1. CIR v. Algue, Inc., GR L-28896, February 17, 1988, Cruz, J. First Div.

(Lifeblood,
Symbiotic relationship)
FACTS:
PH Sugar Estate Development Company (PSEDC) appointed Algue as agent to sell its land etc.
Pursuant to such authority, Alberto Guevara, Eduardo Guevara et al. worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it. After its
incorporation thru the promotion of Alberto et al., this corporation purchased the PSEDC
properties. For this sale, Algue received as agent a commission of P126k, and from this
commission P75k promotional fees were paid to Alberto et al.

The issue in this case is whether CIR correctly disallowd the P75k deduction claimed by Algue
as legitimate business expenses in its ITR. CIR claims that the P75k was properly disallowed
since it was not an ordinary or necessary business expense. CTA ruled that the amount was
legitimately paid by Algue for services rendered (promotional fees).

ISSUE:
Whether the P75k promotional fees should be allowed as deduction from the ITR of Algue.
HELD: YES.
The promotional fees were not excessive. After deducting P75k, Algue still had a balance of
P50k as profit from the transaction. P75k was 60% of the total commission. This was a
reasonable proportion considering that it was the payees (Alberto et al.) who did practically
everything. The finding of CTA is in accord with S30 of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; xxx
It is said that taxes are what we pay for civilized society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in

all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.

2. PAL v. Edu, GR 41383, August 15, 1988, Gutierrez, Jr., J. En Banc. (Motor Vehicle
Registration Fees are taxes if the primary purpose of Congress in imposing it is to raise
revenue even if 1/5 goes to operating expenses of the regulatory agency administering the
fees)
FACTS:
Under its franchise, PAL is exempt from payment of taxes. Since 1956, it has not been paying
motor vehicle registration fees (MVRF). But in 1971, Commissioner Edu issued a regulation
requiring all tax exempt entities, including PAL, to pay MVRFs. PAL paid under protest the
registration fees. PAL wrote a letter to Edu demanding a refund of the amounts paid, invoking
Calalang v. Lorenzo where it was held that MVRFs are in reality taxes from which payment
PAL is exempt by virtue of its legislative franchise. Edu denie the request, basing his action in
Republic v. PH Rabbit Bus Lines, Inc. (March 30, 1970) to the effect that MVRFs are regulatory
exactions and not revenue measures, and thus do not come within the exemption granted to PAL.

Hence, PAL filed a complaint against Land Transportation Commissioner Edu in CFI.

ISSUE:
Whether motor vehicle registration fees are regulatory fees or taxes.
HELD: TAXES
1) Today, MVRFs is governed by RA 4136, Land Transportation Code as amended. S73 of CA
123 states:
Section 73. Disposal of moneys collected. — Twenty per centum of the money collected under
the provisions of this Act shall accrue to the road and bridge funds of the different provinces and
chartered cities in proportion to the cedula sales during the next previous year and the remaining
eighty per centum shall be deposited in the Philippine Treasury to create a special fund for the
construction and maintenance of national and provincial roads and bridge xxx.

Presently, S61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Monies Collected. — Monies collected under the provisions of this
Act shall be deposited in a special trust account in the National Treasury to constitute the
Highway Special Fund, which shall be apportioned and expended in accordance with the
provisions of the ‘Philippine Highway Act of 1935.’ Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but not to exceed
twenty per cent of the total collection during one year, shall be set aside for the purpose.

2) From these, the legislative intent behind the law is mainly to raise funds for the
construction and maintenance of highways and, to a much lesser degree, to pay for the
operating expenses of the administering agency.

3) Fees may properly be regarded as taxes even though they also serve as an instrument of
regulation. "It is possible for an exaction to be both tax and regulation. License fees are often
looked to as a source of revenue as well as a means of regulation. This is true, for example, of
automobile license fees. In such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue
is at least one of the real and substantial purposes, then the exaction is properly called a tax. “

Indeed, taxation may be made the implement of the state’s police power. If the PURPOSE is
primarily revenue, or if revenue is at least one of the substantial purpose, then the exaction
is properly called a tax. Such is the case of MVRFs. Though nowhere in Rep. Act 4136 does the
law specifically state that the imposition is a tax, Section 59(b) speaks of "taxes or fees . . . for
the registration or operation or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur . . ." making the intent to impose a tax more apparent. Thus, even RA
5448 cited by the respondents, speak of an "additional tax.” Simply put, if the exaction under
Rep. Act 4136 were merely a regulatory fee, the imposition in RA 5448 need not be an
"additional" tax. Rep. Act 4136 also speaks of other "fees" such as the special permit fees for
certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11).
These are not to be understood as taxes because such fees are very minimal to be revenue-
raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle
registration fee and chauffeurs’ license fee. Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last proviso of sec. 61, aforequoted.

4) It is quite apparent that MVRFs were originally simple exactions intended only for regulatory
purposes in the exercise of police powers. Over the years, however, as vehicular traffic exploded
in number, Congress found the registration of vehicles a very convenient way of raising much
needed revenues. Without changing the earlier denomination of registration payments as "fees,"
their nature has become that of "taxes.” Thus, MVRFs as at present exacted pursuant to the
Land Transportation and Traffic Code are actually taxes intended for additional revenues of
government even if 1/5 or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

5) SC found that the tax exemption of PAL were correctly collected fron June 27, 1968 to April
9, 1979 since the tax exemption of PAL in its franchise was repealed. But PAL was excepted
again in PD 1590, or from April 9, 1979.

3. Esso Standard Eastern, Inc. .v CIR, GR 28508, July 07, 1989, Cruz, J., First Div.
FACTS:
Esso deducted from its gross income for 1959 P340k representing margin fees it paid to the
Central Bank on its profit remittances to its New York head office. CIR disallowed this. CIR
assessed Esso a deficiency income tax arising from the disallowance of the margin fees. Esso
appealed to CTA and contended that margin fees were deductible from gross income either as a
tax or as ordinary and necessary business expense. CTA denied. Hence this petition.

ISSUE:
Whether the margin fee is a tax so as to be deductible from Esso’s taxes.
HELD: NO.
1) The first question to settle is whether RA 2009, authorizing the Central Bank to establish a
margin over banks’ selling rates of foreign exchange, is a police or revenue measure. It a revenue
measure, the margin fees are deductible under S30(b) of the NIRC, providing that all taxes paid
during the taxable year related to the taxpayer’s trade etc. are deductible from gross income.

2) A margin levy on foreign exchange is a form of exchange control/restriction designed to

discourage imports and encourage exports, and ultimate curtail excessive demand upon the
international reserve in order to stabilize the currency. We have already held that a tax is levied
to provide revenue for government operations, while the proceeds of the margin fee are
applied to strengthen our country’s international reserves. Thus, the margin fee is imposed in
the exercise of police power and not the power of taxation.
3) Esso prays that if margin fees are not taxes, they should be deductible necessary and ordinary
business expenses. S30(a) of NIRC provides xxx. We come, then, to the statutory test of
deductibility where it is axiomatic that to be deductible as a business expense, three conditions
are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or
incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or
business. In addition, not only must the taxpayer meet the business test, he must substantially
prove by evidence or records the deductions claimed under the law, otherwise, the same will be
disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and necessary
does not justify its deduction.

Ordinarily, an expense will be considered “necessary” where the expenditure is appropriate and
helpful in the development of the taxpayer’s business. It is “ordinary” when it connotes a
payment which is normal in relation to the business of the taxpayer and the surrounding
circumstances. The term ‘ordinary’ does not require that the payments be habitual or normal in
the sense that the same taxpayer will have to make them often; the payment may be unique or
non-recurring to the particular taxpayer affected. There is no hard and fast rule. The right to
deduction depends on the particular facts. The intention of the taxpayer may be the controlling
fact in making the determination.

Here, the margin fees are not expenses in connection with the production or earning of Esso’s
incomes in PH. They were expenses incurred in the disposition of said incomes, expenses for the
remittance of funds after they have already been earned by petitioner’s branch in the PH for the
disposal of its Head Office in NY, which is a distinct taxpayer. Thus, the margin fees were not
helpful in the development of Esso’s business in PH or were incurred for purposes proper to the
conduct of the affairs of Esso’s PH branch. If at all, the margin fees are proper to the conduct of
corporate affairs of the company in NY, but not in PH.

4. Physical Therapy Organization of PH, Inc. v. Municipal Board of Manila, GR L-10448,

August 30, 1957, Montemayor, J., En Banc. (License fee for occupations not useful or
beneficial to public health, but inimical thereto, may be very large and still it is imposed
not for revenue but for regulation, and thus not a tax)
FACTS:
Petitioner, association of registered massagists and operators of massage clinics in Manila, filed
an action for declaratory judgment in CFI as to the validity of Municipal Ordinance 3659 by the
Municipal Board and approved by the City Mayor. CFI dismissed the petition. Petitioner
appealed the dismissal directly to SC.

Ordinance 3659 provides:

SEC. 2. Permit Fees. — No person shall engage in the operation of a massage clinic or in
the occupation of attendant or helper therein without first having obtained a permit
therefor from the Mayor. For every permit granted under the provisions of this
Ordinance, there shall be paid to the City Treasurer the following annual fees:

(a) Operator of a massage P100.00

(b) Attendant or helper 5.00
 SEC. 3. Building requirement. — (a) In each massage clinic, there shall be separate
rooms for the male and female customers. Rooms where massage operations are
performed shall be provided with sliding curtains only instead of swinging doors.
(b) In every clinic there shall be no private rooms or separated compartment except those
assigned for toilet, lavatories, dressing room, office or kitchen.
ISSUE:
Whether the P100 annual fee for operators of massage clinics is a tax.
HELD: NO.
1) The P100 fee is made payable not by the masseur or massagist but by the operator of a
massage clinic who may not be a massagist himself. Compared to permit fees in other
operations, P100 may appear to be too large and unreasonable. But much discretion is given to
municipal corporations in determining the amount of said fee without considering it as a tax for
revenue purposes:

"The amount of the fee or charge is properly considered in determining whether it is a tax
or an exercise of the police power. The amount may be so large as to itself show that
the purpose was to raise revenue and not to regulate, but in regard to this matter there
is a marked distinction between license fees imposed upon useful and beneficial
occupations which the sovereign wishes to regulate but not restrict, and those which are
inimical and dangerous to public health, morals or safety. In the latter case the fee
may be very large without necessarily being a tax."

The Manila Municipal Board considered hygienic and aesthetic massage as not a useful and
beneficial occupation and thus imposed said permit fee for regulation.

5. Republic v. Mambulao Lumber Company, et al., GR L-17725, February 28, 1962,

Barrera, J., En Banc. (Taxes cannot be subject of compensation because government
expenditure might be curtailed and the taxpayer and government are not creditor-debtor)
FACTS:
Mambulao admits liability to the government of P4,802 forest charges. They claim that they paid
a total of P9,127 reforestation charges and that under RA 115, S1, these shall be used for
reforestation and afforestation etc. of denuded areas. Mambulao claims that since the
reforestation charges were not used, Republic should refund Mambulao therefor, or if it cannot
be refunded, then it should be compensated with what Mambulao owed the Republic.

ISSUE:
Whether the reforestation charges collected for the purpose of reforestation of denuded areas
may be compensated with the liability of Mambulao for forest charges.
HELD: NO.
1) RA 115, S`1 provides:
SECTION 1. There shall be collected, in addition to the regular forest charges xxx. The
amount collected shall be expended xxx for reforestation and afforestation of
watersheds, denuded areas and cogon and open lands within forest reserves, communal
forest, national parks, timber lands, sand dunes, and other public forest lands, which upon
investigation, are found needing reforestation or afforestation.
 All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived from
plantations as herein provided shall constitute a fund to be known as Reforestation
Fund, to be expended exclusively in carrying out the purposes provided for under this
Act.

2) Thus, the amount collected as reforestation charges shall constitute a Reforestation Fund to be
expended for reforestation and afforestation. There is nothing in the law that requires the amount
collected as reforestation charges to be used exclusively for the reforestation of the area covered
by the license of a licensee, and that if not so used, the same should be refunded to him. The
licensee’s area may or may not be reforested at all depending on the investigation of the director
of forestry that said area needs reforestation.

3) The conclusion is that the reforestation charge is in the nature of a tax which forms part of
the reforestation fund, payable by a licensee irrespective of whether the area covered by his
license is reforested or not.

4) Mambulao claims that compenasation under Art. 1278 of NCC applies. But Republic and
Mambulao are not mutually creditors and debtors of each other. The forest charges which the
defendant Mambulao Lumber Company has paid to the government are in the coffers of the
government as taxes collected, and the government does not owe anything, crystal clear that the
Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors
of each other.

4.1) The general rule, based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes. The
reason is that taxes are not in the nature of contracts between the party but grow out of a 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. If the taxpayer can properly refuse to
pay his tax when called upon by the Collector, because he has a claim against the governmental
body which is not included in the tax levy, some legitimate and necessary expenditure must
be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide
the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown
into great confusion.

6. Francia v. IAC, GR L-67649, June 28, 1988, Gutierrez, Jr., J., Third Division. (Taxes are
not subject to legal compensation)
FACTS:
Engracio Francia owns a house and lot in Pasay, Metro Manila. A 125m2 portion thereof was
expropriated by the Republic for P4,116. Since 1963 to 1977, Francia failed to pay his real
estate taxes. Thus, his property was sold at public auction by the city treasurer of Pasay. Francia
filed a complaint to annul the auction sale. The lower court denied this. IAC affirmed. Hence this
petition.

Francia argues that his tax delinquency of P2,400 is extinguished by legal compensation since
the government owed him P4,116 when a portion of his land was expropriated..
ISSUE:
Whether the real estate tax of P2,400 due to the city government may be off-sett by the P4,116
just compensation owing to Francia from the national government.
HELD: NO.
1) The requirements in Art. 1279 are not complied with, 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;
"(3) that the two debts be due.
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. (SC cites Republic v. Mambulao, case #5) 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."

2) Also, the real estate tax was due to the city government while the expropriation was effected
by the national government. Francia also knew that the P4,116 was deposited in PNB. He could
have withdrew P2,400 therefrom and pay his tax obligation.

7. Domingo (as CIR) v. Hon. Garlitos, GR L-18994, June 29, 1963, Labrador, J., En Banc.
(Taxes may be subject to legal compensation with a debt of the government which is
already overdue and demandable, overdue because a law has already appropriated funds
for such debt)
FACTS:
In a decision, SC declared as final and executory the order of a CFI for the payment of
inheritance taxes by the estate of the late Walter Scott Price of P40k. To enforce this, the fiscal
presented a petition for the execution of the judgment. CFI denied for the reason that the
government is indebted to the estate of P262k. It found that RA 2700 appropriated P262k for
payment thereof. Hence this petition to set aside the order of the court below denying the
execution.

ISSUE:
Whether the debt of P262k of the government to the estate may be compensated with the debt of
the estate to the government of P40k, where RA 2700 has appropriated P262k for payment to the
estate.
HELD: YES.
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 as
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.
8. Davao Gulf Lumber Corporation v. CIR, GR 117359, July 23, 1998, Panganiban, J., En
Banc. (Tax exemption[refund] granted applies only to rates existing at the time of grant,
not to future increased rates unless there is express legislative will to grant such exemption
again)
FACTS:
Davao Gulf has a TLA. It purchased from various oil companies refined and manufactures
mineral oils and motor and diesel fuels which it used exclusively for the operation of its forest
concession. The oil companies paid the specific taxes imposed under S153 and 156 of the 1977
NIRC. The tax was included in the purchase price of the oil products and thus passed on to the
user, Davao Gulf.

Davao Gulf filed with CIR a claim for refund of P120k, representing 25% of specific taxes paid
on these oil purchases based on S5 of RA 1435:
Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the road
and bridge funds of the political subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils mentioned above are used by
miners or forest concessionaires in their operations, twenty-five per centum of the
specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils
Petitioner filed a petition for review with CTA. CTA granted only partial refund of P2.9k. On
appeal to CA, Davao Gulf claims that the basis for computing the refund should be the increased
rates under S153 and 156 of NIRC. But CA affirmed CTA. Hence this petition for review.

ISSUE:
Whether the refund should be based on the increased specific taxes in S153 and 156 of the 1977
NIRC.
HELD: NO.
1) RA 1435 provides:
Sec. 1 Section one hundred and forty-two of the National Internal Revenue Code, as
amended, is further amended to read as follows:
Sec. 142. Specific tax on manufactured oils and other fuels. - On refined and
manufactured mineral oils and motor fuels, there shall be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;
xxx
The 1977 NIRC renumbered and amended this and prescribed higher rates. S153 and 156
provided:
Sec. 153. Specific tax on manufactured oils and other fuels. - On refined and
manufactured mineral oils and motor fuels, there shall be collected the following taxes
which shall attach to the articles hereunder enumerated as soon as they are in existence as
such:
(a) Kerosene, per liter of volume capacity, seven centavos;
xxx
Then later, EO 672 further amended this:
Sec. 153. Specific tax on manufactured oils and other fuels. - On refined and
manufactured mineral oils and motor fuels, there shall be collected the following taxes
 which shall attach to the articles hereunder enumerated as soon as they are in existence as
such:
(a) Kerosene, per liter of volume capacity, nine centavos;
2) A tax cannot be imposed unless it is supported by the clear and express language of a
statute; on the other hand, once the tax is unquestionably imposed, "[a] claim of exemption from
tax payments must be clearly shown and based on language in the law too plain to be
mistaken." Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax
exemption, it must be construed strictissimi Juris against the grantee. Hence, petitioner's
claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a
statute stated in a language too clear to be mistaken.
2.1) There is no expressison of a legislative will in RA 1435 and the subsequent statutes
authorizing refund based on the higher rates claimed by petitioner. When the law itself does not
explicitly provide that a refund under RA 1435 may be based on higher rates which were
nonexistent at the time of its enactment, this Court cannot presume otherwise. A legislative
lacuna cannot be filled by judicial fiat.

9. Caltex PH, Inc. v. Commission on Audit, GR 92585, May 08, 1992, Davide, Jr., J., En
Banc. (Tax exemptions strictly construed against taxpayer)
FACTS:
The issues raised revolve around the Oil Price Stabilization Fund (OPSF) in S8 of PD 1956:
"SECTION 8. There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported petroleum
products. xxx
COA sent a letter to Caltex, directing it to remit to OPSF its collection of the additional tax on
petroleum products under S8 of PD 1956, and informing it that pending such remittance, all its
claims for reimbursement from OPSF will be held in abeyance. The total unremitted collections
found by COA is P1.2B. Caltex requested COA for early release of reimbursement from OPSF,
but COA denied, reiterating its directive to remit the unremitted collections to OPSF.

As reply, Caltex submitted to COA a proposal for payment of the collections. This was accepted
in Decision 921 of COA, with COA prohibiting Caltex from further offsetting remittances and
reimbursements for the ensuing years after 1989. Pursuant to this decision, COA sent a letter to
executive director De la Paz of the Office of Energy Affairs (OEA), which included
disallowances of P387M, among which are:

Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that ‘I hereby order and direct the suspension
of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect
due and payable by the copper mining companies in distress to the national and local
governments’. It is our opinion that LOI 1416 which implements the exemption from
payment of OPSF imposts as effected by OEA has no legal basis.
Caltex thus filed a request for reconsideration of the decision with COA. COA affirmed the
disallowance. Hence this petition.
ISSUE:
Whether the disallowances (Atlas/Marcopper sales) were proper.
HELD: YES.
Caltex relies on LOI 1416 which ordered suspension of payments of all taxes etc. payable by the
copper mining companies in distress. Pursuant to this LOI, then minister of energy issued a
memorandum circular advising oil companies that Atlas Consolidated Mining Corp. and
Marcopper Mining Corporation are among those declared to be in distress. In denying the claims
arising from sales to Atlas and Marcopper, COA opined that LOI 1416 has no legal basis.

SC concurred with the reasons of COA. Further, it held thus:

1) LOI 1416 has no force and effect as it was never published in the Official Gazette after its
issuance.

2) Granting arguendo that LOI 1416 has force and effect, Caltex’s claim must still fail. Tax
exemptions as a general rule are construed strictly against the grantee and liberally in favor of the
taxing authority. The burden proof rests upon the party claiming exemption to prove that it in
fact covered by the exemption so claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be within its purview by clear legislative
intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to
ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though
LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give
petitioner the same privilege with respect to the payment of OPSF dues.

10. CIR v. CA and Young Men’s Christian Association of the PH, GR 124043, October 14,
1998, Panganiban, J., First Division. (Tax exemptions must be expressly stated in the law in
language too clear to be mistaken)
FACTS:
YMCA is a non-stock non-profit institution which conducts programs beneficial to the public,
especially the young people, pursuant to its religious, educational, and charitable objectives. It
earned in 1980 an income of P676k from leasing out a portion of its premises to small shop
owners and P44k from parking fees collected from non-members. CIR issued it an assessment
of P415k for deficiency income tax. YMCA protested the assessment. CIR denied. CTA ruled in
favor of CTA, saying that the shops and parking lots are reasonably incidental to the
accomplishment of YMCA’s objectives and these were leased to members. CTA held “it would
have been different if under the circumstances, YMCA will purchase a lot and convert it to a
parking lot to cater to the needs of the general public for a fee xxx.” CA affirmed. Hence thus
petition.

ISSUE:
Whether YMCA’s rental income is exempt from tax.
HELD: NO.
1) NIRC S27 (now S26) provides:
Sec. 27. Exemptions from tax on corporations. - The following organizations shall not be
taxed under this Title in respect to income received by them as such -
 xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other non-
profitable purposes, no part of the net income of which inures to the benefit of any
private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit, regardless of the disposition
made of such income, shall be subject to the tax imposed under this Code. (as amended
by Pres. Decree No. 1457)
2) Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of
strict interpretation of tax exemptions. Also, a claim for statutory exemption from taxation
should be manifest and unmistakable from the language of the law on which it is based. The
claimed exemption must be expressly granted in a statute stated in a language too clear to be
mistaken.

Here, the exemption claimed by YMCA is expressly disallowed by the last par. of S27 of
NIRC which mandates that income of exempt organizations from any of their properties shall
be subject to tax. Where the language of the law is clear and unambiguous, its express terms
must be applied.

3) YMCA argues that the last par. of S27 of NIRC should be “subject to the qualification that the
income from the properties must arise from activities conducted for profit before it may be
taxable.” However, “any of their activities conducted for profit” does not qualify the word
“properties.” This makes the property of the organization taxable, regardless of how that
income is used. Verba legis non est recedendum.

4) YMCA invokes Art. VI, S28 par3 of the 1987 constitution, exempting “charitable institutions”
from paying not only property taxes but also of income tax of any source:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall be
exempt from taxation.
However, Justice Davide Jr., former constitutional commissioner, Fr. Joaquin Bernas, and Justice
Jose Vitug states that the tax exemption covers property taxes only. The income tax exemption
claimed by YMCA finds no basis in Art. VI, S28, par. 3.

5) YMCA also invokes Art. XIV, S4, par. 3:

(3) All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence of such institutions, their
assets shall be disposed of in the manner provided by law.
For YMCA to be granted exemption under this, it must prove with substantial evidence that (1) it
falls under the classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly, and exclusively for educational
purposes. YMCA has not presented any evidence to prove these.

5.1) YMCA is not an educational institution under Art. XIV, S4, par. 3. The term "educational
institution" or "institution of learning" has acquired a well-known technical meaning, of which
the members of the Constitutional Commission are deemed cognizant. Under the Education Act
of 1982, such term refers to schools. Nothing in YMCA’s by-laws or articles of incorporation
hints that it is a school.

Also, under the Education Act of 1982, even non-formal education is understood to be school-
based and "private auspices such as foundations and civic-spirited organizations" are ruled
out. It is settled that the term "educational institution," when used in laws granting tax
exemptions, refers to a ". . . school seminary, college or educational establishment .

5.2) There is also no proof that the subject income was axtually, directly, and exclusively used
for educational purposes.

11. Pascual v. Secretary of Public Works, GR L-10405, December 29, 1960, Concepcion, J.,
En Banc. (Taxes must be used only for a public purpose)
FACTS:
Wenceslao Pascual, provincial governor of Rizal, filed an action for declaratory relief with
injunction on the ground that RA 920, appropriating funds for public works, had an appropriation
of P85k for the construction, reconstruction, repair etc. of “Pasig feeder road terminals”. At the
time of passage of said Act, these feeder roads were within the Antonio Subdivision, which are
privately owned by Jose Zulueta, Senator. Zulueta, 5 months after the Act, executed a deed of
donation thereof to the Government.

Pascual prayed that the contested item in RA 920 be declared void and that injunction be issued
to enjoin respondent from making further releases on this item of RA 920. Respondents moved
to dismiss on the ground that Pascual had no legal capacity to sue. The lower court dismissed the
case. Hence this petition.

ISSUE:
Whether the appropriation under RA 920 for a private property is valid.
HELD: NO.
1) It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure
which must determine its validity as justifying a tax, and not the magnitude of the interests to be
affected nor the degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental advantage to the public or
to the state, which results from the promotion of private interests and the prosperity of private
enterprises or business, does not justify their aid by the use of public money.

The right of the legislature to appropriate funds is correlative with its right to tax, under
constitutional provisions against taxation except for public purposes and prohibiting the
collection of a tax for one purpose and the devotion thereof to another purpose, no
appropriation of state funds can be made for other than a public purpose.

These views are sound and a necessary corollary to our democratic system of government which
exists primarily for the promotion of the general welfare.

2) The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occupying or acts performed subsequently thereto, unless the latter
consist of an amendment to the organic law. The legality of the P85k appropriation depended on
whether the roads were public or private property when RA 920 was passed. Since the land was
privately owned by Zulueta, the appropriation sought a private purpose and was thus void.
The donation to the government 5 months after approval and effectivity of the Act did not cure
its aforementioned basic defect.

3) "In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute the general rule is that only persons individually affected, but
also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of statutes requiring expenditure of
public moneys.

This view was not favored by the US SC insofar as federal laws are concerned since the
relationship of a taxpayer of the US to its federal government is different from that of a taxpayer
of a municipal corporation to its government. But the relation between the people of PH and its
taxpayers and of the Republic of PH is not identical to that of the US taxpayers and its federal
government. Our simple and unitary government is not subject to limitations analogous to those
imposed by the Federal Constitution upon the states of US. Thus, the rule recognizing the right
of taxpayers to assail the constitutionality of legislation appropriating local or state public
funds has greater application in PH.

12. Mactan Cebu International Airport Authority v. Hon. Marcos, GR 120082, September
11, 1996, Davide, Jr., J., Third Division.
FACTS:
MCIAA was created under RA 6958 to manage the Mactan International Airport in Cebu and
other airports in Cebu. In S14 of its charter, MCIAA was exempted “from realty taxes imposed
by the national government or any of its political subdivisions.” But the Treasurer of Cebu
demanded realty taxes on several lands owned by MCIAA. MCIAA claimed exemption under
S14, RA 6958. It also cites S133 of the LGC which provides:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. —
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangay shall not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
MCIAA asserted that it is an instrumentality of government. Cebu refused to cancel the realty tax
assessment insisting that MCIAA is a government-controlled corporation whose tax exemption
was withdrawn by S193 and 234 of the LGC. MCIAA filed a petition for declaratory relief in
RTC, claiming that it is an instrumentality of the national government, while Cebu claims that it
is only a GOCC performing proprietary functions. RTC dismissed the petition of MCIAa. Hence
this petition.

ISSUE:
Whether MCIAA is exempted from realty tax under the LGC.
HELD; NO.
1) As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only
in the responsibility of the legislature which imposes the tax on the constituency who are to pay
it. Nevertheless, effective limitations thereon may be imposed by the people through their
Constitutions. Our Constitution, for instance, provides that the rule of taxation shall be uniform
and equitable and Congress shall evolve a progressive system of taxation. So potent indeed is the
power that it was once opined that "the power to tax involves the power to destroy." Verily,
taxation is a destructive power which interferes with the personal and property for the support of
the government. Accordingly, tax statutes must be construed strictly against the government and
liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construed strictissimi juris against the taxpayers and
liberally in favor of the taxing authority. A claim of exemption from tax payment must be clearly
shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the
rule, exemption therefrom is the exception. However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because
the practical effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.

2) The power to tax is primarily vested in Congress. But it may be exercised by local legislative
bodies, no longer merely by valid delegation, but pursuant to direct authority conferred by S5,
Art. X of the Constitution, where the exercise of the power may be subject to such limits
Congress may provide which must be consistent with local autonomy.

3) Under S14 of RA 6958, MCIAA is exempt from realty taxes, but this may be withdrawn at the
pleasure of the taxing authority. The only exception is where the exemption was granted to
private parties based on material consideration of a mutual nature, which then becomes
contractual and thus covered by the non-impairment clause of the constitution.

4) S133 (o) is pertinent to this case. “Fees” means charges fixed by law or ordinance for
regulation or inspection of business activity. “Charges” are pecuniary liabilities like rents or fees
against person or property. Among the “taxes” in the LGC is real property tax governed by S232
of LGC:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a municipality
within the Metropolitan Manila Area may levy on an annual ad valorem tax on real
property such as land, building, machinery and other improvements not hereafter
specifically exempted.
S234 of LGC provides:
 Sec. 234. Exemptions from Real Property Tax. — The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for reconsideration
or otherwise, to a taxable person; xxx
Except as provided herein, any exemptions from payment of real property tax previously
granted to or presently enjoyed by, all persons whether natural or juridical, including all
government owned or controlled corporations are hereby withdrawn upon the
effectivity of his Code.

S193 is the general provision of withdrawal of tax exemption privileges:

Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this
code, tax exemptions or incentives granted to or presently enjoyed by all persons,
whether natural or juridical, including government-owned, or controlled corporations,
except local water districts, cooperatives duly registered under R.A. 6938, non stock and
non profit hospitals and educational constitutions, are hereby withdrawn upon the
effectivity of this Code.
5) For Tax exemptions granted to natural or juridical persons, including GOCCs, S193 of LGC
prescribes the general rule. S234 last par. qualifies the retention of exemption as to real property
taxes by limiting the retention only to those enumerated therein. All not enumerated lost the
privilege upon effectivity of LGC. Even as to real property owned by the Republic or its political
subdivisions in S234(a), the exemption is withdrawn if the beneficial use of the property has
been granted to taxable persons.

6) Since the last par. of S234 withdrew upon effectivity of the LGC exemptions from real
property taxes granted, including to GOCCs, except as provided in said section, and MCIAA is a
GOCC, it follows that its exemption granted in S14 of its charter, RA 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge
under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts,
since, as shown above, the said section is qualified by Section 232 and 234.

In short, MCIAA can no longer invoke the general rule in S133 (o). It must be shown that the
lands are any of those enumerated in S234 either by virtue of ownership, character, or use of the
property:

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of
ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a
municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious
cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands buildings and
improvements which are actually, directed and exclusively used for religious, charitable
or educational purpose; (ii) all machineries and equipment actually, directly and
 exclusively used or by local water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (iii) all machinery and equipment used for pollution
control and environmental protection.

7) Petitioner could most likely fall in S234(a) since it claims to be an instrumentality of the
government. However, petitioners fail to consider that S133(o) used the phrase “national
government xxx” while S234(a) uses “Republic of the Philippines.” These are not
interchangeable. “Republic of the PHL” is broader and synonymous with “Government of the
Republic of the PHL” as defined in the Administrative Code of 1987 (“corporate governmental
entity thru which the functions of government are exercised xxx). “National Government” on the
other hand refers to the “entire machinery of the central government as distinguished from the
different forms of local government.” This thus refers to the three departments- executive
judicial legislative. “Agency” of government refers to “any of the various units of the
government, including a xxx instrumentality or GOCC.” “Instrumentality” refers to “any agency
of the national government, not integrated within the department framework xxx.”

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption
from payment of real property taxes under the last sentence of the said section to the agencies
and instrumentalities of the National Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not. The source of this exemption isS40(a) of
PD 646, Real Property Tax Code:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporations so exempt by is
charter: Provided, however, that this exemption shall not apply to real property of the
above mentioned entities the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person.
As reproduced in S234(a), the phrase “and any GOCC so exempt by its charter” was excluded.
The justification for this restricted exemption in S234(a) is to limit further tax exemption
privileges in light of the general provision on withdrawal of exemption in the last par. of S234.

13. Hon. Bagatsing v. Hon. Ramirez, GR L-41631, December 17, 1976, Martin, J., En Banc.
(A private corporation may be validly contracted to collect taxes as long as the taxes will
not go to its private coffers but will be used ul timately for public purposes)
FACTS:
The Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR
THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF
AND FOR OTHER PURPOSES." Mayor Bagatsing approved the ordinance. Respondent
Federation of Manila Market Vendors filed an action in CFI presided by respondent Judge
Ramirez to nullify Ordinance 7522 for the reason that the publication requirement under the
Revised Charter of Manila was not complied with. Judge Ramirez nullified the ordinance on
the ground that it did not comply with the publication requirement under the Manila Charter.
Petitioners moved to reconsider, claiming only post-publication is required in the Local Tax
Code.
ISSUES:
1) Whether the Revised Charter of Manila or the Local Tax Code applies to the publication of
the ordinance 7522 prescribing fees for rentals of stalls.
2) Whether Manila can validly delegate the collection of the taxes in ordinance 7522 to a private
corporation.
HELD:
1) Local Tax Code.
The Revised Charter of Manila is a special act since it relates only to the City of Manila while
the Local Tax Code is a general law as it applies universally to all local governments.
Blackstone defines general law as a universal rule affecting the entire community and special law
as one relating to particular persons or things of a class. And the rule commonly said is that a
prior special law is not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to be considered as
remaining an exception of the general, one as a general law of the land, the other as the law of a
particular case. But the rule yield to a situation where the special statute refers to a subject in
general which the general statute treats in particular.

S17 of the Revised Manila Charter speaks of “ordinance” in general while S43 of the Local Tax
Code relates to “ordinances levying or imposing taxes, fees, or other charges” in particular. Thus,
for ordinances in general, the Revised Manila Charter is dominant, but that dominance loses
when it approaches the realm of ordinances “levying or imposing taxes, fees, or other charges” in
particular.

2) YES. Private respondent bewails that the market stall fees imposed in the ordinance are
diverted to the private use of Asiatic Integrated Corporation since the collection of said fees had
been let by Manila to said corporation in a “Management and Operating Contract.”
However, the fees collected do not go direct to the private coffers of the corporation.
Ordinacne 7522 was not made for the corporation but for raising revenues for the city. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance.
So long as the purpose is public, it does not matter whether the agency through which the money
is dispensed is public or private. The right to tax depends upon the ultimate use, purpose and
object for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for
a public purpose, although it be under the direction of an individual or private corporation.

14. ABAKADA Guro Party List v. ES Ermita, GR 168056, September 01, 2005, Austria-
Martinez, J., En Banc. (Exclusive origination of revenue bills; delegation of legislative
power to tax; uniformity and equality of taxation; regressive tax, not invalid)
FACTS:

ISSUES:
1) Whether RA 9337 violates Art. VI, S24 of the Constitution on exclusive origination of
revenue bills.
2) Whether S4, 5, and 6 of RA 9337 constitute undue delegation of legislative power
3) Whether RA 9337 violates uniformity and equality of taxation under Art. VI, S28(1) of the
Constitution.
4) Whether RA 9337’s limitation of 70% on creditable input tax is regressive.
HELD:
1) NO. Petitioners claim that osme amendments to the NIRC did not originate from the House.
Some amendments were introduced by the Senate as these were not found in the House bills. Art.
VI, S24 provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.
Is the introduction by the Senate of provisions not directly dealing with VAT, which is the only
tax amended in the House bills, still within the purview of the constitutional provision
authorizing the Senate to propose or concur with amendments to a revenue bill that originated
from the House? Yes. It is not the law, but the revenue BILL, which is required to “originate
exclusively” in the HoR. As a result of Senate action, a bill distinct from the house bill may be
produced. To insist that a revenue statute must be substantially the same as the house bill would
be to deny the Senate’s power not only to “concur with amendments” but also to “propose
amendments.” It would make HoR superior to the Senate. What the constitution simply means
is that the initiative for filing revenue etc. bills must come from HoR on the theory that they are
more sensitive to local problems. Senators, elected at large, are expected to approach the same
problems from the national perspective.

2) NO. Petitioners claim that S4, 5, and 6 of RA 9337, giving the president stand-by authority
to raise VAT from 10 to 12% when a certain condition (VAT collection exceeds 2.8% of GDP
or national government deficit exceeds 1.5% of GDP) is met, is undue delegation of the
legislative power to tax not within the purview of S28 (2), Art. VI:
The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the
government.
2.1) The powers which Congress is prohibited from delegating are those which are strictly,
inherently, and exclusively legislative. Purly legislative power is described as the authority to
make a complete law- complete as to the time when it shall take effect and as to whom it
shall be applicable- and to determine the expediency of its enactment.

2.2) Nonetheless, there are exceptions: (PETAL) (People at large, Emergency powers, Tariff
powers, Administrative bodies, Local governments).

2.3) In every case of permissible delegation, there must be a showing that the delegation is valid,
and this is if the law is 1) complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate; 2) fixes a standard — the limits of which are
sufficiently determinate and determinable — to which the delegate must conform in the
performance of his functions. The true distinction is between delegation of power to make the
law (which cannot be done) and conferring authority as to its execution to be exercised in
pursuance of the law.

2.4) The power to ascertain facts is such a power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of facts or conditions as the basis of
taking into effect of a law. The legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done according to the terms of the
law by which he is governed.

The preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a
legislative function.

2.5) Here, there is merely a delegation of ascertainment of facts upon which enforcement of the
increased rate of 12% is contingent. No discretion would be exercised by the president. It is his
ministerial duty to immediately impose the 12% rate upon the existence of any of the conditions
specified by Congress.

3) NO. Art. VI, S28(1) reads:

The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
rate is uniform on the same class everywhere with all people at all times.

Here, the tax law is uniform as it provides a standard rate of 0% or 10%(or 12%) on all goods
and services. S4, 5, 6 of RA 9337 provide for a 10% (or 12%) rate on sale of goods and
properties, importation of goods, and sale of services and use or lease of properties. Neither does
the law make any distinction as to the type of industry or trade that will bear the 70% limit on
creditable input tax. The rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation and only demands uniformity within the particular class.

3.1) RA 9337 is also equitable. It has a threshold margin. The VAT of 0%/10%/12% does not
apply to sales of goods/services with gross annual sales or receipts not exceeding P1.5M. Basic
marine and agricultural food products in their original state are not subject to tax, ensuring that
prices at grassroots level will remain accessible. Congress also mitigated the impact of imposing
tax on those previously exempt by reducing certain excise taxes etc. All these were designed to
ease and spread out the burden of taxation which would otherwise rest largely on the
consumers. Thus, RA 9337 is equitable.

4) YES. Petitioners claim that the limit on creditable input tax is regressive; it is the smaller
business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle
is lifted from Adam Smith’s Canons of Taxation. Taxation is progressive when its rate goes up
depending on the resources of the person affected.

VAT, by its very nature, is regressive. VAT is paid by the consumer for every goods bought
regardless of income. The higher the income or profit margin, the smaller the portion of income
or profit that is eaten by VAT and vice versa. It is really the lower income group or businesses
with lower-profit margins that is always hardest hit.

NONETHELESS, the constitution does NOT really prohibit imposition of indirect taxes like
VAT. What it simply provides is that Congress shall “EVOLVE a progressive system of
taxation.” This simply means that direct taxes are to be preferred and indirect taxes to be
minimized. The mandate of Congress is not to prescribe, but to evolve. Otherwise, sales taxes,
also regressive, would have been prohibited also from proclamation of the 1973 and 1987
Constitution. Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayer’s
ability to pay. The law minimizes the regressive effects by providing for zero rating of certain
transactions.

15. Eastern Theatrical Co., Inc. et al. v. Alfonso, GR L-1104, May 31, 1949, Perfecto, J., En
Banc.
FACTS:
12 corporations engaged in motion picture business initiated these proceedings to impugn the
validity of Ordinance 2958 of Manila:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION
TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES
THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR
OTHER PURPOSES
Plaintiffs claim that the ordinance is void for violating uniformity and equality of taxation and is
beyond the power granted to the Manila Municipal Board by the Charter of Manila City.

ISSUE:
Whether the tax on theater etc. tickets sold is not uniform and equitable.
HELD: NO.
1) Plaintiffs claim that under S2444 (m) of the Revised Administrative Code is limited to
imposing a tax on business while ordinance 2958 imposes a tax on amusement. But this is based
on an arbitrary labeling of the kinds of tax authorized by S2444(m). The distinction made by
plaintiffs as to the power to tax on business and the power to tax on amusement has no ground
under the provisions of section 2444(m) of the Revised Administrative Code. The tax therein
authorized cannot be defined as tax on business and cannot be restricted within a smaller scope
than what is authorized by the words used, to the extent of excluding what plaintiffs describe as
tax on amusement.

2) Plaintiffs claim that Ordinance 2958 violated the principle of equality and uniformity of
taxation because the ordinance does not tax “many more kinds of amusements” than those
therein specified like “Race tracks, cockpits, cabarets, concert halls, circuses, and other places
of amusement.”

This has no merit. The fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and
other kinds of amusements or places of amusement are taxed, is no argument at all against the
equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the SAME CLASS shall be taxed at the SAME RATE.
The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what places of amusement taxed by
the ordinance do not constitute a class by themselves and which can be confused with those not
included in the ordinance.

16. British American Tobacco v. Camacho, GR 163583, August 20, 2008, Ynares-Santiago,
J., En Banc.
FACTS:
RA 8240 amended S145 of NIRC. S145 (c) provides 4 tiers of tax rates based on the net retail
price per pack of cigarettes. A survey of net retail prices per pack was conducted on October 01,
1996, the results of which were embodied in ANNEX D of the NIRC as existing or active
cigarette brands. S145(c) prescribed excise tax of 1) P13.44 if net retail price exceeds P10 per
pack, 2) P8.96 if P6.50 to P10, 3) P5.60 if P5 to P6.50, and 4) P1.12 if below P5. It also stated
that
New brands shall be classified according to their current net retail price.
The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex "D" of this Act, shall remain in force until
revised by Congress.

Thus, new brands are taxed according to their current net retail price while existing or old
brands shall be taxed based on their net retail price as of October 01, 1996. In June 2001,
petitioner BAT introduced Lucky Strike Filer etc. cigarettes. They were assessed initially for tax
based on their SRP of P9.90 (P8.96).

Meanwhile, to implement RA 8240, BIR issued Revenue Regulation 1-97, classifying existing
brands of cigarettes as existing brands prior January 1, 1997 (effectivity of RA 8240) and new
brands as those after January 1, 1997, which shall be initially assessed at their SRP until the
appropriate survey is done to determine their current net retail price. On Feb. 17, 2003, Revenue
Regulation 9-2003 amended Rev.Reg. 1-97 by providing a periodic review every 2 years of the
net retail price of new brands and updating their tax classification. Later, Rev.Reg 22-2003 was
issued, implementing the revised tax classification of new brands after January 1, 1997 based on
survey of their current NRP. The survey found that Lucky Strike Filter etc. had a current NRP of
P22.54 etc. thus, their tax was increased to P13.44 per pack.

BAT filed in RTC a petition for injunction of Revenue Regulations 1-97, 9-2003, 22-2003 on the
ground that they discriminate against new brands of cigarettes and thus violate equal protection.
RTC dismissed the complaint. BAT filed this petition for review on pure questions of law.
While the petition was pending in SC, RA 9334 was passed, amending, among others, S145 of
NIRC. This increased the excise tax therein and provided a legislative freeze on brands of
cigarettes introduced between January 2, 1997 to December 31, 2003 such that said
cigarettes shall remain in the classification under which BIR has determined them to belong
until revised by Congress.

Under RA 9334, BAT’s excise tax was increased to P25 per pack. BAT filed a motion to admit
attached supplement to the petition for review, assailing the constitutionality of RA 9334
insofar as it retained ANNEX D, alleging that Annex D gives undue protection to said brands
which are still taxed based on their price as of October 1996 notwithstanding that they are now
sold at the same or even higher price than new brands like Lucky Strike.

ISSUE:
Whether the classification freeze provision, freezing the NRP basis of tax rates based on the
current NRP of the cigarette brands at the time they were surveyed until further adjusted by
Congress, violates the equal protection clause in that older brands whose prices have increased
due to inflation etc. are still taxed in their previously surveyed lower NRP brackets, resulting in
newer brands with the same price being taxed higher.
HELD: NO.
1) Fortune contends that petitioner should have brought its petition before CTA rather than RTC.
But while RA 1125, as amended by RA 9282 S7, confers on CTA jurisdiction to resolve tax
disputes in general, this does not include cases where the constitutionality of a law or rule is
challenged. The constitution vests the power of judicial review in the courts, including RTC.
Judicial power includes authority of the courts to determine in an appropriate action the validity
of the acts of the political departments.

2) A classification is reasonable if (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 standard of equal
protection challenges have followed the rational basis test with a deferential attitude to
legislative classifications. Under this test, a legislative classification must rationally further a
legitimate state interest.

The first, third, and fourth are satisfied. The classification freeze provision (CFP) is for
practicality and expediency. Since a new brand was not yet in existence at the time of passage of
RA 8240, Congress needed a uniform mechanism to fix the tax bracket of a new brand. Further,
the freezing of classifications now also apply not just to annex D brands but to newer brands
introduced after RA 8240’s effectivity on January 1, 1997.

2.1) Germane to purposes of law

It is apparent that Congress intended the classification freeze to be applied to new brands also.
Precisely, Congress rejected the proposal to allow DOF and BIR to periodically adjust the
excise tax rate and tax brackets and to periodically resurvey and reclassify cigarettes brands. It
would be absurd to conclude that Congress intended to allow the periodic reclassification of new
brands by BIR after their classification is determined based on their current net retail price.
2.2) In explaining the changes at the bicameral conference committee, Senator JP Enrile, in his
report to the Senate plenary, noted that the fixing of the excise tax rates was to avoid confusion.
Congressman Javier reported that the reason for fixing the excise rate and freezing the
classification was to reject the Senate version which “sought to abdicate the power of Congress
to tax” by vesting in the secretary of finance the power to fix the rates and classify the products.
The frozen classification was also intended to give stability to the industry as BIR would be
prevented from tinkering with the classification since it would remain unchanged despite
increase in the net retail prices of previously classified brands. This would also assure that there
would be no new impositions as long as the law is unchanged.

3) Thus, the CFP could not be considered arbitrary, motivated by an 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 brackets and to
periodically resurvey and reclassify the cigarette brands based on the increase in the
consumer price index to DOF and BIR. They feared the delegation would be potential areas for
abuse and corruption. Cigarette manufacturers might be tempted to bribe tax implementers to
allow their brands to be classified at a lower tax bracket even it the net retail prices have already
migrated to a higher tax bracket.

The CFP was the result of Congress’ earnest efforts to improve the efficiency and effectivity of
tax administration over sin products while trying to balance the same with other state interests.
Congress sought to simplify the whole tax system for sin products to remove these potential
areas of abuse and corruption. CFP was an integral part of this overall plan. This is one of the
objectives of the assailed law “to simplify the tax administration and compliance with tax laws
xxx.”

From the legislative deliberations, the CFP was also intended to generate stable revenues for
government. With frozen tax classifications, 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 because the previously classified cigarette brands would be
prevented from moving tax brackets. Thus, the taxes due would be predictable.

3.1) CFP addressed Congress’ 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. Thus, the
rational-basis test is satisfied.

4) Petitioner’s evidence suggests that older brands of Philip Morris and Marlboro would have
been taxed at the same rate as Lucky Strike, a newer brand, due to the increase of the older
brands’ prices beyond the tax bracket to which they were previously classified were it not for
CFP. This has admittedly adversely affected British’s ability to competitively price its newer
brands, in derogation of the objective of the assailed law of promoting fair competition among
the players in the industry.

But whether Congress acted improvidently in derogating the state’s interest in promoting fair
competition while pursuing other state interests regarding the simplification of tax administration
of sin products, elimination of potential abuse and corruption etc. thru CFP, and whether CFP is
the best means to achieve these state interests, go into the wisdom of the law which we cannot
inquire into.

16.1 Motion for reconsideration, April 15, 2009.

1) Petitioner argues that the CFP violates equal protection and uniformity of taxation. This is
without merit and a rehash of BAT’s previous arguments. Under the rational basis test, it is
sufficient that legislative classification is rationally related to achieving some legitimate state
interest.

1.1) As to uniformity of taxation, a tax is uniform when it operates with the same force and
effect in every place where the subject of it is found. It does not signify intrinsic but simply a
geographical uniformity. The uniformity rule does not prohibit classification for purposes of
taxation. Uniformity of taxation, like equal protection, merely requires that all subjects or objects
of taxation, similarly situated, are to be treated alike. 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.

Here, the CFP meets geographical uniformity since the assailed law applies to all cigarette
brands in PH. The four-fold test above as discussed in the August 20, 2008 decision was met.

2) RA 9334 does not violate constitutional provisions on regressive and inequitable taxation.
BAT argues that CFP is a regressive and inequitable tax system proscribed under Art. VI,
S28(1). As to being inequitable, BAT’s arguments are mere reformulations of its arguments in its
equal protection challenge. Anent regressivity, it may be conceded that the law imposes excise
tax which is a form of indirect tax and thus regressive in character. While there was an
attempt to make the imposition of excise tax more equitable by creating a 4-tiered tax system
where higher priced cigarettes were taxed higher, still, every consumer whether rich or poor
within a specific tax bracket pays the same tax rate. To this extent, the tax does not take into
account a person’s ability to pay.

But the constitution does not prohibit imposition of indirect taxes but merely provides that
congress shall evolve a progressive system of taxation. This is a directive to congress. These
provisions are put in the constitution as moral incentives to legislation, not as judicially
enforceable rights.

17. Executive Secretary v. Southwing Heavy Industries, Inc., GR 164171, February 20,
2006, Ynares-Santiago, J., En Banc.
FACTS:
President GMA, thru ES Romulo, issued EO 156. The challenged provision states:
3.1 The importation into the country, inclusive of the Freeport, of all types of used
motor vehicles is prohibited, except for the following:
3 petitions were filed all seeking the declaration of unconstitutionality of Art. 2, S3.1 of EO 156
by respondents entities classified as Subic Bay Freeport Enterprises and engaged in the business
of, among others, importing used motor vehicles.

ISSUE:
Whether EO 156, S3.1, prohibiting importation of all cars except only those enumerated therein,
is a valid exercise of delegated administrative police power.
HELD: NO.
To be valid, an administrative issuance, such as an executive order, must comply with the
following requisites:
(1) Its promulgation must be authorized by the legislature;
(2) It must be promulgated in accordance with the prescribed procedure;
(3) It must be within the scope of the authority given by the legislature; and
(4) It must be reasonable.

1) First requisite is satisfied. Delegation of legislative powers to the president is permitted in

S28(2) of Art. VI.
(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.
The relevant statutes executing this provision include the Tariff and Customs Code (S401
“President, upon recommendation of the NEDA xxx is hereby empowered xxx to establish
import quota or to ban imports of any commodity as may be necessary), EO 226 or Omnibus
Investments Code (empowering the president to approve/reject prohibition on importation of any
equipment etc.), and RA 8800 or Safeguard Measures Act (SMA).

2) Second requisite is satisfied. As in enactment of laws, the general rule is that promulgation of
administrative issuances requires previous notice and hearing except if the legislature itself
requires it and mandates that the regulation shall be based on certain facts as determined at an
appropriate investigation. The exception pertains to legislative rules as distinguished from
interpretative rules.

EO 156 is a legislative rule as it seeks to implement primary legislative enactments to protect the
domestic industry. The due process requirements in its issuance are in S401 of the Tariff and
Customs Code and S5 and 9 of SMA, requiring investigation and public hearings. But since
respondents never questioned the procedure behind the issuance of EO 156, and acts of other
branches of government are presumed valid without contrary evidence, the presumption is that
EO 156 complied with these procedures.

3) Third requisite is not satisfied. Under RA 7227, it is states:

SECTION 12. Subic Special Economic Zone. —
xxxx
The abovementioned zone shall be subject to the following policies:
xxxx
 (b) The Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital within, into and
exported out of the Subic Special Economic Zone, as well as provide incentives such as
tax and duty-free importations of raw materials, capital and equipment.
Senator Guingona explained the concept of this zone thus:
This delineates the activities that would have the least of government intervention, and
the running of the affairs of the special economic zone would be run principally by the
investors themselves, similar to a housing subdivision, where the subdivision owners
elect their representatives to run the affairs of the subdivision, to set the policies, to set
the guidelines.
With minimum government interference, investors can generally engage in any kind of business
including import and export of any article into and out of the Freeport. Senator Enrile explains:
My understanding of a "free port" is, we are in effect carving out a part of our territory
and make it as if it were foreign territory for purposes of our customs laws, and that
people can come, bring their goods, store them there and bring them out again, as long as
they do not come into the domestic commerce of the Republic.
3.1) There is nothing in the above-quoted excerpts that limits incentives of Freeport Investors to
customs duties and tax exemptions. Mindful of the legislative intent to attract investors, the
legislature could not have limited enticement only to tax exemption. The minimum government
interference extends to the kind of business that investors may embark on (except absolutely
prohibited by law articles).

3.2) Thus, the importation ban is ultra vires or beyond the limits of authority conferred. It must
not modify the constitution, enabling statute, and other laws, for such is the function of congress.
The subject matter of the laws authorizing the president to regulate importation of used cars is
the domestic industry. EO 156 exceeded the scope of its application by extending the prohibition
to the Freeport which RA 7227 considered to some extent a foreign territory. The “domestic
industry” which EO 156 seeks to protect is actually the “customs territory” defined in the IRR
of RA 7227 as that portion of PH outside the Freeport where national tariff laws are in force.

The importation ban should be operative only outside the Freeport.

4) Fourth requisite is satisfied as to area outside Freeport, but not inside Freeport. The ban on
importation outside the Freeport to protect the “domestic industry” (*industry outside Freeport)
is reasonable. The deterioration of the local motor manufacturing firms due to influx of imported
motor vehicles is an urgent national concern.

But as to the ban inside Freeport, there is no logic. As long as the used cars do not enter the
“customs territory” (*or outside Freeport), the harm sought to be prevented will not arise. The
importation ban in this case is void for being too seeping and its unnecessary application to the
Freeport which has no bearing on the objective of the prohibition. If the aim of the EO is to
prevent the entry of used motor vehicles from the Freeport to the customs territory, the solution
is not to forbid entry of these vehicles into the Freeport, but to intensify governmental campaign
and measures to thwart illegal ingress of used motor vehicles into the customs territory.
18. John Hay Peoples Alternative Coalition v. Lim, GR 119775, October 24, 2003, Carpio-
Morales, J., Third Division.
FACTS:
R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY
RESERVATIONS INTO OTHER PRODUCTIVE USES, CREATING THE BASES
CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING
FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the "Bases
Conversion and Development Act of 1992," was enacted. It created public respondent Bases
Conversion and Development Authority (BCDA), vesting it with powers to carry out the ultimate
objective of utilizing the base areas. RA 7227 granted Subic SEZ incentives ranging from tax
and duty-free importations, exemption of businesses from local and national taxes, etc. RA 7227
also gave authority to the president to create thru executive proclamation, subject to concurrence
of the LGU directly affected, other special economic zones (SEZ) in areas covered by the Clark
military reservation, Wallace Air Station in La Union, and Camp John Hay.

BCDA entered into a MOA with respondents Tuntex Co. and Asiaworld Internationale Group,
Inc to form a joint venture for development of Camp John Hay as a tourist destination. The
Baguio City government passed resolutions in response to actions taken by BCDA as
administrator of Camp John Hay.

Later, the Baguio sanggunian passed Resolution 255 s.1994, supporting the issuance by then
president Ramos of a presidential proclamation declaring an area of 288.1 ha as a SEZ in
accordance with RA 7227. On July 5, 1994, then president Ramos issued Proclamation 420,
establishing a SEZ on a portion of Camp John Hay of 288.1 ha. This provided:

Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section
5(m) and Section 15 of R.A. No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules, and regulations governing the
zone, including investment incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the applicable incentives of the
Special Economic Zone under Section 12 of R.A. No. 7227 and those applicable
incentives granted in the Export Processing Zones, the Omnibus Investment Code of
1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter
be enacted.

Proclamation 420 spawned this petition for prohibition, mandamus, and declaratory relief
challenging the constitutionality of Proclamation 420, among others.

ISSUE:
Whether Proclamation 420 validly granted the tax exemptions of Subic SEZ to the Camp John
Hay SEZ established by Proclamation 420.
HELD: NO.
S12, RA 7227 provides:
b) The Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital within, into and
 exported out of the Subic Special Economic Zone, as well as provide incentives such as
tax and duty free importations of raw materials, capital and equipment.
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding,
no taxes, local and national, shall be imposed within the Subic Special Economic Zone.

1) Thus, under S12, RA 7227, it is only the Subic SEZ which was granted by Congress with
tax exemption and investment incentives. There is no express extension of these benefits to
other SEZs still to be created at the time thru presidential proclamation.

The privileges given to Subic SEZ consist principally of exemption from tariff and customs
duties, national and local taxes of business entities therein, free market, etc. But the incentives
under RA 7227 are exclusive only to Subic SEZ. Thus, the extension of the benefits to John Hay
SEZ finds no support therein nor the other laws cites in S3 of PP 420.

2) The nature of most of the assailed privileges is one of tax exemption. It is the legislature,
unless limited by the constitution, that has full power to exempt any person or corporation from
taxation, its power to exempt being as broad as its power to tax. The exemption in PP420 would
circumvent the constitution’s imposition that a aw granting tax exemption must have
concurrence of a majority of all members of Congress. The claimed statutory exemption of
John Hay SEZ from tax should be manifest and unmistakable from the language of the law.

Thus, the grant by PP 420 of tax exemption and other privileges to the John Hay SEZ is void for
violating the constitution.

19. Delpher Trades Corporation v. IAC, GR L-69259, January 26, 1988, Gutierrez, Jr., J.,
Third Division.
FACTS:
Delfin Pacheco and his sister Pelagia Pacheco leased a 27,169 m2 land to Construction
Components Inc. The lease provided that should the lessor decide to sell the property leased,
lessor shall first offer the same to the lessee and lessee has the priority to buy under similar
conditions. Construction Components assigned its rights to Hydro Pipes, PHL, Inc., respondent.

A deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant
Delpher Trades Corporation where the former conveyed to the latter the leased property and
another land for 2,500 shares of stock of Delpher with a total value of P1.5M. Hydro Pipes PHL
filed a complaint for reconveyance on the ground that it was not given option to buy the leased
property.

CFI ruled for Hydro Pipes. IAC affirmed. Hence this petition.

Son-in-law of the late Pelagia Pacheco, Eduardo Neria, testified that Delpher is a family
corporation. It was organized by the children of the 2 spouses (Sps. Pelagia and Benjamin, Sps.
Delfin and Pilar) who owned in common the land leased. To avoid taxes and to perpetuate
control over the property thru the corporation, the land was transferred to Delpher.

ISSUE:
Whether the deed of exchange is meant to be a contract of sale which in effect prejudiced Hydro
Pipes’ right of first refusal.
HELD: NO.
1) Delpher is a business conduit of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and at the same time
save on inheritance taxes.

The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted."

2) The deed of exchange cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. Ownership remained in the same hands.

20. CIR v. Lincoln PHL Life Insurance Company, Inc., GR 119176, March 19, 2002,
Kapunan, J., First Division.
FACTS:
Lincoln is engaged in life insurance business. It issued a special kind of life insurance policy
known as the Junior Estate Builder Policy. This provided for an automatic increase in the amount
of life insurance coverage upon attainment of a certain age by the insured without need of issuing
a new policy. The clause was to take effect in 1984. Documentary stamp taxes were paid only on
the initial sum assured.

CIR issued deficiency documentary stamps tax assessment for the year 1984 of P464k
corresponding to the amount of automatic increase. Lincoln questioned the deficiency
assessment and sought their cancellation in CTA. CTA cancelled the assessment. CA affirmed.
Hence this petition.

ISSUE:
Whether the Documentary stamp tax should be based on the increased amount of the Junior
Estate Builder Policy.
HELD: YES.
S50 of Insurance Code provides that the policy, which is required to be in printed form, may
contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to
complete the contract of insurance. It is thus clear that any rider, clause, warranty or
endorsement pasted or attached to the policy is considered part of such policy or contract of
insurance.

1) Although the clause was to take effect in 1984 only, it was written into the policy at the time
of its issuance. The automatic increase clause already formed part of the insurance contract.
Thus, there is no need to execute a separate agreement for the increase in the coverage.
Under S173 of NIRC, payment of DST is done at the time the act is done or transaction had and
the tax base to compute DST on life insurance policies under S183 is the amount fixed in the
policy, unless the interest of a person insured is susceptible of exact pecuniary measurement.
What is the amount fixed in the policy? Logically, we believe that the amount fixed in the
policy is the figure written on its face and whatever increases will take effect in the future
by reason of the "automatic increase clause" embodied in the policy without the need of
another contract.

The amount of the increase was already definite at the time of issuance of the policy.

2) While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be
circumvented to evade payment of just taxes. Here, to claim that the increase in the amount
insured should not be included in computing DST would be a clear evasion of the law requiring
the tax to be computed based on the amount insured by the policy.

21. CIR v. Estate of Benigno Toda, GR 147188, September 14, 2004, Davide, Jr., CJ., First
Division.
FACTS:
Cibeles Insurance Corporation (CIC) authorized Benigno Toda, president and owner of 99.991%
of outstanding capital stock, to sell the Cibeles Building and 2 lands for not less htan P90M. On
August 30, 1989, Toda sold the property for P100M to Altonaga who, in turn, sold the same
property on the same day to Royal Match, Inc. (RMI) for P200M. For the sale of the property to
RMI, Altonaga paid capital gains tax of 5% only or P10M.

BIR sent an assessment notice on March 29, 1994 for deficiency income tax of P79M for 1989 to
the estate of Benigno Toda. The estate filed a letter of protest, which was denied. CTA ruled for
respondent.

CIR claims that the additional gain of P100M, the difference between the second sale and the
first sale, realized by CIC was taxed at the rate of only 5% capital gains tax of Altonaga, instead
of at the rate of 35% as corporate income tax of CIC. CA affirmed CTA. Hence this petition.

ISSUE:
Whether the scheme is legal tax avoidance.
HELD: NO.
Respondent estate claims that the 2 sales is a valid tax avoidance scheme. “Surely, [estate]
cannot be faulted for wanting to reduce the tax from 35% to 5%.”

1) Tax avoidance is a tax saving device within the means sanctioned by law. Tax evasion is a
scheme used outside of those lawful means and, when availed of, usually subjects the taxpayer to
additional civil or criminal liabilities.

Tax evasion connotes the integration of 3 factors: 1) the end to be achieved- payment of less than
that known by the taxpayer to be legally due, or non-payment of tax when it is shown that a tax
is due; 2) accompanying state of mind described as “evil”, in “bad faith”, “willful”, “deliberate”
and 3) a course of action or failure of action which is unlawful.
All these factors are present in this case. It is significant to note that as early as May 4, 1989
before the sale on August 30, 1989, RMI paid CIC P40M already. Another P40M was paid on
July 31, 1989. Thus, the real buyer of the properties was RMI, not the intermediary
Altonaga.

2) The scheme is not legitimate tax planning. Such scheme is tainted with FRAUD. Fraud
comprises 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."

Here, the sale to Altonaga was to reduce the tax from 35% corporate income tax to only 5%
individual capital gains tax. Altonaga’s sole purpose of acquiring title and transferring it on the
same day was to create a tax shelter. He never controlled the property and did not enjoy the
normal benefits and burdens of ownership. The sale to him was a mere tax ploy, a sham, and
without business purpose and economic substance.

The intermediary transaction- the sale of Altonaga- constitutes tax evasion.

3) A tax consequence arising from gains from a sale is not finally determined solely by the
means used to transfer legal title. The transaction must be viewed as a while, and each step from
commencement of negotiations to consummation of the sale is relevant. A sale by one person
cannot be transformed for tax purposes to a sale by another by using the latter as conduit thru
which to pass title. To allow this is to sanction circumvention of our tax laws.

22. City of Iloilo v. Smart Communications, Inc., GR 167260, February 27, 2009, Brion, J.,
Second Division.
FACTS:
Iloilo assessed Smart, requiring it to pay deficiency local franchise and business taxes of P764k.
Smart protested claiming exemption from local franchise and business taxes based on S9 of its
legislative franchise under RA 7294. Under its franchise, Smart was required to pay a franchise
tax of 3% in lieu of all taxes. Smart claims that this covers local franchise and business taxes:
Section 9. Tax provisions. — xxx In addition thereto, the grantee, its successors or
assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of
the business transacted under this franchise by the grantee, its successors or assigns and
the said percentage shall be in lieu of all taxes on this franchise or earnings thereof:
Provided, That the grantee, its successors or assigns shall continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2
of Executive Order No. 72 unless the latter enactment is amended or repealed, in which
case the amendment or repeal shall be applicable thereto

Smart also invoked RA 7925, Public Telecommunications Policy Act, S23 of which declares that
any existing privilege etc. or exemption granted under existing franchises shall become part of
previously granted telecommunications franchise. Thus, Smart claims that under S23, tax
exemptions granted to other holders of telecommunications franchise may be availed of by
Smart:
 SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any
advantage, favor, privilege, exemption, or immunity granted under existing franchises, or
may hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchise and shall be accorded immediately and unconditionally to
the grantees of such franchises: xxx

Iloilo denied Smart’s protest. Smart filed a case in RTC. RTC ruled that Smart is exempt. Hence
this petition.

ISSUE:
Whether Smart’s franchise exempts it from local franchise tax.
HELD: NO.
1) RA 7294 does not expressly provide what kind of taxes Smart is exempted from. It is unclear
whether the “in lieu of all taxes” provision includes exemption from local or national taxation.
The uncertainty in the “in lieu of all taxes” must be construed strictly against Smart which
claims the exemption.

The proviso in the first paragraph of Section 9 of Smart’s franchise states that the grantee shall
"continue to be liable for income taxes payable under Title II of the National Internal Revenue
Code." Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the
"Commissioner of Internal Revenue or his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns
"shall be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in S9
about local taxes. The clear intent is for the “in lieu of all taxes” clause to apply only to taxes
under the NIRC and not to local taxes.

2) Smart invokes the equality clause under S23 of the Public Telecoms Act. It claims that since
the franchise of telecoms companies granted after Smart’s franchise had provisions exempting
them from national and local taxes, these should also extend to Smart, applying the equality
clause.

But S23’s “exemption” does not mean tax exemption. Rather, it refers to exemption from certain
regulatory or reporting requirements imposed by government agencies like the NTC. The
language of S23 and the proceedings of both houses of congress are bereft of anything that
would signify the grant of tax exemptions to all telecoms entities. Intent to grant tax exemption
cannot be discerned from the law. The term “exemption” is too general to include tax
exemption and runs counter to the requirement that the grant of tax exemption should be stated
in clear and unequivocal language too plain to be beyond doubt or mistake.

23. National Power Corporation v. Central Board of Assessment Appeals, GR 171470,

January 30, 2009, Brion, J., Second Division.
FACTS:
First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR to
construct a diesel power plant in La Union. The agreement provided for the creation of the
Bauang Private Power Corporation (BPPC) that will own, manage, and operate the power plant.
For a fee, BPPC will convert NAPOCOR’s supplied diesel into electricity and deliver the
product to NAPOCOR.

The municipal assessor of Bauang issued a notice of assessment to BPPC, taxing the machineries
and equipment for P288M. NAPOCOR filed a petition with Local Board of Assessment Appeals
(LBAA) asking that the machineries be exempt from real property tax under S234(c) of RA
7160:
Section 234. Exemptions from Real Property Tax. – The following are exempted from
the payment of real property tax:
xxxx
(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or –controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power;
LBAA denied NAPOCOR’s petition for exemption. CBAA also denied the appeal on the finding
that it is BPPC, and not NAPOCOR, that is in the actual, direct, and exclusive use of the
machineries. Thus, the exemption in S234(c) does not apply. CTA affirmed. Hence this petition.

ISSUE:
Whether the equipment and machineries which under the BOT agreement are to be operated by
BPPC are exempt from real property tax under S234 of LGC.
HELD: NO.
1) In FELS Energy v. Province of Batangas, Batangas assessed RPT against FELS. Their
agreement provided that NAPOCOR shall pay all of FELS’s RPT. We ruled that NAPOCOR
was not the actual, direct, and exclusive user of the machineries therein and thus not tax exempt:
Applying the rule of strict construction of laws granting tax exemptions, and the rule that
doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity. The mere undertaking of petitioner NPC under Section 10.1
of the Agreement, that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption. The privilege granted to petitioner NPC
cannot be extended to FELS. The covenant is between FELS and NPC and does not bind
a third person not privy thereto, in this case, the Province of Batangas.

2) The provisions of the BOT Agreement here show BPPC’s ownership of the machineries.
NAPOCOR claims that the BOT Agreement is a mere financing agreement where BPPC is the
financier while NAPOCOR is the actual user. But a BOT Agreement is described in the BOT
Law thus:
Build-operate-and-transfer – A contractual arrangement whereby the project proponent
undertakes the construction, including financing, of a given infrastructure facility, and the
operation and maintenance thereof. The project proponent operates the facility over a
fixed term during which it is allowed to charge facility users appropriate tolls, fees,
rentals, and charges not exceeding those proposed in its bid or as negotiated and
incorporated in the contract to enable the project proponent to recover its investment, and
operating and maintenance expenses in the project. The project proponent transfers the
facility to the government agency or local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years x x x x.
It is the project proponent who constructs the project at its own cost and later operates and
manages it. The BOT agreement in this case fully conforms to this concept. BPPC has both legal
and beneficial ownership of the project, including the machineries, subject only to the transfer
without cost to NAPOCOR after the lapse of the period agreed upon. BPPC, as owner-user, is
responsible for any defect in machineries and equipment

3) That there is some kind of financing arrangement- that the private sector shall initially
shoulder the heavy cost of construction- is undeniable. But the private sector proponent not only
constructs, but operates and manages it during an agreed period. The proponent goes into
business for itself. In this sense, a BOT agreement is sui generis.

Thus, consistent with the BOT concept, BPPC- the owner-manager-operator of the project- is
the actual user of its machineries and equipment. BPPC’s ownership and use of the
machineries are actual, direct, and immediate, while NAPOCOR’s is contingent and, at this stage
of the BOT Agreement, not sufficient to support its claim for tax exemption.

TARIFF AND CUSTOMS LAWS

24. Transglobe International Inc. v. CA, GR 126634, January 25, 1999, Bellosillo, J.,
Second Division.
FACTS:
A shipment from HK arrived in the Manila Port on board SS Sea Dragon. Its Inward Foreign
Manifest indicated that the shipment contained 1,054 pieces of various hand tools. Acting on
information that the shipment violated the Tariff and Customs Code, agents of the Economic
Intelligence and Investigation Bureau (EIIB) seized the shipment while in transit to the Trans
Orient container yard. An examination thereof showed:
1) There were 8 shippers and 8 consignees when in truth the entire shipment belongs to
only one entity (Transglobe)
2) The items were not hand tools etc. but instead textile piece goods.
The district collector thus issued a warrant of seizure and detention. The case was set for hearing
3 times, but Transglobe did not appear. It was thus declared in default. The district collector,
after finding that a violation of TCC was committed, decreed forfeiture of the shipment to the
government.

Transglobe then field a petition for redemption of the shipment. The hearing officer, Chief of
Law Division, and District Collector recommended allowing the redemption. But respondent
Commissioner of Customs Parayno denied, instructing instead that the shipment be included in
the next public auction.

CTA reversed, finding no fraud on the part of the redemptioner. CA reversed CTA. Hence this
petition.

ISSUE:
Whether Transglobe should be allowed to redeem the shipment.
HELD: YES.
The BoC found violation of S2503 in relation to S2530, pars. (f) and (m), subpars. 3, 4, and 5.
S2503 deals with undervaluation, misclassification, and misdeclaration in entry. S2530 provides:
 SEC. 2530. Property Subject to Forfeiture Under Tariff and Customs Law. — Any
vehicle, vessel or aircraft, cargo, article and other objects shall, under the following
conditions be subject to forfeiture . . .
f. Any article the importation or exportation of which is effected or attempted contrary to
law, or any article of prohibited importation or exportation, and all other articles which,
in the opinion of the Collector, have been used, are or were entered to be used as
instruments in the importation or exportation of the former . . .
m. Any article sought to be imported or exported . . .
(3) On the strength of a false declaration or affidavit executed by the owner, importer,
exporter or consignee concerning the importation of such article;
(4) On the strength of a false invoice or other document executed by the owner, importer,
exporter or consignee concerning the importation or exportation of such article; and
(5) Through any other practice or device contrary to law by means of which such article
was entered through a customhouse to the prejudice of the government.
Transglobe filed a petition for redemption under S2307 of TCC:
Sec. 2307. Settlement of Case by Payment of Fine or Redemption of Forfeited Property.
— Subject to approval of the Commissioner, the District Collector may, while the case is
still pending except when there is fraud, accept the settlement of any seizure case
provided that the owner, importer, exporter, or consignee or his agent shall offer to pay to
the collector a fine imposed by him upon the property, or in case of forfeiture, the owner,
exporter, importer or consignee or his agent shall offer to pay for the domestic market
value of the seized article. The Commissioner may accept the settlement of any seizure
case on appeal in the same manner. . . Settlement of any seizure case by payment of the
fine or redemption of forfeited property shall not be allowed in any case where the
importation is absolutely prohibited or where the release of the property would be
contrary to law.
Thus, redemption as a means of settlement is unavailing in 1) fraud, 2) where the imporation is
absolutely prohibited, 3) the release would be contrary to law. Commissioner Parayno disallowed
redemption based the fact that the 8 consigness were all fictitious.

1) Transglobe, as consignee, did not prepare the false documents- S2530 pars (f) and (m)
subpars 3, 4, and5 deal with falsities committed BY the owner, importer, exporter, consignee ,
or importation/exportation thru any other practice or device. Also, the fraud contemplated by law
must be actual, not constructive. It must be intentional.

Here, the misdeclarations cannot be ascribed to Transglobe as consignee since it was not the
one that prepared them. If at all, the wrongful making or falsity of the documents can only be
attributed to the foreign suppliers/shippers. It was also not shown that Transglobe had
knowledge of any falsity in the shipping documents.

Since there is absence of fraud, the importation is not absolutely prohibited, and the release is not
contrary to law, SC allowed redemption. Doing so is keeping with the 2-way intent of EO 38
(which amended TCC) to 1) expedite collection of revenues and hasten release of cargoes under
seizure 2) to the end that importers/exporters will benefit in the form of reduction in expenditures
and assurance of return of their investments that have been tied up with their importations.
2) It may be argued that since Transglobe defaulted, it is deemed to have admitted violation of
S2503 and 2530 and it is now estopped to claim that there is no fraud on its part.

However, forfeiture proceedings are against the goods and not against the owner. It is a
proceeding in rem. In legal contemplation, it is the property itself which commits the
violation and is treated as the offender without reference to the character or conduct of the
owner. The issue is limited to whether the imported goods should be forfeited in accordance with
law for violation of TCC.

25. Jao v. CA, GR 104604, October 06, 1995, Romero, J., En Banc.
FACTS:
The Office of the Director, Enforcement and Security Services (ESS), BoC received information
as to the presence of allegedly untaxed vehicles and parts in the premises located along Quirino
Avenue, Paranaque and Honduras St., Makati. After surveillance, respondent Major Maglipon,
chief of operations and intelligence of ESS, recommended the issuance of warrants of seizure
and detention. District Collector Titus issued the warrants. Maglipon coordinated with local
police for assistance and they searched the 2 premises.

Customs personnel started hauling the articles pursuant to the warrants, prompting petitioners
Narciso Jao and Bernardo Empeynado to file a case for injunction and damages in RTC Makati
against respondents. RTC issued a restraining order.

Respondents filed a MtD on the ground that the BoC had exclusive jurisdiction over the subject
matter. The MtD was denied. RTC then granted the preliminary injunction applied for by
petitioners. RTC also prohibited respondents from seizing, transporting, and selling at public
auction petitioners’ vehicles etc. and ordered respondents to return the items with accounting.

CA reversed RTC and dismissed the civil case. Hence this petition.

ISSUE:
Whether RTC has jurisdiction.
HELD: NO.
RTCs are devoid of competence to pass upon the validity or regularity of seizure and forfeiture
proceedings conducted by BoC and to interfere with these proceedings. The collector of customs
sitting in seizure and forfeiture proceedings has exclusive jurisdiction to determine all questions
touching on the seizure and forfeiture of dutiable goods. RTCs are precluded from assuming
jurisdiction over such matters even thru petitions for certiorari, prohibition, and mandamus.

Also, the provisions of TCC and that of RA 1125 (An Act Creating the CTA) specify the
procedure for legal objection in these proceedings. Thus, actions of the Collector of Customs are
appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals and from there to the Court of Appeals.

The rule that RTCs have no review powers over such proceedings is anchored on the policy of
placing no unnecessary hindrance on the government’s drive not only to prevent smuggling and
frauds upon Customs, but also to render effective and efficient the collection of import and
export duties due to the state.

Even if the seizure were illegal, such act does not deprive BoC jurisdiction.

26. Acting Commissioner of Customs v. CTA, GR 62636, April 27, 1984, Melencio-Herrera,
J., First Division.
FACTS:
Andrulis, representing himself as an American businessman on joint ventures with Filipinos,
arrived in Manila and checked in at the Century Park Sheraton Hotel. 2 days later, he left the
hotel surreptitiously without paying for his P2k bill. Chief Security Officer of the Hotel, Zerrudo,
discovered his scheduled departure and immediately tipped-off the Customs authorities on
Andrulis’ intention to abscond. At the Manila International Airport (MIA), the Customs
authorities looked for Andrulis from among the passengers who were already on board PAL
Flight 501 bound for Singapore. Apprehensive, Andrulis locked himself inside the airplane’s
comfort room. In the course of negotiations for him to come out, he slipped thru an opening bills
worth US$300. Andrulis later yielded to the authorities and surrendered his luggage which
contained various foreign currencies consisting of US$ 59,639, 53,100 Indonesian Rupiah, and
Singapore $308.

A criminal charge was filed against him for violation of CB Circular 534 in relation to RA 265,
CB Chater. The fiscal dismissed the charge.

Proceedings for seizure of the foreign currencies were also commenced at the Customs Office of
MIA in Pasay. The district collector of customs ruled that Andrulis violated CB Circular 534 in
relation to S2530(f) of TCC and thus ordered that the foreign currencies confiscated from
Andrulis be forfeited to the government. This was affirmed by the Acting CoC.

CTA reversed, applying the legal presumption of ownership of the possessor under R131, S5(j)
of RoC and Art. 541 of NCC. Hence this petition.

ISSUE:
Whether Andrulis was bound to prove that he brought the foreign currencies into the country as
to be exempted from the applicabtion of CB Circular 534.
HELD: YES.
CB Circular 534 states:
"Section 3. Unless specifically authorized by the Central Bank or allowed under existing
international agreements or Central Bank regulations, no person shall take or attempt to
take or transmit foreign exchanges, in any form, out of the Philippines, directly, through
other persons, through mails, or through international carriers."
"The provisions of this section shall not apply to tourists and non-resident temporary
visitors who are taking or sending out of the Philippines their own foreign exchange
brought in by them."
S2530 of TCC states:
 "Section 2530. Property Subject to Forfeiture Under Tariff and Customs Law. — Any
vehicle, vessel or aircraft, cargo, article and other objects shall, under the following
condition be subject to forfeiture:
xxx xxx xxx
(f) Any article the importation or exportation of which is effected or attempted contrary
to law, or any article of prohibited importation or exportation, and all other articles
which, in the opinion of the Collector, have been used, are or were entered to be used as
instruments in the importation or exportation of the former."
Andrulis claims exception under CB Circular 534, saying he brought the foreign currencies into
PH. Andrulis also relies on his acquittal in the criminal charge against him.

1) Burden of proof upon claimant after probable cause is shown- S2535 of TCC states:
"SEC. 2535. Burden of Proof in Seizure and/or Forfeiture. — In all proceedings taken for
the seizure and/or forfeiture of any vehicle, vessel, aircraft, beast or articles under the
provisions of the tariff and customs laws, the burden of proof shall lie upon the
claimant: Provided, That probable cause shall be first shown for the institution of such
proceeding and that seizure and/or forfeiture was made under the circumstances and in
the manner described in the preceding sections of this Code"
Here, the requirement of probable cause is fully met. When Andrulis was apprehended at MIA
and found to have foreign currencies, he could not produce the CB authorization allowing him to
bring them out of the country. This constituted prima facie evidence of violation of CB Circular
534 and was sufficient basis for seizure of the foreign currencies. Thus, since there is probable
cause, the burden of proof was upon Andrulis to show that the exception under the 2nd par
of CB Circular 534 applied to him. This burden he failed to discharge.

Presumption of ownership under RoC and NCC are general provisions- The legal presumption
in R131, S5(j) or RoC and Art. 541 of NCC relied upon by CTA are of a general character and
cannot prevail over the specific provisions of TCC.

2) Acquittal from criminal charge, not res judicata on forfeiture proceedings- Andrulis’ acquittal
in the criminal charge before the fiscal does not operate as res judicata in a seizure/forefeiture
proceeding. The proceedings before the fiscal are in personam since they are directed against
the owner/holder of the thing. A forfeiture proceeding is one IN REM directed against the
thing itself. Thus, since the forfeiture proceedings is one in rem under which the offense is
attached primarily to the thing rather than the offender, the forfeiture proceedings stands
independent of, and wholly unaffected by, any criminal proceeding in personam and is not
barred by a conviction of the individual under a criminal charge."

27. De la Fuente (collector of customs) v. Hon. De Veyra, GR L-35385, January 31, 1983,
Gutierrez, Jr., J., First Division.
FACTS:
On June 16, 1972 at 6PM, the crew of a Qboat of the PCG spotted MV Lucky Star I, owned by
respondent Lucky Star Shipping Co., unloading cargo to several small watercrafts alongside the
vessel off the coast of Zambales approximately 30 nm east of Scarborough Shoal or 23miles of
the International Treaty Limits. As the Qboat was approaching, it was met by gunfire from the
smaller watercrafts which immediately fled from the scene. Only MV Lucky Star I was
apprehended. Upon boarding the vessel, PCG officers discovered 3,400 cases of foreign made
Champion, menthol, filter-tipped cigarettes allegedly owned by respondent Teng Bee Enterprises
Co. Also on board was Deogracias Labrador, Filipino captain of the domestic watercraft, ML
Sangbay, one of the boats seen alongside MV Lucky Star.

The captain of Lucky Star, Li Tak Sin, was unable to present documents for the Champion
cigarettes. He and his crew were thus arrested for smuggling. The vessel was ordered to proceed
to Manila. They arrived in Manila on June 17, 1972 11pm. Labrador gave a statement that his
presence on board Lucky Star I was due to an attempt to smuggle blue seal cigarettes into PH.

On June 20, 1972, a warrant of seizure and detention was issued by the collector of customs.
Respondents Lucky Star Shipping and Teng Bee filed in CFI a complaint for injunction and
recovery of personal property against petitioners praying for the return of the goods.

CFI ruled that it had no jurisdiction as to the blue seal cigarettes. But as to the vessel of more
than 30 tons dead weight, CFI said that it may not be forfeited. BoC’s remedy would be to
impose a fine only. Thus, CFI gave BoC until June 29, 1972 to inform CFI of the maximum fine
that may be imposed on the vessel that would be used as basis for a bond that would entitle
respondents to repossess the vessel.

Petitioners moved for reconsideration insofar as CFI required them to inform CFI of the
maximum fine. This was denied. Hence this petition for certiorari and prohibition.

ISSUE:
Whether CFI has jurisdiction over the petition for injunction for the release of MV Lucky Star I
which is the subject of a seizure and forfeiture proceedings before Collector of Customs.
HELD: NO.
1) CFI has no jurisdiction- RA 1125, S7 gave CTA exclusive appellate jurisdiction to review on
appeal the decisions of Commissioner of Customs involving seizure, detention, or release of
property or other matters arising under the Customs Law or other laws administered by BoC. The
decision of the collector is appealable to the Commissioner and then to CTA, not to CFI. The
reason is htat the Collector constitutes a TRIBUNAL when sitting in forfeiture proceedings.

Where the matter involved is a seizure and forfeiture proceeding, CFI is devoid of power to act.
The customs authorities possess such competence with an appeal to the Court of Tax Appeals. In
appropriate cases, there may be further judicial review by this Court in the exercise of its
certiorari jurisdiction.

2) Legality/illegality of forfeiture/seizure must be raised with Collector sitting as tribunal-

Respondents claim that the seizure of MV Lucky Star 1 was illegal since the vessel is a foreign
vessel registered under the laws of Panama and flies Panamian flag, the crew of the vessel is
composed of aliens, the seizure was done at a distance of 86miles to the nearest land point along
the west coast of Luzon. Petitioners claim that the seizure was at 23miles of the International
Treaty Limits which is within the territory of PH under Art. 1 of the 1935 Constitution, Treaty of
Paris, and RA 3046.
Respondents’ contentions are untenable. The Collector when sitting in forfeiture proceedings
constitutes a tribunal expressly vested by law with jurisdiction to hear and determine the
subject matter of such proceedings without interference from the CFI . Here, the Collector of
Customs of Sual-Dagupan constituted itself as a tribunal to hear and determine whether MV
Lucky Star I was seized within the territorial waters of PHL. Respondents should raise their
defense that the seizure was made outside PH territorial jurisdiction with the Collector and, if not
satisfied, follow the correct procedures. A separate action before CFI is not the remedy.

NIRC REMEDIES
28. CIR v. Isabela Cultural Corporation, GR 172231, February 12, 2007, Ynares-Santiago,
J., Third Division.
FACTS:
Respondent ICC received BIR Assessment notice 680 for deficiency income tax of P333k which
came from BIR’s disallowance of: 1) Expenses for auditing services of SGV for the year ending
Dec. 31, 1985, 2) expenses for legal services of law firm Bengzon Zarraga Narciso etc. for 1984
and 1985, 3) Expenses for security services of El Tigre Security for April and May 1986. ICC
sought reconsideration of the assessments on March 23, 1990. On Feb. 09, 1995, it received a
final notice before seizure demanding payment. It filed a case in CTA. CTA cancelled the
assessments.

CA affirmed CTA, holding that although the legal/auditing services rendered to ICC in 1984 and
1985, the cost of services was not yet determinable at that time. Thus, it may be deductible
expenses only in 1986 when ICC received the billing statements for said services.

Hence this petition. CIR contends that since ICC is using accrual method of accounting, said
expenses that accrued in 1984 and 1985 should have been declared as deductions from income
during said years and failure of ICC to do so bars it from claiming the expenses as deductions for
1986.

ISSUE:
Whether failure of ICC to declare as deductible expenses the legal/auditing expenses during the
years that the expenses were incurred (1984 and 1985) due to the amounts not yet being billed to
them bars ICC from claiming said expenses as deductions in 1986.
HELD: YES.
The requisites for the deductibility of ordinary and necessary trade, business, or professional
expenses, like expenses paid for legal and auditing services, are: (a) the expense must be
ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it
must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it
must be supported by receipts, records or other pertinent papers

The requisite that it must have been paid or incurred during the taxable year is further qualified
by Section 45 of (NIRC) which states that: "[t]he deduction provided for in this Title shall be
taken for the taxable year in which ‘paid or accrued’ or ‘paid or incurred’, dependent upon the
method of accounting upon the basis of which the net income is computed x x x".
ICC uses accounting method. Accounting methods for tax purposes are a set of rules for
determining when and how to report income and deductions.

1) Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of
accounting, expenses not being claimed as deductions by a taxpayer in the current year when
they are incurred cannot be claimed as deduction from income for the succeeding year.

2) The accrual method relies on the taxpayer’s right to receive amounts or its obligation to pay
them, in opposition to actual receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to receive them become fixed.
Liabilities are accrued when fixed and determinable in amount, without regard to
indeterminacy merely of time of payment.

3) “Accrue” when; all events test- When do the facts present themselves in such a manner that
the taxpayer must recognize income/expense? The accrual is permitted when the all-events test
is met. This requires:
(1) fixing of a right to income or liability to pay; and (2) the availability of the
reasonable accurate determination of such income or liability.

The test does not demand that the amount is known absolutely, only that a taxpayer has at his
disposal information necessary to compute the amount with REASONABLE ACCURACY.
The all-events test is satisfied where computation remains uncertain, if its basis is
unchangeable.”Reasonable accuracy” implies something less than an exact or completely
accurate amount. The propriety of accrual is judged by the fact that a taxpayer KNEW or could
reasonably be expected to have known, at the closing of its books for the taxable year.

4) Here, Bengzon etc. (law firm) has been ICC’s counsel since 1960s. From the nature of the
claimed deductions and the span of time during which the firm was retained, ICC can be
expected to have reasonably known the retainer fees charged by the firm and the
compemsation for its legal services. The failure to determine the exact amount of expense cannot
be attributed solely to the delayed billing of these liabilities by the law firm. ICC, in exercising
due diligence, could have inquired into the amount of their obligation to the firm, or reasonably
determined the fees owing to its familiarity with the firm’s rates.

The accrual method presents largely a question of fact. ICC failed to show whether it exercised
diligence to inquire about its liability or if it does or does not possess information necessary to
compute said liability with reasonable accuracy. It only relied on its defense of delayed billing
which is not sufficient to exempt it from being charged with knowledge of the reasonable
amount of expenses for the legal/auditing services.

4.1) Likewise, the fees of SGV for 1985 cannot be validly claimed as expense deductions in
1986 since ICC failed to show that even with only reasonable accuracy, it cannot determine the
said professional fees that SGV would charge.

SC held that the expense deductions were validly disallowed.

29. CIR v. Union Shipping Corporation, GR L-66160, May 21, 1990, Paras, J., Second
Division.
FACTS:
In a letter, CIR assessed Yee Fong Hong, Ltd. and respondent Union Shipping P583k as
deficiency income taxes for 1971 and 1972. The letter was received Jan. 4, 1975. In a latter,
Union protested the assessment; this was received by CIR on Jan. 13, 1975. CIR, without ruling
on the protest, issued a warrant of distraint and levy which was served on Unoin’s counsel on
Nov. 25, 1976. In a letter CIR received on Nov. 29, 1976, Union reiterated its request for
reinvestigation and reconsideration of the warrant. CIR, again, without acting on the request for
reinvestigation and reconsideration, filed a collection suit in CFI. Union received summons on
Dec. 28, 1978.

On Jan. 10, 1979, Union filed with CTA its petition for review of CIR’s assessment. CTA ruled
in Union’s favor, reversing the assessment. Hence this petition.

ISSUE:
Whether the issuance of a warrant of distraint/levy is proof of finality of an assessment since it is
the most drastic action of enforcing tax collection, and is tantamount to an outright denial of a
motion for reconsideration of an assessment such that the period to appeal to CTA recons from
the receipt of the warrant of distraint.
HELD: NO.
CIR claims that its issuance of warrant constituted its final decision on the disputed assessments.
Thus, the period to appeal to CTA ran from receipt of the warrant on Nov. 25, 1976, so that
when Union appealed to CTA on Jan. 10, 1979, CIR’s decision had long become final.

1) CIR must state unequivocally that his determination of a disputed assessment is final- CIR
should always indicate to the taxpayer in clear and unequivocal language whenever his action
on an assessment questioned by a taxpayer constitutes his final determination on the disputed
assessment as contemplated under RA 1125, S7 and 11. Thru this, the taxpayer would be able to
take recourse to CTA at the opportune time. The taxpayer would be able to determine when his
right to appeal to CTA accrues. This would also prevent CIR from making the taxpayer grope
in the dark and speculate as to which action constitutes the decision appealable to CTA.

The reviewable decision of BIR is that contained in the letter of its commissioner and NOT the
warrants of distraint.

2) Thus, receipt of summons, commenced period to appeal- Here, CIR, not having clearly
signified his final action on the disputed assessment, the period to appeal has not commenced to
run. Thus, it was only when Unoin received the summons on the civil suit for collection of
deficiency income on Dec. 28, 1978 that the period to appeal commenced to run. The request for
reinvestigation/reconsideration was in effect considered denied by CIR when CIR filed a civil
suit for collection. Thus, when Union filed on Jan. 10, 1979 its appeal to CTA, only 13 days had
passed, well within the 30-day period to appeal under RA 1125, S11.

30. Advertising Associates, Inc. v. CA, GR L-59758, December 26, 1984, Aquino, J., Second
Division.
FACTS:
CIR required Advertising Associates to pay P297k and P84k as contractor’s tax for 1967-1971
and 1972 respectively, including 25% surcharge. Advertising contested the assessments. CIR
reiterated the assessments. Advertising requested the cancellation of the assessments in 1974. For
4 years, there was no movement in the case. On March 31, 1978, CIR resorted to the summary
remedy of issuing 2 warrants of distraint which were served on Advertising on April 18 and May
25, 1978.

In a letter dated May 23, 1979 which Advertising received on June 18, 1979, CIR, in answer to
the requests of Advertising for cancellation of the assessments and withdrawal of warrants of
distraint, justified the assessment, requesting Advertising to pay the deficiency taxes within 10
days from receipt. Otherwise, BIR would enforce the warrants of distraint. The letter closed with
this paragraph:
This constitutes our final decision on the matter. If you are not agreeable, you may appeal
to the Court of Tax Appeals within 30 days from receipt of this letter.
19 days later or on July 7, Advertising filed its petition for review in CTA. But CTA did not rule
on the merits, saying that the “appealable decisions” were CIR’s warrants of distraint. Since
Advertising appealed from the decision of May 23, 1979, the petition was filed out of time.

ISSUE:
Whether it is the warrants of distraint that were appealable to CTA and not the letter of CIR
stating that it was CIR’s final decision.
HELD: NO.
The petition was filed on time. The reviewable decision is that contained in CIR’s letter of May
23, 1979 and NOT the warrants of distraint. The letter, as its tenor shows, embodies CIR’s
final decision within the meaning of RA 1125, S7. CIR said so, even directing the taxpayer to
appeal it to CTA. This directive is in consonance with SC’s dictum that CIR should always
indicate to the taxpayer in clear and unequivocal language what constitutes his final
determination of the disputed assessment.

31. CIR v. Metro Star Superama, GR 185371, December 08, 2010, Mendoza, J., Second
Division.
FACTS:
Regional Director of revenue Region 10, Legazpi City issued LOA for Revenue Officer Daisy to
examine Metro’s books of accounts for 1999. Metro received a formal letter of demand from
Revenue District 67, Legazpi City, assessing Metro of P292k for deficiency VAT and
withholding taxes for 1999. Metro received on May 15, 2003 a final notice of seizure, giving it a
last opportunity to settle its deficiency tax liabilities within 10 days. Otherwise, BIR will execute
warrants of distraint/levy/garnishment to enforce collection. On Feb. 06, 2004, CIR received a
warrant of distraint/levy, demanding payment of P292k. Metro filed with the office of CIR a MR
pursuant to S3.1.5 of RR12-99. CIR denied the MR.

Metro filed a petition for review with CTA, denying that it received a PAN and claiming that it
was not accorded due process. CTA 2nd division ruled for Metro, finding that there is no
showing that Metro received the alleged PAN. Thus, the formal letter of demand and warrants of
distraint were void as Metro was denied due process. CTA En Banc affirmed. Hence this
petition.

ISSUE:
Whether a FAN is valid where a PAN was not received by the taxpayer.
HELD: NO.
CIR claims that due process was served since Matro received the FAN.

1) While a mailed letter is deemed received by the addressee in the course of mail, this is merely
a disputable presumption subject to controversion and a direct denial thereof shifts the burden to
the party favored by the presumption to prove that the mailed letter was indeed received. To raise
this presumption, it must be proved 1) that the letter was properly addressed with postage
prepaid, and 2) it was mailed. To prove fact of mailing, what is essential is the registry receipt
issued by the Bureau of Posts or the registry return card. If these cannot be located, there could at
least be a certification issued by the Bureau of Posts.

Here, CIR failed to present any evidence that Metro received the PAN. It could have presented
the registry receipt or certification from the postmaster that it mailed the PAN, but failed. It
merely accepted Metro’s Chairman’s letter that said that he was willing to paythe tax as
computed by CIR.

2) No PAN, assessment is void- Is the failure to strictly comply with the notice requirements in
S228 of NIRC and RR12-99 tantamount to denial of due process? S228 of NIRC states:
SEC. 228. Protesting of Assessment. — When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer
of his findings, xxx.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
S228 clearly requires that the taxpayer must first be informed that he is liable for deficiency
taxes thru a PAN. The law imposes a substantive, not merely a formal, requirement. RR12-99 of
BIR also states:
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for
any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based xxx.
The use of “shall” in S3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the
failure of the CIR to strictly comply with the requirements laid down by law and its own rules is
a denial of Metro Star's right to due process.

2.1) The old requirement under the old tax law, RA 8424 S229 and RR12-85 is merely of
notifying the taxpayer of CIR’s findings. The old regulation requires simply that a notice be sent
in a prescribed form and there was no consequence for non-compliance with that form. This was
changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which
an assessment would be made. Otherwise, the assessment would be invalid.

32. Lascona Land Co., Inc. v. CIR, GR 171251, March 05, 2012, Peralta, J., Third Division.
FACTS:
CIR issued Assessment Notice 407 against Lascona, informing it of alleged deficiency income
tax for 1993 of P753k. On April 20, 1998, Lascona filed a letter of protest, but this was denied in
a letter dated March 3, 1999 (Received by Lascona on March 12, 1999) for the reason that while
the CIR “agree with the arguments advanced in your letter protest, we regret, however, that we
cannot xxx cancel or set aside the assessment notice xxx for the reason that the case was not
elevated to the CTA as mandated by xxx S228, last paragraph of NIRC.” Lascona appealed to
CTA on April 12, 1999. CTA nullified the assessment.

CIR moved for reconsideration, arguing that RR 12-99, S3.1.5 applied:

If the Commissioner or his duly authorized representative fails to act on the taxpayer's
protest within one hundred eighty (180) days from date of submission, by the taxpayer, of
the required documents in support of his protest, the taxpayer may appeal to the Court of
Tax Appeals within thirty (30) days from the lapse of the said 180-day period; otherwise,
the assessment shall become final, executory and demandable.
CTA denied the MR, saying that RR12-99 must conform to S228 of NIRC. CA reversed CTA
and declared the assessment as final, executory, and demandable.

Hence this petition.

ISSUE:
Whether the taxpayer has the choice of awaiting the CIR decision in case its protest is unacted
for a period longer than 180 days and then to appeal within 30days from receipt of the decision
even beyond said a180 days.
HELD: YES.
S228 of NIRC states:
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within (30) days from
receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period;
otherwise the decision shall become final, executory and demandable.
CIR insists that in case of inaction by CIR within the 180 days, Lascona should have appealed to
CTA.

1) Can appeal if taxpayer opted to await decision beyond 180d- In RCBC v. CIR, SC held that in
case CIR failed to act on the disputed assessment within the 180d period from the date of
submission of documents, a taxpayer can either 1) file a petition for review with CTA within 30
days after the expiration of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of such decision.

This is consistent with S3A(2), Rule 4, of the CTA Revised Rules:

 SEC. 3. Cases within the jurisdiction of the Court in Divisions. — The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(2) Inaction by the CIR in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the NIRC or other laws administered by the BIR, where the NIRC or other
applicable law provides a specific period for action: Provided, that in case of disputed
assessments, the inaction of the CIR within the 180day-period under Section 228 of the
NIRC shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to
the Court and does not necessarily constitute a formal decision of the CIR on the tax case;
Provided, further, that should the taxpayer opt to await the final decision of the CIR on
the disputed assessments beyond the 180 day-period abovementioned, the taxpayer may
appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; xxx;

In arguing that the assessment became final and executory by the sole reason that Lascona failed
to appeal the inaction of CIR within the 30d after the 180d reglementary period, CIR in effect
limited the remedy of Lascona under S228 to just one, that is, to appeal the inaction of CIR
after the lapse of the 180d period. This is incorrect.

2) The word “decisions” in RA 1125, S7, par.1 has been interpreted to mean the decisions of
CIR on the protest of the taxpayer against assessments. The word does not signify the
assessment itself. Where a taxpayer questions an assessment and asks the Collector to reconsider
or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment
becomes a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to
the CTA only upon receipt of the decision of the Collector on the disputed assessment,

Thus, in S228, when the law provided for the remedy to appeal the inaction of CIR, it did not
intend to limit to a single remedy of filing an appeal after the 180d period. Precisely, when a
taxpayer protested an assessment, he expects CIR to decide. He cannot be prejudiced if he
chooses to wait for the final decision of CIR.

3) Mutually exclusive- It must be emphasized, however, that in case of inaction of CIR, while the
taxpayer has 2 options- 1) petrev with CTA within 30d after expiration of the 180d period, 2)
await the final decision of CIR and appeal it to CTA within 30d after receipt of the decision-,
these options are mutually exclusive and resort to one bars the application of the other.

Here, Lascona opted to await the final decision of CIR. It has the right to appeal to CTA within
30d after receipt of the decision even after expiration of the 180d period for CIR to act. Thus,
when Lascona appealed on April 12, 1999 in CTA, after its receipt of the letter dated March 3 on
March 12, 1999, the appeal was timely made as it was made within 30d.

33. Rohm Apollo Semiconductor Philippines v. CIR, GR 168950, January 14, 2015, Sereno,
CJ., First Division.
FACTS:
Rohm Apollo engaged the services of Shimizu PH Contractors Inc. for the construction of a
factory. For services rendered by Shimizu, Rohm made initial payments of P198M on July 7,
2000 and P132M on August 3, 2000. S112(B) in relation to S112(A) of the NIRC allows a
taxpayer to file an application for refund or tax credit of unutilized input VAT from purchase of
capital goods within 2 years from the close of the taxable quarter when the purchase was made.

Rohm filed an administrative claim with BIR on Dec. 11, 2000, well within 2 years from the
close of the taxable quarter when the purchases were made on September 30, 2000. Under
S112(D), CIR had 120d from the filing of the application for refund, until April 10, 2001, to act
on the claim. The waiting period lapsed without any action by CIR.

Instead of filing a judicial claim within 30 days from the lapse of the 120d period on April 10, or
until May 10, 2001, Rohm filed a petrev with CTA on September 11, 2002, believing that a
judicial claim can be filed within the 2-year prescriptive period ending on September 30, 2002.
CTA 1st division denied the judicial claim. CTA En Banc affirmed. Hence this petition.

ISSUE:
Whether Rohm filed the petition for review with CTA on time even if it was filed beyond 30
days from the lapse of the 120d period for CIR to decide its application for refund.
HELD: NO.
S112(D) provides:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals
(**RA 10963 or TRAIN law has removed the “after the expiration of the 120-day period”)

1) Must file within 30d from lapse of 120d period- In the landmark CIR v. San Roque Power, we
held that under S112(D), the taxpayer can file an appeal in 2 ways: (1) file the judicial claim
within 30 days after the Commissioner denies the claim within the 120-day waiting period, or (2)
file the judicial claim within 30 days from the expiration of the 120-day period if the
Commissioner does not act within that period.

Here, Rohm should have treated CIR’s inaction upon expiration of the 120d period as a denial
of its claim. Rohm would then have had 30d or until May 10, 2001 to file judicial claim with
CTA. But it filed only on September 11, 2002. The judicial claim was thus filed late.

1.1) 2y period to file, only for administrative claim- Rohm mistakenly believed that a judicial
claim need not be filed within 30d from the lapse of the 120d period, believing that the only
requirement is that the judicial claim be filed within the 2-year period under S112(A) and (B).
However, it is only the administrative claim that must be filed within the 2-year prescriptive
period. The 30d period applies always whether there is denial or inaction on the part of CIR.
The 30d period was adopted precisely to do away with the old rule where the taxpayer could file
a judicial claim when there is inaction by CIR and the 2-year statute of limitations was about to
expire.

((A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax xxx.

(B) Capital Goods. — A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may be
made only within two (2) years after the close of the taxable quarter when the importation or
purchase was made. )

2) BIR Ruling DA-489-03 applied between Dec. 10, 2003 and Oct. 5, 2010 which excused
premature filing, declaring that the taxpayer claimant need not wait for the lapse of the 120d
period before it could seek judicial relief with CTA. But this involves premature filing, Rohm’s
case involves late filing. Also, Rohm filed its judicial claim on September 11, 2002, before
issuance of BIR Ruling DA-489-03 on Dec. 10, 2003.

34. RCBC v. CIR, GR 170257, September 07, 2011, Mendoza, J., Third Division.
FACTS:
RCBC received a LOA issued by CIR authorizing a special audit team to examine the books of
accounts and other accounting records for all internal revenue taxes from January 1, 1994 to Dec.
31, 1995. On Jan. 23, 1997, RCBC executed 2 waivers of the defense of prescription for taxes
due for 1994 and 1995, effectively extending the period of BIR to assess up to Dec. 31, 2000.

On Jan. 27, 2000, RCBC received a formal demand together with assessment notices from BIR,
assessing deficiency taxes. RCBC filed a protest and submitted relevant evidence. On Dec. 6,
2000, RCBC received another formal letter of demand which drastically reduced the original
deficiency taxes (from billions to hundred-millions). On the same day, RCBC paid P5M and
P9.9M for 1994 and 1995 respectively, but refused to pay the assessments for deficiency
onshore tax and DST (1994: P96M, 1995: P191M) which remained subjects of its petition for
review with CTA.

RCBC argued that its waivers were not valid since they were not signed or conformed to by CIR
as required by NIRC S222(b). CTA 1st division held that RCBC was estopped from questioning
the validity of the waivers. CTA En Banc ruled that by paying portions of the reduced
assessment, RCBC bound itself to the new assessment, implying that it recognized the validity of
the waivers. Hence this petition.

ISSUE:
Whether RCBC is estopped from assailing the validity of its 2 waivers because it made partial
payments of the reduced assessment.
HELD: YES.
RCBC assails the validity of its waivers because these were merely attested to by then
Coordinator for CIR who failed to indicate acceptance of the CIR as required under S223(b) of
the 1977 Tax Code.

But under Art. 1431 of NCC xxx. Estoppel is clearly applicable. RCBC, through its partial
payment of the revised assessments issued within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly
believed that the waivers were invalid and that the assessments were issued beyond the
prescriptive period, then it should not have paid the reduced amount of taxes in the revised
assessment. RCBC's subsequent action effectively belies its insistence that the waivers are
invalid. The records show that on December 6, 2000, upon receipt of the revised assessment,
RCBC immediately made payment (on the same day) on the uncontested taxes. Thus, RCBC is
estopped from questioning the validity of the waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had previously recognized would run counter to the
principle of equity which this institution holds dear

35. CIR v. Hambrecht & Quist PHL, Inc., GR 169225, November 17, 2010, Leonardo-de
Castro, J., First Division.
FACTS:
On January 8, 1993, CIR sent an assessment notice to Hambrecht’s former place of business.
Hambrecht, in a Feb. 15, 1993 letter, informed BIR of its change of address. On Nov. 4, 1993,
Hambrecht received a letter from Accounts Receivable division of BIR demanding payment of
alleged deficiency income and expanded withholding taxes for 1989 of P2.936M. Hambrecht, on
Dec. 3, 1993, filed with the same division its protest letter against the alleged deficiency tax
assessments. On Nov. 7, 2001 (8y later), Hambrecht received a letter from CIR advising that CIR
had rendered a final decision denying its protest on the ground that the protest against the
disputed tax assessment was filed beyond the 30-day reglementary period under S229 of NIRC.
On Dec. 6, 2001, Hambrecht filed a petrev before CTA pursuant to RA 1125, S7.

CTA division held that the assessment has become final and unappealable for failure of
Hambrecht to file a protest within the 30d period under the law, ruling that the Jan. 8, 1993
assessment was valid since Hambrecht only gave notice of change of address on Feb. 18.
However, CTA held that CIR failed to collect the assessed taxes within the prescriptive period
and directed the cancellation of the assessment notice.

CTA en banc affirmed. Hence this petition.

ISSUE:
Whether CTA could rule on the issue of prescription of the period to collect even if the
assessment has become final and unappealable.
HELD: YES.
CIR argues that CTA has no jurisdiction over the case since CTA itself ruled that the assessment
had already become final and unappealable. CIR assails CTA’s ruling that CTA had jurisdiction
to decide “other matters” related to the tax assessment like the right to collect since “other
matters” under RA 1125, S7 presupposes that a tax assessment has not become final and
unappealable.

1) “Other matters” is independent from the phrases preceding it- RA 1125, S7:
Section 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided —
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other law as part of law administered by the Bureau of Internal Revenue
“Other matters” is limited only by the qualifying phrase following it. Thus, CTA’s appellate
jurisdiction is not limited to cases involving CIR decisions on assessments or refunds. The
second part of the provision covers other cases arising out of NIRC or related laws
administered by BIR.

Here, the issue is whether BIR’s right to collect taxes has prescribed which falls under 1986
NIRC, S223(c) (can collect 3y from assessment). 1986 NIRC, S3 also provides that one of BIR’s
duties is the collection of internal revenue taxes. Thus, BIR’s right to collect is covered by
“other matters” over which CTA has appellate jurisdiction.

Also, the phraseology of S7, (1) denotes an intent to view CTA’s jurisdiction over disputed
assessments, AND over “other matters” as separate and independent of each other. This runs
counter to CIR’s theory that “other matter” must refer to a disputed assessment as qualified by
the preceding phrase.

1.1) That an assessment has become final for failure to protest within the time allowed only
means that the validity and correctness of the assessment may no longer be questioned on
appeal. But the validity of the assessment itself is a separate issue from the issue of whether
the right to collect has prescribed.

2) CIR claims that its right to collect has not prescribed, citing S224 of 1986 NIRC:
Section 224. Suspension of running of statute. — The running of the statute of limitations
provided in Sections 203 and 223 on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall
be suspended for the period during which the Commissioner is prohibited from making
the assessment or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner;
Here, CIR did not grant the request for reinvestigation. The mere filing of a protest letter which
is not granted does not operate to suspend the running of the period to collect taxes. While
Hambrecht filed a request for reinvestigation on Dec. 3, 1993, there is no indication that CIR
acted upon the request.

36. CIR v. Next Mobile, Inc., GR 212825, December 07, 2015, Velasco, Jr., J., Third
Division.
FACTS:
On April 15, 2002, Next filed with BIR its annual ITR for taxable year ending Dec. 31, 2001.
Next also filed its monthly remittance returns of final income taxes withheld, expanded
withholding tax. Next received a copy of a LOA on September 25, 2003 to examine its books of
accounts. Lida Sarmiento, Next’s Director of Finance, executed 5 waivers of statute of
limitations to extend the prescriptive period for assessing taxes due for 2001. The BIR signatory
for all was Revenue District Officer.

On Sept. 26, 2005, Next received a PAN to which it filed a reply. Next received a FLD on Oct.
25, 2005, demanding payment of deficiency income tax etc. of P313M. Next filed its protest and
requested reinvestigation. On July 28, 2009, Next received a letter from BIR denying its protest.
Thus, on Aug. 27, 2009, Next filed a petrev before CTA.

CTA first division ruled that the waivers were invalid and did not extend the 3y period to assess
since the waivers were not properly executed according to the procedure in MRO20-90 and
RDAO 05-01. Sarmiento had no written notarized authority from Next’s Board of Directors. The
dates of acceptance by CIR are not indicated thereon etc. CTA refused to apply estoppel.

CTA en banc affirmed. Hence this petition.

ISSUE:
Can the waivers, although invalid, still extend the prescriptive period due to the parties being in
pari delicto?
HELD: YES.
S203 of NIRC mandates BIR to assess within 3 years from the last day for filing of tax return or
actual date of filing, whichever comes later. S222(b) provides that the period to assess and
collect may be extended upon a written agreement between CIR and the taxpayer executed
before the expiration of the 3y period. RMO 20-90 and RDAO 05-01 provide the procedure for
proper execution of waiver. Waivers must faithfully comply with these to be valid.

Bilateral- In PH Journalists v. CIR, the waiver was held invalid since: 1) it did not specify a
definite agreed date between the BIR and petitioner within which the former may assess and
collect revenue taxes; (2) it was signed only by a revenue district officer, not the Commissioner;
(3) there was no date of acceptance; and (4) petitioner was not furnished a copy of the waiver.
The case tells us that since a waiver of statute of limitations is a derogation of the taxpayer’s
right to security against prolonged and unscrupulous investigations, waivers of this kind must be
strictly construed. Waiver of statute of limitations is not a waiver of the right to invoke the
defense of prescription. It is not a unilateral act by the taxpayer or BIR but is a bilateral
agreement between them.

Date of Acceptance- In CIR v. FMF Development, the waiver was invalid since: (1) it was not
proved that respondent therein was furnished a copy of the BIR-accepted waiver; (2) the waiver
was signed by a revenue district officer instead of the Commissioner as mandated by the NIRC
and RMO 20-90 considering that the case involved an amount of more than P1,000,000.00, and
the period to assess was not yet about to prescribe; and (3) it did not contain the date of
acceptance by the CIR. The date of acceptance by CIR is necessary to determine whether the
waiver was validly accepted before expiration of the original period.
1) Generally, no estoppel- In CIR v. Kudos, the waivers of Kudos were found invalid because: 1)
the accountant who executed the waivers had no notarized written board authority to sign the
waivers in behalf of respondent corporation; (2) there was no date of acceptance indicated on the
waivers; and (3) the fact of receipt by respondent of its file copy was not indicated in the original
copies of the waivers.

SC rejected CIR’s argument that since Kudos was the one who asked for additional time, it
should be considered estopped from raising the defense of prescription. BIR cannot hide behind
estoppel for its failure to comply with RMO20-90 and RDAO 05-01. Having caused the defects
in the waivers, BIR must bear the consequence. There is compliance with RMO20-90 only after
the taxpayer receives a copy of the waiver accepted by BIR.

Here, the deficiencies in the waivers are the same as in Kudos: 1) they were executed without a
notarized board authority, 2) dates of BIR acceptance were not indicated, 3) the fact of receipt by
Next of its copy of the second waiver is not indicated on the face of the original second waiver.

2) Both parties are at fault.

Next’s fault- Sarmiento executed 5 waivers but her authority to do so was not presented upon
their submission to BIR. Next, after deliberately executing defective waivers, raised the very
same deficiencies it caused to avoid the tax liability determined by BIR during the extended
assessment period. After enjoying the benefits of the waivers (postponing payment in order to
gather documents to substantiate its claims and contest the assessment), Next challenged the
waivers. The act of impugning the waivers after benefiting from them is an act of bad faith.

BIR’s fault- BIR violated its own rules and was careless. RDAO 05-01 requires the authorized
revenue official to ensure that the waiver is duly accomplished and signed by the taxpayer or his
authorized representative before signing to signify acceptance. The authority of the taxpayer’s
representative must be in writing and notarized. The waiver must be notarized. Here, BIR failed
for 5 times to perform its duties to verify Sarmiento’s authority etc. BIR’s negligence is so gross
that it amounts to malice and bad faith.

3) The general rule is that failure to comply with RMO20-90 and RDAO 05-01 makes the waiver
invalid. But due to the peculiar circumstances, SC treated this case as an exception to the rule
and found the waivers VALID.

3.1) In pari delicto- Although the parties are “in equal fault”, the court may grant relief to one of
them where public policy requires the court’s intervention even though one party in equal
guilt would benefit. To uphold the waivers here would be consistent with the public policy that
embodied in the principle that taxes are the lifeblood of the government.

3.2) Clean hands- Parties who do not come to court with clean hands cannot be allowed to
benefit from their own wrongdoing. Next should not be allowed to benefit from the flaws in its
own waivers.
3.3) Estoppel- While SC has repeatedly held that estoppel must be sparingly applied as an
exception to the statute of limitations for tax assessment, its application is justified in this case.
the application of estoppel here would promote administration of law, prevent injustice, and
avert a wrong and undue advantage. The application of estoppel is necessary to prevent undue
injury to the government.

SC found the waivers valid, remanding to CTA to determine the merits of Next’s petition to
nullify BIR’s assessment.