.
 [Underscoring supplied].
[29]

The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another. [30]

Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI would
then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Altonagas sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax ploy, a
sham, and without business purpose and economic substance. Doubtless, the
execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion. [31]

Generally, a sale or exchange of assets will have an income tax incidence

only when it is consummated.  The incidence of taxation depends upon the
[32]

substance of a transaction. The tax consequences arising from gains from a

sale of property are not finally to be determined solely by the means employed
to transfer legal title. Rather, the transaction must be viewed as a whole, and
each step from the commencement of negotiations to the consummation of
the sale is relevant. A sale by one person cannot be transformed for tax
purposes into a sale by another by using the latter as a conduit through which
to pass title. To permit the true nature of the transaction to be disguised by
mere formalisms, which exist solely to alter tax liabilities, would seriously
impair the effective administration of the tax policies of Congress. [33]

To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter was
merely a conduit is to sanction a circumvention of our tax laws. Hence, the
sale to Altonaga should be disregarded for income tax purposes.  The two [34]

sale transactions should be treated as a single direct sale by CIC to RMI.

Accordingly, the tax liability of CIC is governed by then Section 24 of the
NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997), which
stated as follows:

Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is
hereby imposed upon the taxable net income received during each taxable year from
all sources by every corporation organized in, or existing under the laws of the
Philippines, and partnerships, no matter how created or organized but not including
general professional partnerships, in accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not
exceed one hundred thousand pesos; and

Thirty-five percent upon the amount by which the taxable net income exceeds one
hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the
NIRC of 1986  (now 6% under Section 24 (D) (1) of the Tax Reform Act of
[35]

1997) is inapplicable. Hence, the assessment for the deficiency income tax
issued by the BIR must be upheld.

Has the period of

assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
Act of 1997) read:

Sec. 269. Exceptions as to period of limitation of assessment and collection of

taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court after the
collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for collection thereof .

Put differently, in cases of (1) fraudulent returns; (2) false returns with
intent to evade tax; and (3) failure to file a return, the period within which to
assess tax is ten years from discovery of the fraud, falsification or omission,
as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his
counsel, asked the Opinion of the BIR on the tax consequence of the two sale
transactions.  Thus, the BIR was amply informed of the transactions even
[36]

prior to the execution of the necessary documents to effect the transfer.

Subsequently, the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier discussed
those two transactions were tainted with fraud. And even
assuming arguendo that there was no fraud, we find that the income tax return
filed by CIC for the year 1989 was false. It did not reflect the true or actual
amount gained from the sale of the Cibeles property. Obviously, such was
done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in
case of false returns is ten years from the discovery of the falsity. The false
return was filed on 15 April 1990, and the falsity thereof was claimed to have
been discovered only on 8 March 1991.  The assessment for the 1989
[37]

deficiency income tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income tax was well within
the prescriptive period.

Is respondent Estate liable

for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?

A corporation has a juridical personality distinct and separate from the

persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in which
personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to
the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate
action.[38]

It is worth noting that when the late Toda sold his shares of stock to Le
Hun T. Choa, he knowingly and voluntarily held himself personally liable for all
the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989.
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no
liabilities or obligations, contingent or otherwise, for taxes, sums of money or
insurance claims other than those reported in its audited financial statement as of
December 31, 1989, attached hereto as Annex B and made a part hereof. The business
of Cibeles has at all times been conducted in full compliance with all applicable laws,
rules and regulations. SELLER undertakes and agrees to hold the BUYER and
Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years
1987, 1988 and 1989.  [Underscoring Supplied].
[39]
 When the late Toda undertook and agreed to hold the BUYER and Cibeles
free from any all income tax liabilities of Cibeles for the fiscal years 1987,
1988, and 1989, he thereby voluntarily held himself personally liable therefor.
Respondent estate cannot, therefore, deny liability for CICs deficiency income
tax for the year 1989 by invoking the separate corporate personality of CIC,
since its obligation arose from Todas contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January 2001 in CA-
G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is
hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to
pay P79,099,999.22 as deficiency income tax of Cibeles Insurance
Corporation for the year 1989, plus legal interest from 1 May 1994 until the
amount is fully paid.
Costs against respondent.

Maceda v Macaraig (1991)

Maceda v Macaraig
GR No 88291, May 31, 1991 

FACTS:
Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power
and the production of power from other sources. RA 358 granted NAPOCOR tax and duty exemption privileges. RA
6395 revised the charter of the NAPOCOR, tasking it to carry out the policy of the national electrification and
provided in detail NAPOCOR’s tax exceptions. PD 380 specified that NAPOCOR’s exemption includes all taxes, etc.
imposed “directly or indirectly.” PD 938 dated May 27, 1976 further amended the aforesaid provision by integrating
the tax exemption in general terms under one paragraph. 

ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment of PD 938 on May 27,
1976 which amended PD 380 issued on January 11, 1974 

RULING:
No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the
government of the Republic of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR
enjoyed preferential tax treatment “to enable the corporation to pay the indebtedness and obligation” and effective
implementation of the policy enunciated in Section 1 of RA 6395. 

From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be interpreted liberally
so as to enhance the tax exempt status of NAPOCOR. 
It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor of government
political subdivision or instrumentality. In the case of property owned by the state or a city or other public
corporations, the express exception should not be construed with the same degree of strictness that applies to
exemptions contrary to the policy of the state, since as to such property “exception is the rule and taxation the
exception.” 

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC
was exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938,
it means exactly what it says, i.e., all forms of taxes including those that were imposed directly or
indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case.
It involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958
when NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as
amended by Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding
the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D.
No. 380, the exemption of NPC from indirect taxes was emphasized when it was specified to include
those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining
the same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as
hereinabove discussed, logically includes exemption from indirect taxes on petroleum products used
in its operation.

This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on
the authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order
No. 93 was promulgated, by which FIRB Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No,
380 and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the
tax agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption
of the NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said
amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of
NPC should be limited to direct taxes only.
In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of
the indirect tax exemption of the NPC on petroleum products it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987
which restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the
same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
10, 1987, subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings from
any source whatsoever, borrowing from foreign-based private financial institutions,
etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment. 40

Executive Order No. 93 provides as follows—

Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective international agreements to which the Government of

the Republic of the Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as

amended;
 (ii) the Export Processing Zone Authority, pursuant to Presidential Decree
No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial

Authority pursuant to Presidential Decree No. 538, as amended;

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instruction No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal

Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitments of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged;

 d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view
that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No.
93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he
was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated
March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify,
alter or reverse the construction of a statute given by a department secretary. 41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta  and in De la Llana vs. Alba  this
42 43

Court held: "The standard may be either express or implied. If the former, the non-delegated
objection is easily met. The standard though does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as a whole."

In People vs. Rosenthal  the broad standard of "public interest" was deemed sufficient. In Calalang
44

vs. Williams, , it was "public welfare" and in Cervantes vs. Auditor General,  it was the purpose of
45 46

promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a
whole, "national security" was considered sufficient standard  and so was "protection of fish fry or
47

fish eggs.48

The observation of petitioner that the approval of the President was not even required in said
Executive Order of the tax exemption privilege approved by the FIRB unlike in previous similar
issuances, is not well-taken. On the contrary, under Section l(f) of Executive Order No. 93,
aforestated, such tax and duty exemptions extended by the FIRB must be approved by the
President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive
Secretary, by authority of the President, on October 15, 1987. 49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —

The latest in our jurisprudence indicates that delegation of legislative power has become the
rule and its non-delegation the exception. The reason is the increasing complexity of modern
life and many technical fields of governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
many problems demanding its attention. The growth of society has ramified its activities and
created peculiar and sophisticated problems that the legislature cannot be expected
reasonably to comprehend. Specialization even in legislation has become necessary. To
many of the problems attendant upon present day undertakings, the legislature may not
have the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions. 50

Thus, in the case of Tablarin vs. Gutierrez,  this Court enunciated the rationale in favor of delegation
51

of legislative functions—

One thing however, is apparent in the development of the principle of separation of powers
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern
government, giving rise to the adoption, within certain limits, of the principle of subordinate
 legislation, not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmeña, 68 Phil. 318, 1939). Accordingly, with the
growing complexities of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the
approval of the practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the
tax exemption privileges of persons or entities would be restored. The task may be assigned to an
administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute.
Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise,
a liberal interpretation in favor of constitutionality of legislation should be adopted.
52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB
And as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution
No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products
used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been
upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members
of the Batasan Pambansa." And, even conceding that the reservation of legislative power in the
President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also
illegal. The authority of the President to sub-delegate to the FIRB powers delegated to him is also
questioned.

In Albay,  as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter
54

decree withdrew tax exemptions of government-owned or controlled corporations including their

subsidiaries but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-
discussed, this Court ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86
cannot be enforced as said resolutions were only recommendatory and were not duly approved by
the President of the Philippines as required by P.D. No. 776.  The Court also sustained in Albaythe
55

validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No.
17-87 which was issued pursuant thereto, as it was duly approved by the President as required by
said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
amended, repealed or revoked.
Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent
with the Constitution.
1âwphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and
are unconstitutional, the result would be the same, as then the latest applicable law would be P.D.
No. 938 which amended the NPC charter by granting exemption to NPC from all forms of taxes. As
above discussed, this exemption of NPC covers direct and indirect taxes on petroleum products
used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93
and the delegation of the power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this
Court ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation
of P.D. No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution
Nos. 1085 and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984
to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import
duties the firm had earlier paid to the government which the NPC now proposed to pass on to the
consumers by another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo
increase per kilowatt hour that took effect just over a week ago.,  Hence, another case has been
56

filed in this Court to stop this proposed increase without a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 ,  wherein it is provided that such
57

FIRB resolutions may be approved not only by the President of the Philippines but also by the
Minister of Finance. Such resolutions were promulgated by the Minister of Finance in his own right
and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albaymust be considered superseded to this extent by this decision. This is because
P.D. No. 938 which is the latest amendment to the NPC charter granting the NPC exemption
from all forms of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity
for the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct.  There
1a\^/phi1

are various arrangements in the payment of crude oil purchased by NPC from oil companies.
Generally, the custom duties paid by the oil companies are added to the selling price paid by NPC.
As to the specific and ad valorem taxes, they are added a part of the seller's price, but NPC pays the
price net of tax, on condition that NPC would seek a tax refund to the oil companies. No tax
component on fuel had been charged or recovered by NPC from the consumers through its power
rates.  Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
58

billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of
the consumers who are thereby spared the additional burden of increased power rates to cover
these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats
of only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed
by the government on the petroleum products it used or uses for its operation; and (b) Section 13(d)
of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products
used in its operation only, which is the very exemption which this Court deems to be carried over by
the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that
the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the
"Republic of the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax
on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC
of other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government.
The amount of revenue received or expected to be received by this tax exemption is, however, not
going to any of the oil companies. There would be no loss to the government. The said amount shall
accrue to the benefit of the NPC, a government corporation, so as to enable it to sustain its
tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The
resulting increased revenue in the government will also mean increased power rates to be
shouldered by the consumers if the NPC is to survive and continue to provide our power
requirements.  The greater interest of the people must be paramount.
59

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

MACEDA VS. MACARAIG

[G.R. No. 88291.  June 8, 1993]

FACTS:

A Chronological review of the relevant NPC laws, especially with respect to its tax exemption provisions, at the risk
of being repetitious is, therefore, in order. Commonwealth Act 120 created NAPOCOR as a public corporation to
undertake the development of hydraulic power and the production of power from other sources.  On June 4, 1949,
Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and
unconditionally, as primary obligor, the payment of any and all NPC loans. He was also authorized to contract on
behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the
accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy of the
country. It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of
the Republic of the Philippines, its provinces, cities and municipalities. On the same date, R.A. No. 358 was enacted
expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness
incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties,
fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. On
September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended. A new
section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character
and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and
in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is
hereby declared exempt: library

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, and municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities; virtual law library

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. On January 22, 1974, P.D. No. 380 was issued giving extra
powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified that
NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.”  PD 938 integrated the exemptions
in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance,
upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the
exemptions withdrawn or revised.  The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax
exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985.  Resolution 1-86 (1January 1986)
restored such exemption indefinitely effective 1 July 1985.  EO 93 (1987) again withdrew the exemption.  FIRB
issued Resolution 17-87 (24 June 1987) restoring NAPOCOR’s exemption, which was approved by the President on
5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered
to NAPOCOR.  Oil companies started to pay specific and ad valorem taxes on their sales of oil products to
NAPOCOR only in 1984.  NAPOCOR claimed for a refund (P468.58 million).  Only portion thereof, corresponding to
Caltex, was approved and released by way of a tax credit memo.  The claim for refund of taxes paid by PetroPhil,
Shell and Caltex amounting to P410.58 million was denied.  NAPOCOR moved for reconsideration, starting that all
deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.

ISSUES:

1. Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the exemption in
general terms

2. Whether or not oil companies have to absorb the taxes they add to the bunker fuel oil they sell to NPC in
view of the indirect tax exemption of the NAPOCOR

RULING:

It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:

13(a) : court or administrative proceedings; chanrobles virtual law library

13(b) : income, franchise, realty taxes; chanrobles virtual law library

13(c) : import of foreign goods required for its operations and projects; chanrobles virtual law library

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a) under
the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment or issuance as
narrated above. President Marcos must have considered all the NPC statutes from C.A. No. 120 up to its latest
amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up with a very simple Section 13, R.A. No.
6395, as amended by P.D. No. 938. virtual law library

One common theme in all these laws is that the NPC must be enable to pay its indebtedness which, as of P.D. No.
938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any
one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. l law library

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395 and further amended by P.D. No.
380 which provides: The loans, credits and indebtedness contracted this subsection and the payment of
the principal, interest and other charges thereon, as well as the importation of machinery, equipment,
materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political subdivisions.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do only with
loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT
MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is - with the express mention of "direct and
indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees, imposts,
other charges . . . to be imposed" in the future - surely, an indication that the lawmakers wanted the NPC to be
exempt from ALL FORMS of taxes - direct and indirect. virtual law library

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes
under P.D. No. 938.

On the second issue, according to the Court, tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to pay are in the nature of indirect taxes. To limit
the exemption granted the National Power Corporation to direct taxes notwithstanding the general and broad
language of the statue will be to thwart the legislative intention in giving exemption from all forms of taxes and
impositions without distinguishing between those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC
have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the
economic burden of such taxation is expected to be passed on through the channels of commerce to the user or
consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect
taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This means, on
the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the
taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker
fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies - because to do so may be more convenient and ultimately less costly
for NPC than NPC itself importing and hauling and storing the oil from overseas - NPC is entitled to be reimbursed
by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil
company-vendor to the BIR. virtual law library

ABAYA VS. EBDANE

UESTION: Must a Taxpayer be a party to a contract in order to challenge it's validity?
ANSWER: NO. Ratio: TAXPAYER SUIT

Petitioners Plaridel M. Abaya who claims that he filed the instant petition as a taxpayer,
former lawmaker, and a Filipino citizen, and Plaridel C. Garcia (birds of the same
feather ;p) likewise claiming that he filed the suit as a taxpayer, former military officer,
and a Filipino citizen, mainly seeking to nullify a DPWH resolution which
recommended the award to private respondent China Road & Bridge Corporation of
the contract for the implementation of the civil works known as Contract Package No. 1.
They also seek to annul the contract of agreement subsequently entered into by and
between the DPWH and China Road & Bridge Corporation pursuant to said resolution.

Respondent defends Petitioners don’t have Locus Standi since they are not party to the
contract.

ISSUE:

Do petitioners have the LOCUS STANDI (Legal Standing) to file the instant case against
the government notwithstanding that they are not a party to the contract to challenge
its validity?

RULING:

YES. As TAXPAYERS they have Locus Standi to file the present suit.

Briefly stated, locus standi is a right of appearance in a court of justice on a given

question. More particularly, it is a party’s personal and substantial interest in a case
such that he has sustained or will sustain direct injury as a result of the governmental
act being challenged.

Locus standi however is merely a matter of procedure and it has been recognized that
in some cases, suits are not brought by parties who have been personally injured by
operation of law or any other government act but by concerned citizens, taxpayers or
voters who actually sue in the public interest. Consequently , the court in a catena of
cases, has invariably adopted a liberal stance on locus standi, including those cases
involving taxpayers.
 Ito yung kaya minsan maynaririnig kang nagfafile ng kaso pero wala naman silang
kinalaman sa kontrata or agreement or deal and sinasabi lang nila "at baket taxpayer
ako ah? baket ba?". It is what you call a TAXPAYER’S SUIT. The prevailing doctrine in
Taxpayer's Suit is to allow taxpayers to question government contracts especially pag
merong

1. illegal disbursement of public funds

2. the public money is being deflected to some other purpose or to someone's private
bank account, or they see
3. wastage of public funds through the enforcement of an invalid or unconstitutional
law entered into by the national government or GOCCs allegedly in contravention of
the law.

Significantly, a taxpayer need not be a party to the contract to challenge its validity.

Constitutional Law Case: RANDOLF DAVID, ET AL. VS.

GLORIA MACAPAGAL-ARROYO, ET AL. G.R. No. 171396
RANDOLF DAVID, ET AL. VS. GLORIA MACAPAGAL-ARROYO, ET AL. G.R. No. 171396, 171409, 171485, 171483,
171400, 171489 & 171424 May 3, 2006 
 
Presidential Proclamation No. 1017
 

Facts:
On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power
I, President Arroyo issued PP 1017 declaring a state of national emergency and call upon the Armed
Forces of the Philippines (AFP) and the Philippine National Police (PNP), to prevent and suppress acts
of terrorism and lawless violence in the country. The Office of the President announced the
cancellation of all programs and activities related to the 20th anniversary celebration of  Edsa People
Power I; and revoked the permits to hold rallies issued earlier by the local governments and dispersal
of the rallyists along EDSA. The police arrested (without warrant) petitioner Randolf S. David, a
professor at the University of the Philippines and newspaper columnist. Also arrested was his
companion, Ronald Llamas, president of party-list Akbayan.
In the early morning of February 25, 2006, operatives of the Criminal Investigation and
Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, raided the  Daily
Tribune offices in Manila and attempt to arrest was made against representatives of ANAKPAWIS,
GABRIELA and BAYAN MUNA whom suspected of inciting to sedition and rebellion. On March 3, 2006,
President Arroyo issued PP 1021 declaring that the state of national emergency has ceased to
exist. Petitioners filed seven (7) certiorari with the Supreme Court and three (3) of those petitions
impleaded President Arroyo as respondent questioning the legality of the proclamation, alleging that it
encroaches the emergency powers of Congress and it violates the constitutional guarantees of freedom
of the press, of speech and assembly.

Issue:
1.) Whether or not Presidential Proclamation No. 1017 is unconstitutional?
2.) Whether or not the warantless arrest of Randolf S. David and Ronald Llamas and the dispersal of KMU
and NAFLU-KMU members during rallies were valid?
3.) Whether or not proper to implead President Gloria Macapagal Arroyo as respondent in the petitions?
4.) Whether or not the petitioners have a legal standing in questioning the constitutionality of the
proclamation?
5.) Whether or not the concurrence of Congress is necessary whenever the alarming powers incident to
Martial Law are used?

Ruling:

1.) The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by
the President for the AFP to prevent or suppress lawless violence whenever becomes necessary as
prescribe under Section 18, Article VII of the Constitution. However, there were extraneous provisions
giving the President express or implied power
(A) To issue decrees; (" Legislative power is peculiarly within the province of the Legislature.
Section 1, Article VI categorically states that "[t]he legislative power shall be vested in the Congress of
the Philippines which shall consist of a Senate and a House of Representatives.")
(B) To direct the AFP to enforce obedience to all laws even those not related to lawless
violence as well as decrees promulgated by the President[The absence of a law defining "acts of
terrorism" may result in abuse and oppression on the part of the police or military]; and
(C) To impose standards on media or any form of prior restraint on the press, are ultra
vires and unconstitutional. The Court also rules that under Section 17, Article XII of the Constitution,
the President, in the absence of legislative legislation, cannot take over privately-owned public utility
and private business affected with public interest. Therefore, the PP No. 1017 is only partly
unconstitutional.
2.) The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless
arrest of the KMU and NAFLU-KMU members during their rallies are illegal, in the absence of proof that
these petitioners were committing acts constituting lawless violence, invasion or rebellion and violating
BP 880; the imposition of standards on media or any form of prior restraint on the press, as well as the
warrantless search of the Tribune offices and whimsical seizure of its articles for publication and other
materials, are declared unconstitutional because there was no clear and present danger of a
substantive evil that the state has a right to prevent.
3.) It is not proper to implead President Arroyo as respondent. Settled is the doctrine that the
President, during his tenure of office or actual incumbency, may not be sued in any civil or criminal
case, and there is no need to provide for it in the Constitution or law.
4.) This Court adopted the “direct injury” test in our jurisdiction. In People v. Vera, it held
that the person who impugns the validity of a statute must have “a personal and substantial interest in
the case such that he has sustained, or will sustain direct injury as a result.” Therefore, the court ruled
that the petitioners have a locus standi, for they suffered “direct injury” resulting from “illegal arrest”
and “unlawful search” committed by police operatives pursuant to PP 1017.
5.) Under Article XII Section 17 of the 1987 Philippine Constitution, in times of national emergency,
when the public interest so requires, the President may temporarily take over a privately owned public
utility or business affected with public interest only if there is congressional authority or approval.
There must enactment of appropriate legislation prescribing the terms and conditions under which the
President may exercise the powers that will serves as the best assurance that due process of law would
be observed.
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Gonzales vs. Marcos

GONZALES vs. MARCOS
65 SCRA 624
GR No. L-31685 July 31, 1975
"With the absence of any pecuniary or monetary interest owing from the public, a taxpayer may not have the
right to question the legality of an issuance creating a trust for the benefit of the people but purely funded by
charity."

FACTS: The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines,
having as its estate the real and personal property vested in it as well as donations received, financial
commitments that could thereafter be collected, and gifts that may be forthcoming in the future. It was likewise
alleged that the Board of Trustees did accept donations from the private sector and did secure from the
Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development
Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war
damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million.
The petition was denied by the trial court arguing that with not a single centavo raised by taxation, and the
absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from
those of the general public.

ISSUE: Has a taxpayer the capacity to question the validity of the issuance in this case?

HELD: No. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that
"the funds administered by the President of the Philippines came from donations [and] contributions [not] by
taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary interest." The stand of
the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in
Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was
first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied
the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by
taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a
legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal,
"is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so
viewing the situation.

Liwayway Vinzons-Chato vs. Fortune Tobacco, Corp.

 on 6:55 AM  in Case Digests, Civil Law 
 0
G.R. No. 141309, June 19, 2007
FACTS:

This is a case for damages under Article 32 of the Civil Code filed by Fortune
against Liwayway as CIR.

On June 10, 1993, the legislature enacted RA 7654, which provided that locally
manufactured cigarettes which are currently classified and taxed at 55% shall be
charged an ad valorem tax of “55% provided that the maximum tax shall not be
less than Five Pesos per pack.” Prior to effectivity of RA 7654, Liwayway issued
a rule, reclassifying “Champion,” “Hope,” and “More” (all manufactured by
Fortune) as locally manufactured cigarettes bearing foreign brand subject to the
55% ad valorem tax. Thus, when RA 7654 was passed, these cigarette brands
were already covered.

In a case filed against Liwayway with the RTC, Fortune contended that the
issuance of the rule violated its constitutional right against deprivation of property
without due process of law and the right to equal protection of the laws.
 For her part, Liwayway contended in her motion to dismiss that respondent has
no cause of action against her because she issued RMC 37-93 in the
performance of her official function and within the scope of her authority. She
claimed that she acted merely as an agent of the Republic and therefore the
latter is the one responsible for her acts. She also contended that the complaint
states no cause of action for lack of allegation of malice or bad faith.

The order denying the motion to dismiss was elevated to the CA, who dismissed
the case on the ground that under Article 32, liability may arise even if the
defendant did not act with malice or bad faith.

Hence this appeal.

ISSUES:

o Whether or not a public officer may be validly sued in his/her private

capacity for acts done in connection with the discharge of the functions of his/her
office
o Whether or not Article 32, NCC, should be applied instead of Sec. 38, Book I,
Administrative Code

HELD:

On the first issue, the general rule is that a public officer is not liable for damages
which a person may suffer arising from the just performance of his official duties
and within the scope of his assigned tasks. An officer who acts within his
authority to administer the affairs of the office which he/she heads is not liable for
damages that may have been caused to another, as it would virtually be a charge
against the Republic, which is not amenable to judgment for monetary claims
without its consent. However, a public officer is by law not immune from
damages in his/her personal capacity for acts done in bad faith which, being
outside the scope of his authority, are no longer protected by the mantle of
immunity for official actions.

Specifically, under Sec. 38, Book I, Administrative Code, civil liability may arise
where there is bad faith, malice, or gross negligence on the part of a superior
public officer. And, under Sec. 39 of the same Book, civil liability may arise where
the subordinate public officer’s act is characterized by willfulness or negligence.
In Cojuangco, Jr. V. CA, a public officer who directly or indirectly violates the
constitutional rights of another, may be validly sued for damages under Article 32
of the Civil Code even if his acts were not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in
his/her private capacity for acts done in the course of the performance of the
functions of the office, where said public officer: (1) acted with malice, bad faith,
or negligence; or (2) where the public officer violated a constitutional right of the
plaintiff.

On the second issue, SC ruled that the decisive provision is Article 32, it being a
special law, which prevails over a general law (the Administrative Code).

Article 32 was patterned after the “tort” in American law. A tort is a wrong, a
tortious act which has been defined as the commission or omission of an act by
one, without right, whereby another receives some injury, directly or indirectly, in
person, property or reputation. There are cases in which it has been stated that
civil liability in tort is determined by the conduct and not by the mental state of the
tortfeasor, and there are circumstances under which the motive of the defendant
has been rendered immaterial. The reason sometimes given for the rule is that
otherwise, the mental attitude of the alleged wrongdoer, and not the act itself,
would determine whether the act was wrongful. Presence of good motive, or
rather, the absence of an evil motive, does not render lawful an act which is
otherwise an invasion of another’s legal right; that is, liability in tort in not
precluded by the fact that defendant acted without evil intent.