Set1 book

G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and
TALISAY-SILAY MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for
defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio
Torres and Solicitor Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar
Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling
ownership and management, from a decision of the Court of First Instance of Manila finding
them liable for special assessments under Section 15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a
semi-public corporation created for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry such
practices or processes that will reduce the cost of production, increase and improve
the industrialization of the by-products of sugar cane, and achieve greater efficiency
in the industry;
(b) To improve existing methods of raising sugar cane and of sugar manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its byproducts for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions therefor,
as well insure stabilized prices at a level sufficient to cover the cost of production
plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the
domestic and foreign markets so that those engaged in the sugar industry will be
placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the sugar
industry by the gradual and effective correction of the inequalities existing in the
industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide:

Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of
this Act and the purposes of the corporation, there shall be levied on the annual
sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected
for a period of five (5) years beginning the crop year 1951-1952. The amount shall
be borne by the sugar cane planters and the sugar centrals in the proportion of their
corresponding milling share, and said levy shall constitute a lien on their sugar
quedans and/or warehouse receipts.
Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to
constitute a special fund to be known as the "Sugar Research and Stabilization
Fund," which shall be available exclusively for the use of the corporation. All the
income and receipts derived from the special fund herein created shall accrue to,
and form part of the said fund to be available solely for the use of the corporation.
The specific and general powers of the Philsugin are set forth in Section 8 of the same law,
to wit:
Sec. 3. Specific and General Powers. — For carrying out the purposes mentioned in
the preceding section, the PHILSUGIN shall have the following powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain, and
operate one central experiment station and such number of regional experiment
stations in any part of the Philippines as may be necessary to undertake extensive
research in sugar cane culture and manufacture, including studies as to the
feasibility of merchandising sugar cane farms, the control and eradication of pests,
the selected and propagation of high-yielding varieties of sugar cane suited to
Philippine climatic conditions, and such other pertinent studies as will be useful in
adjusting the sugar industry to a position independent of existing trade preference in
the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be
necessary to prosecute successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its byproducts to assure mutual benefits to consumers and producers, and to promote and
maintain a sufficient general production of sugar and its by-products by an efficient
coordination of the component elements of the sugar industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws,
machineries, equipment, materials, merchant vessels, rails, railroad lines, and any
other means of transportation, warehouses, buildings, and any other equipment and
material to the production, manufacture, handling, transportation and warehousing of
sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans
advisable;

(f) To enter, make and execute contracts of any kind as may be necessary or
incidental to the attainment of its purposes with any person, firm, or public or private
corporation, with the Government of the Philippines or of the United States, or any
state, territory, or persons therefor, or with any foreign government and, in general,
to do everything directly or indirectly necessary or incidental to, or in furtherance of,
the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such
functions directly or indirectly necessary, incidental or conducive to the attainment of
the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation Law
insofar as they are not inconsistent with the provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by the
lower court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953,
1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc.,
has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao
Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of
P235,800.20; defendant Talisay-Silay Milling Company has paid P251,812.43 but
left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao
made a payment of P49,897.78 but left unpaid balance of P48,059.77. There is no
question regarding the correctness of the amounts paid and the amounts that remain
unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that
on September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for
short, acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60
payable, in accordance with the deed of sale Exhibit A, in 3 installments from the
process of the sugar tax to be collected, under Republic Act 632. The evidence
further discloses that the operation of the Insular Sugar Refinery for the years, 1954,
1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred
tremendous losses as shown by an examination of the statements of income and
expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor
Cruz, former acting general manager of PHILSUGIN and at present technical
consultant of said entity, presented by the defendants as witnesses, it has been
shown that the operation of the Insular Sugar Refinery has consumed 70% of the
thinking time and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin
Fund was not authorized by Republic Act 632 and that the continued operation of the said
refinery was inimical to their interests, the appellants refused to continue with their
contributions to the said fund. They maintained that their obligation to contribute or pay to
the said Fund subsists only to the limit and extent that they are benefited by such
contributions since Republic Act 632 is not a revenue measure but an Act which establishes
a "Special assessments." Adverting to the finding of the lower court that proceeds of the

said Fund had been used or applied to absorb the "tremendous losses" incurred by
Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue that
they should not only be released from their obligation to pay the said assessment but be
refunded, besides, of all that they might have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"
authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such,
the proceeds thereof may be devoted only to the specific purpose for which the assessment
was authorized, a special assessment being a levy upon property predicated on the
doctrine that the property against which it is levied derives some special benefit from the
improvement. It is not a tax measure intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit accrues or inures to the property
owners paying the assessment, or that the proceeds from the said assessment are being
misapplied to the prejudice of those against whom it has been levied, then the authority to
insist on the payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the
aforementioned law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and
operate machineries, equipment, merchant vessels, etc., and any other equipment and
material for the production, manufacture, handling, transportation and warehousing of sugar
and its by-products. It was, therefore, authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of
directors composed of 5 members, 3 of whom shall be appointed upon recommendation of
the National Federation of Sugar Cane Planters and 2 upon recommendation of the
Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not been shown that this
particular provision was not observed in this case. Therefore, the appellants herein may not
rightly claim that there had been a misapplication of the Philsugin funds when the same was
used to procure the Insular Sugar Refinery because the decision to purchase the said
refinery was made by a board in which the applicants were fully and duly represented, the
appellants being members of the Philippine Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office,
which must be presumed to have passed upon the legality and prudence of the
disbursements of the Fund. Additionally, other offices of the Government review such
transactions as reflected in the annual report obliged of the Philsugin to prepare. Among
those offices are the Office of the President of the Philippines, the Administrator of
Economic Coordination and the Presiding Officers of the two chambers of Congress. With
all these safeguards against any imprudent or unauthorized expenditure of Philsugin Funds,
the acquisition of the Insular Sugar Refinery must be upheld in its legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to
continue with their contribution to the Fund for that conduct is no different "from the case of
an ordinary taxpayer who refuses to pay his taxes on the ground that the money is being
misappropriated by Government officials." This is taking the law into their own hands.

Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could
have been committed by Philsugin solely because its charter incorporates so many devices
or safeguards to preclude such abuse. This reasoning of the lower court does not reconcile
with that actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused or
not its powers when it purchased the Insular Sugar Refinery. The issue, rather, is whether
Philsugin had any power or authority at all to acquire the said refinery. The appellants deny
that Philsugin is possessed of any such authority because what it is empowered to
purchase is not a "sugar refinery but a central experiment station or perhaps at the most a
sugar central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the
appellants cite the case ofCollector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which
this Court ruled that —
We are of the opinion that a "sugar central," as that term is used in Section 189,
applies to "a large mill that makes sugar out of the cane brought from a wide
surrounding territory," or a sugar mill which manufactures sugar for a number of
plantations. The term "sugar central" could not have been intended by Congress to
refer to all sugar mills or sugar factories as contended by respondent. If respondent's
interpretation is to be followed, even sugar mills run by animal power (trapiche)
would be considered sugar central. We do not think Congress ever intended to place
owners of (trapiches) in the same category as operators of sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle
governing valuation and assessment of real property. Section 4 of said Act provides
—
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall
be assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or
"sugar refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act 632
may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely
because there is a substantial distinction between a "special assessment" and an ordinary
tax. The purpose of the former is to finance the improvement of particular properties, with
the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay
the assessment. The purpose of an ordinary tax, on the other hand, is to provide the
Government with revenues needed for the financing of state affairs. Thus, while the refusal
of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair
government functions, the same would not hold true in the case of a refusal to comply with
a special assessment.

Third. Upon a host of decisions of the United States Supreme Court, the imposition or
collection of a special assessment upon property owners who receive no benefit from such
assessment amounts to a denial of due process. Thus, in the case of Norwood vs. Baer,
172 US 269, the ruling was laid down that —
As already indicated, the principle underlying special assessments to meet the cost
of public improvements is that the property upon which they are imposed is
peculiarly benefited, and therefore, the panels do not, in fact, pay anything in excess
of what they received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a special
assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably
arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S.
57). In other words, the assessment is violative of the due process guarantee of the
constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already been discussed
and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz
case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to
others for a consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed
value of such land. (Sec. 3).
1äwphï1.ñët

Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder
"shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following
purposes or to attain any or all of the following objectives, as may be provided by law." It
then proceeds to enumerate the said purposes, among which are "to place the sugar
industry in a position to maintain itself; ... to readjust the benefits derived from the sugar
industry ... so that all might continue profitably to engage therein; to limit the production of
sugar to areas more economically suited to the production thereof; and to afford laborers
employed in the industry a living wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or
special assessment was unconstitutional because it was being "levied for the aid and
support of the sugar industry exclusively," and therefore, not for a public purpose. In
rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for
in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the
Act, and particularly Section 6, will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the
great industries of our nation, sugar occupying a leading position among its export
products; that it gives employment to thousands of laborers in fields and factories;
that it is a great source of the state's wealth, is one, of the important sources to
foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence, it was
competent for the Legislature to find that the general welfare demanded that the
sugar industry should be stabilized in turn; and in the wide field of its police power,
the law-making body could provide that the distribution of benefits therefrom be
readjusted among its components, to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed.
835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs.
Mayo, 103 Fla. 552, 139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in
Florida —
"The protection of a large industry constituting one of the great source of the
state's wealth and therefore directly or indirectly affecting the welfare of so
great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign." (128 So.
857).
Once it is conceded, as it must that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed full play, subject only to
the test of reasonableness; and it is not contended that the means provided in
Section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no
reason is seen why the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the state's police power.
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs.
Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
On the authority of the above case, then, We hold that the special assessment at bar may
be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so
much an exercise of the power of taxation, nor the imposition of a special assessment, but,
the exercise of the police power for the general welfare of the entire country. It is, therefore,
an exercise of a sovereign power which no private citizen may lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research
work for the sugar industry in all its phases, either agricultural or industrial, for the purpose
of introducing into the sugar industry such practices or processes that will reduce the cost of
production, ..., and achieve greater efficiency in the industry." This provision, first of all,
more than justifies the acquisition of the refinery in question. The case dispute that the

operation of a sugar refinery is a phase of sugar production and that from such operation
may be learned methods of reducing the cost of sugar manufactured no less than it may
afford the opportunity to discover the more effective means of achieving progress in the
industry. Philsugin's experience alone of running a refinery is a gain to the entire industry.
That the operation resulted in a financial loss is by no means an index that the industry did
not profit therefrom, as other farms of a different nature may have been realized. Thus, from
its financially unsuccessful venture, the Philsugin could very well have advanced in its
appreciation of the problems of management faced by sugar centrals. It could have
understood more clearly the difficulties of marketing sugar products. It could have known
with better intimacy the precise area of the industry in need of the more help from the
government. The view of the appellants herein, therefore, that they were not benefited by
the unsuccessful operation of the refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to
carry out save through the actual operation of a refinery. Quite obviously, the most practical
or realistic approach to the problem of what "practices or processes" might most effectively
cut the cost of production is to experiment on production itself. And yet, how can such an
experiment be carried out without the tools, which is all that a refinery is?
In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.

[G.R. No. 16254. February 21, 1922. ]
G. A. CUUNJIENG, Plaintiff-Appellee, v. FRED L. PATSTONE, engineer of the city of
Manila,Defendant-Appellant.
City Fiscal Diaz for Appellant.
Gabriel La O for Appellee.
SYLLABUS
1. CIVIL PROCEDURE; MANDAMUS. — The question of the constitutionality of a statute may be raised
by the petitioner in mandamus proceedings, but the respondent will not, as a general rule, be
permitted to question the validity of a statute which has not been judicially declared unconstitutional.
2. MUNICIPAL CORPORATIONS; POWERS. — The city of Manila has no power to compel property
holders to lease the portions of the public sidewalks which adjoin their lands.
3. ID.; ID.; LICENSE FEES; USEFUL OCCUPATIONS OR ENTERPRISES. — In the absence of special
authority to impose a license fee or tax for revenue, the fee for licenses for the regulation of useful
occupations or enterprises may only be of a sufficient amount to include the expense of issuing the
license and the cost of the necessary inspection and police surveillance, taking into account not only
the expense of direct regulation but also incidental consequences.
4. ID.; ID.; ID.; NON-USEFUL OCCUPATIONS. — In fixing fees for licenses for non-useful occupations,
a municipal corporation is allowed a wider discretion than in regard to license fees for useful
occupations, and aside from applying the legal principle that municipal ordinances must not be
unreasonable, oppressive, or tyrannical, the courts have generally declined to interfere with such
discretion.
5. ID.; ID.; ID.; FOR REVENUE. — License fees for revenue rest upon the taxing power as
distinguished from the police power, and the power of the municipality to exact such fees must be
expressly granted by charter or statute and is not to be implied from the conferred power to license
and regulate merely.
6. ID.; ID.; ID. — Section 2507 of the Administrative Code authorizes the Municipal Board of the city
of Manila to establish fire limits, determine the kinds of buildings or structures that may be erected
within said limits, regulate the manner of constructing and repairing the same, and fix the fees for
permits for the construction, repair, or demolition of buildings and structures. Under this provision the
Municipal Board passed an ordinance requiring land owners desiring to erect buildings upon their
property along certain streets to build arcades over the portions of the sidewalks adjoining their lands,
and to pay therefor by way of license fees one-half of the assessed value of the city land located
within the arcades. Held: That this is a license fee for revenue not authorized under existing statutes.

DECISION

OSTRAND, J. :

This is a petition for a writ of mandamus to compel the city engineer of Manila to issue a building
permit. There is no dispute as to the facts. The plaintiff desires to erect a warehouse on Azcarraga
Street but is denied a building permit until he shall have made provision for the construction of an
arcade over the sidewalk in front of the building and until he shall have further complied with section 1
of Ordinance No. 301 of the city of Manila, which reads as follows:
jgc:chanro bles. com.ph

"Whenever the owner, person in charge, or any other person or entity having a right in any property
located on the principal streets and avenues of the city of Manila, such as Legarda, R. Hidalgo,
Carriedo, Echague, Moriones, Azcarraga, Rizal, Taft, San Miguel, and others which may, by ordinance,
hereafter be designated by the Municipal Board, desires to erect or reconstruct a building or any other
construction on said property, the same shall pay, once the plan of the work has been approved by
the city engineer, one-half of the assessed value of the city land located within the arcades of said
building or construction, as a license fee for the use and occupation of said land: Provided, That the
construction of arcades on streets having a width of twenty or more meters, not hereinbefore
mentioned in this section, shall not be carried out,. until after the plan of the work has been approved
by the city engineer, and half of the assessed value of the city land located within said arcades has
been paid for by the owner, person in charge or any other person or entity having a right in the
building which is to be erected or constructed, as a license fee for the use and occupation of said
land."
cra law virtua1aw li bra ry

The plaintiff refuses to construct the arcade and to comply with the ordinance in question on the
grounds that the arcade is unnecessary and unsuitable for his warehouse and that the city has no
power to require its construction; and that the ordinance in exacting the payment of a fee of one-half
of the assessed value of the city land covered by the arcade is in excess of the legislative powers of
the Municipal Board and, therefore, unconstitutional. It seems, however, to be conceded that under
the climatic conditions here existing, arcades are both useful and desirable from the standpoint of
public convenience and that the Municipal Board, under its general powers to regulate the construction
of buildings and their alignment with the streets, and also under the general welfare of the city
charter, has power to provide for the construction of arcades on certain streets. In any event, the
question has not been raised by assignment of error and the discussion may, therefore, properly be
limited to two points: First, whether the question of the constitutionality of statutes or city ordinances
may be raised in mandamus proceedings and second, whether under its charter, the city of Manila
may, under the guise of a license fee and as a prerequisite for the issuance of a building permit, exact
the payment of one-half of the assessed value of the portion of the sidewalk covered by the arcade.
Upon the first point the authorities are not entirely in harmony, but in modern practice it has been
generally held that the writ will lie where, as in the present case the question of constitutionality is
raised by the petitioner. (See State ex rel., Fooshe v. Burley, 16 L. R. A. [N. 3. ], 266, with its case
note.) The rule is different where the respondent relies on the unconstitutionality of a statute as a
defense in mandamus proceedings. In such cases the courts have generally declined to consider
questions of constitutionality. (See State ex rel., New Orleans Canal & Banking Co. v. Heard, 47 L. R.
A., 512, and the case note thereto.) The reason for this is obvious: It might seriously hinder the
transaction of public business if ministerial officers were to be permitted in all cases to question the
constitutionality of statutes and ordinances imposing duties upon them and which have not judicially
been declared unconstitutional. The same reasons do not exist where the validity of the statutes is
attacked by the petitioner.
There being no other adequate remedy and there appearing to be no reason in principle why we
should not consider the validity of the city ordinance here in question in mandamus proceedings, we
are of the opinion, and so hold, that the present action has been properly brought.
The second point above-mentioned merits a more extended consideration. In discussing it we must
bear in mind that legislative powers in regard to taxes and licenses are not inherent in municipal
corporations but must be granted by statute either expressly or by necessary implication. Like other
delegated powers, they are subject to strict construction.
That the city does not possess such an extraordinary power as that of compelling property holders to
lease the portions of the public sidewalks which adjoin their lands requires no argument. The charge of
one-half of the assessed value imposed on applicants for building permits can, therefore, not be
considered as rent, and to be valid must either be a tax or a license fee. The legislative powers of the
city in regard to taxes and license fees are enumerated in the following subsections of section 2444 of
the Administrative Code, as amended by section 8 of Act No. 2774, and in section 2507 of the
Administrative Code:
jgc:chanroble s.com.p h

"SEC. 2444. General powers and duties of the Board. — Except as otherwise provided by law, and
subject to the conditions and limitations thereof, the Municipal Board shall have the following
legislative powers:
jgc:chanrob les.com. ph

"(a) To provide for the levy and collection of taxes for general and special purposes in accordance with
law.
"(b) To fix the tariff of fees and charges for all services rendered by the city or any of its departments,
branches, or officials.
x

x

x

"(h) To establish fire limits, determine the kinds of buildings or structures that may be erected within
said limits, regulate the manner of constructing and repairing the same, and fix the fees for permits
for the construction, repair, or demolition of buildings and structures.
x

x

x

"(j) To regulate the use of lights in stables, shops, and other buildings and places, and to regulate and
restrict the issuance of permits for the building of bonfires and the use of firecrackers, fireworks,
torpedoes, candles, sky- rockets, and other pyrotechnic displays, and to fix the fees for such permits.
x

x

x

"(l) To regulate and fix the amount of the license fees for the following: Hawkers, peddlers, hucksters,
not including hucksters or peddlers who sell only native vegetables, fruits, or foods, personally carried
by the hucksters or peddlers; auctioneers, plumbers, barbers, embalmers, collecting agencies,
mercantile agencies, shipping and intelligence offices, private detective agencies, advertising agencies,
massagists, tattooers, jugglers, acrobats, hotels, clubs, restaurants, cafes, lodging houses, boarding
houses, livery garages, livery stables, boarding stables, dealers in large cattle, public billiard tables,
laundries, cleaning and dyeing establishments, public warehouses, dance halls, cabarets, circus and
other similar parades, public vehicles, race tracks, horse races, bowling alleys, shooting galleries, slot
machines, merry-go-rounds, pawnshops, dealers in second-hand merchandise, junk dealers, brewers,
distillers, rectifiers, money changers and brokers, public ferries, theaters, theatrical performances,
cinematographs, public exhibitions, circuses and all other performances, and places of amusement,
and the keeping, preparation, and sale of meat, poultry, fish, game, butter, cheese, lard, vegetables,
bread, and other provisions.
"(m) To tax, fix the license fee for, regulate the business, and fix the location of match factories,
blacksmith shops, foundries, steam boilers, lumber yards, ship yards, the storage and sale of
gunpowder, tar, pitch, resin, coal, oil, gasoline, benzine, turpentine, hemp, cotton, nitroglycerin,
petroleum, or any of the products thereof, and of all other highly combustible or explosive materials,
and other establishments likely to endanger the public safety or give rise to conflagrations, or
explosions, and, subject to the provisions of ordinances issued by the Philippine Health Service in
accordance with law, tanneries, renderies, tallow chandleries, bone factories, and soap factories." (n)
To tax motor and other vehicles and draft animals not paying the public vehicles license fee or any
other Insular tax.
"(o) To regulate the method of using steam engines and boilers, other than marine or belonging to the
Federal or Insular Governments; to provide for the inspection thereof, and for a reasonable fee for
such inspection, and to regulate and fix the fees for the licenses of the engineers engaged in operating
the same.
x

x

x

"(q) To prohibit, or regulate and fix the license fees or, the keeping of dogs, and to authorize their
impounding and destruction when running at large contrary to ordinances, and to tax and regulate the
keeping or training of fighting cocks.
x

x

x

"(u) Subject to the provisions of sections nineteen hundred and four and nineteen hundred and five of
this Code, to provide for the laying out, construction, and improvement, and to regulate the use, of
streets, avenues, alleys, sidewalks, wharves, piers, parks, cemeteries, and other public places; to
provide for lighting, cleaning, and sprinkling of streets and public places; to regulate, fix license fees
for, and prohibit the use of the same for processions, signs, signposts, awnings, awning posts, the
carrying or displaying of banners, placards, advertisements, or hand bills, or the flying of signs, flags,
or banners, whether along, across, over, or from buildings along the same; to prohibit the placing,
throwing, depositing, or leaving of obstacles of any kind, offal, garbage, refuse, or other offensive
matter or matter liable to cause damage, in the streets and other public places, and to provide for the
collection and disposition thereof; to provide for the inspection of, fix the license fees for, and regulate
the openings in the same for the laying of gas, water, sewer, and other pipes, the building and repair
of tunnels, sewers, and drains, and all structures in and under the same, and the erecting of poles and
the stringing of wires therein; to provide for and regulate crosswalks, curbs, and gutters therein; to
name streets without a name and provide for and regulate the numbering of houses and lots fronting
thereon or in the interior of the blocks; to regulate traffic and sales upon the streets and other public
places; to provide for the abatement of nuisances in the same and punish the authors or owners
thereof; to provide for the construction and maintenance, and regulate the use, of bridges, viaducts,
and culverts; to prohibit and regulate ball playing, kite flying, hoop rolling, and other amusements
which may annoy persons using the streets and public places, or frighten horses or other animals; to
regulate the speed of horses and other animals, motor and other vehicles, cars, and locomotives
within the limits of the city; to regulate the lights used on all such vehicles, cars, and locomotives; to
regulate the locating, constructing and laying of the track of horse, electric, and other forms of
railroad in the streets or other public places of the city authorized by law; to provide for and change
the location, grade, and crossings of railroads, and to compel any such railroad to raise or lower its
tracks to conform to such provisions or changes; and to require railroad companies to fence their
property, or any part thereof, to provide suitable protection against injury to persons or property, and
to construct and repair ditches, drains, sewers, and culverts along and under their tracks, so that the
natural drainage of the streets and adjacent property shall not be obstructed.
x

x

x

"(w) To fix the charges to be paid by all water craft landing at or using public wharves, docks, levees,
or landing places: Provided, That the provisions of this subsection shall not apply to the public
wharves, docks, levees, or landing places constructed within the breakwater, on the banks of the
canal connecting the Pasig River with the inner basin, and on both sides of said river below the Jones
Bridge.
x

x

x

"(z) Subject to the provisions of ordinances issued by the Philippine Health Service in accordance with
law, to provide for the establishment and maintenance and fix the fees for the use of, and regulate
public stables, laundries, and baths, and public markets and slaughterhouses, and prohibit the
establishment or operation within the city limits of public markets and slaughterhouses by any person,
entity, association, or corporation other than the city.
"(aa) To regulate, inspect, and provide measures preventing any discrimination or the exclusion of any
race or races in or from any institution, establishment, or service open to the public within the city

limits, or in the sale and supply of gas or electricity, or in the telephone and street-railway service; to
fix and regulate charges therefor where the same have not been fixed by Act of Congress or of the
Philippine Legislature; to regulate and provide for the inspection of all gas, electric, telephone, and
street-railway conduits, mains, meters, and other apparatus, and provide for the condemnation,
substitution or removal of the same when defective or dangerous.
x

x

x

"(ee) To enact all ordinances it may deem necessary and proper for the sanitation and safety, the
furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort,
convenience, and general welfare of the city and its inhabitants, and such others as may be necessary
to carry into effect and discharge the powers and duties conferred by this chapter; and to fix penalties
for the violation of ordinances which shall not exceed a two hundred peso fine or six months’
imprisonment, or both such fine and imprisonment, for a single offense."
c ralaw virtua1aw l ibra ry

"SEC. 2507. Power to levy special assessments f or certain purposes. — The Municipal Board may, by
ordinance duly approved, provide for the levying and collection, by special assessments of the real
estate comprised within the district or section of the city especially benefited, of a part not to exceed
sixty per centum of the cost of laying out, opening, constructing, straightening, widening, extending,
grading, paving, curbing, walling, deepening, or otherwise establishing, repairing, enlarging, or
improving public avenues, roads, streets, alleys, sidewalks, parks, plazas, bridges, landing places,
wharves, piers, docks, levees, reservoirs, waterworks, water mains, water courses, esteros, canals,
drains, and sewers, including the cost of acquiring the necessary land. Within the meaning of this
article, all real estate comprised within the district benefited, except lands or buildings owned by the
United States of America, the Government of the Philippine Islands, or the city of Manila, shall be
subject to the payment of the special assessment, based upon the valuation of such real estate as
shown by the books of the city assessor and collector, or its present value as fixed by said officer in
the first instance if the property does not appear of record in his books according to the valuation
whereof the special tax has to be made, computed, and assessed."
c ralaw virtua1aw l ibra ry

Conceivably, there may be other instances where the police power to regulate carries with it impliedly
the power to prescribe fees, but they have no relation to the issues here involved.
Examining the provisions quoted, it is clear that the only one which can possibly be applied to the
present case is subsection (h) of section 2444 authorizing the fixing of fees for building permits and
that if the charge in question possesses any validity whatever it must be as a license fee under that
subsection.
The allowable amount of a license fee or tax depends so much on the special circumstances of each
particular case that it is difficult to harmonize the numerous decisions on the subject and to formulate
definite rules; but, generally speaking, the adjudications appear to recognize three classes of licenses,
each with its distinct characteristic, which have been taken into consideration in determining the
reasonableness of the license fee: First, licenses for the regulation of useful occupations or
enterprises; secondly, licenses for the regulation or restriction of non-useful occupations or
enterprises, and thirdly, licenses for revenue only.
(1) The first two of these classes is based on the exercise of the police power and, though there is
some conflict of authority on this point, the better rule seems to be that the conferred power to
regulate and to issue such licenses carries with it the right to fix a license fee. It is well settled that in
the absence of special authority to impose a tax for revenue the fee for this class of licenses may only
be of a sufficient amount to include the expense of issuing the license and the cost of the necessary
inspection or police surveillance, taking into account not only the expense of direct regulation but also
incidental consequences.
Cooley on Constitutional Limitations, 6th ed., at page 242, says:

jgc:c hanro bles. com.ph

"A right to license an employment does not imply a right to charge a license fee therefor with a view
to revenue, unless such seems to be the manifest purpose of the power; but the authority of the

corporation will be limited to such a charge for the license as will cover the necessary expenses of
issuing it, and the additional labor of officers and other expenses thereby imposed. (Davis v.
Petrinovich, 112 Ala., 654; 21 So., 344; 36 L. R. A., 615; Ft. Smith v. Hunt, 72 Ark., 556; 82 S. W.,
163; 105 A. S. R., 51; 66 L. R. A., 238; Waters-Pierce Oil Co. v. Hot Springs, 85 Ark., 509; 109 S. W.,
293; 16 L. R. A. [N. S. ], 1035; Ex parte Dickey, 144 Cal., 234; 77 Pac., 924; 103 A. S. R., 82; 1 Ann.
Cas., 428 and note; 66 L. R. A., 928; Morton v. Macon, 111 Ga., 162; 36 S. E., 627; 50 L. R. A., 485;
State v. Ashbrook, 154 Mo., 375; 55 S. W., 627; 77 A. S. R., 765; 48 L. R. A., 265; St. Louis v.
Grafeman Dairy Co., 190 Mo., 492; 89 S. W., 617; 1 L. R. A. [N. S. ], 936; Johnson v. Great Falls, 38
Mont., 369; 99 Pac., 1059; 16 Ann. Cas., 974; Rosenbloom v. State, 64 Neb., 342; 89 N. W., 1053;
57 L. R. A., 922; State v. Boyd, 63 Neb., 829; 89 N. W., 417; 58 L. R. A., 108; Hughes v. Snell, 28
Okla., 828; 115 Pac., 1105, Ann. Cas. [1912D] 374; 34 L. R. A. [N. S. ], 1133; Ellis v. Frazier, 38
Ore., 462; 63 Pac., 642; 53 L. R. A. 454; Laurens v. Anderson, 75 S. C., 62; 55 S. E., 136; 117 A. S.
R., 885; 9 Ann. Cas., 1003; Seattle v. Dencker, 58 Wash., 501; 108 Pac., 1086; 137 A. S. R., 1076;
28 L. R. A. [N. S. ], 446.)"
(2) Licenses for non-useful occupations are also incidental to the police power and the right to exact a
fee may be implied from the power to license and regulate, but in fixing the amount of the license fees
the municipal corporations are allowed a much wider discretion in this class of cases than in the
former, and aside from applying the well-known legal principle that municipal ordinances must not be
unreasonable, oppressive, or tyrannical, courts have, as a general rule, declined to interfere with such
discretion. The desirability of imposing restraint upon the number of persons who might otherwise
engage in non-useful enterprises is, of course, generally an important factor in the determination of
the amount of this kind of license fee. Hence license fees clearly in the nature of privilege taxes for
revenue have frequently been upheld, especially in cases of licenses for the sale of liquors. In fact, in
the latter cases the fees have rarely been declared unreasonable. (Swarth v. People, 109 Ill., 621;
Dennehy v. City of Chicago, 120 Ill., 627; 12 N. E., 227; United States Distilling Co. v. City of
Chicago, 112 Ill., 19; Drew County v. Bennett, 43 Ark., 364; Merced County v. Fleming, 111 Cal., 46;
43 Pac., 392; Williams v. City Council of West Point, 68 Ga., 816; Cheny v. Shellbyville, 19 Ind., 84;
Wiley v. Owens, 39 Ind., 429; Sweet v. City of Wabash, 41 Ind., 7; Jones v. Grady, 25 La. Ann., 586;
Goldsmith v. City of New Orleans, 31 La. Ann., 646; People ex rel., Cramer v. Medberry, 39 N. Y. S.,
207; 17 Misc. Rep., 8; McGuigan v. Town of Belmont, 89 Wis., 637; 62 N. W., 421; Ex parte Burnett,
30 Ala., 461; Craig v. Burnett, 32 Ala., 728, and Muhlenbrinck v. Long Branch Commissioners, 42 N.
J. L., 364; 36 Am. Rep., 518.)
(3) The fee in the third class of cases, those for revenue purposes, is, perhaps, not a license fee
properly speaking but is generally so termed. It rests upon the taxing power as distinguished from the
police power, and the power of the municipality to exact such fees must be expressly granted by
charter or statute and is not to be implied from the conferred power to license and regulate merely.
Judge Cooley, citing numerous authorities, says:
jgc:chan roble s.com. ph

"A license is issued under the police power; but the exaction of a license fee with a view to revenue
would be an exercise of the power of taxation; and the charter must plainly show an intent to confer
that power, or the municipal corporation cannot assume it." (Cooley, Constitutional Limitations, 6th
ed., pp. 242 243. See also Mayor v. Beasly, 34 Am. Dec., 646, and Kip v. City of Paterson, 26 N. J. L.,
298.)
License taxes for revenue on useful occupations fall within this class.
When the power to license for revenue has been clearly granted, the rule as to the amount of the tax
or fee laid down in Fire Department v. Stanton (159 N. Y., 225), is applicable to the municipality as
much as to the state:
jgc:chanroble s.com. ph

"The legislature of the state is not without power to impose a tax on a business in the form of a
license fee, when it deems such to be warranted by considerations of public interest and for the
general welfare, and the only limitation upon its exercise of power, in that respect, is that there shall
be no discrimination or oppression, and that the burden shall be equally charged upon all persons in
similar circumstances."
cralaw vi rtua 1aw lib rary

Applying the legal principles above stated to the case at bar, we are constrained to hold that in

imposing a fee equal to one-half of the assessed value of the portion of the sidewalk covered by the
arcade in question, the Municipal Board of the city of Manila exceeded its powers. The construction of
buildings is a useful enterprise and the amount of the license fee should therefore be limited to the
cost of licensing, regulating, and surveillance. It appears that without the arcade the normal fee for
the building permit would have been about P31, with the arcade the fee exacted is P525.60. It does
not appear that the cost of licensing, regulating, and surveillance would be materially increased
through the construction of the arcade, and it is therefore clear that the excess fee is imposed for the
purpose of revenue.
There is nothing in the charter of the city of Manila indicating an intention on the part of the
Legislature to confer lower on the Municipal Board to impose a license tax for revenue on the
construction of buildings. The power conferred in relation to such construction is considered merely as
police power from which, as we have seen, taxing power is not inferred. Under the circumstances, to
hold the fee in this case valid would amount to judicial legislation, particularly undesirable in the
present instance where the Legislature, upon its attention being called to the matter, would no doubt
willingly grant as much power as could wisely be placed in the hands of the municipality.
The judgment of the Court of First Instance holding that the city of Manila has the power to require
the construction of arcades in certain circumstances but that the license fee prescribed by city
Ordinance No. 301 is illegal, is therefore hereby affirmed. No costs will be allowed. So ordered.
Street, Avanceña, Johns, and Romualdez, JJ., concur.
Araullo, C.J., did not take part.
Separate Opinions
MALCOLM, J., with whom concurs VILLAMOR, J., dissenting:

chanrob 1es vi rtual 1aw lib rary

It is to be regretted that the court has not seen fit to follow in the same road which was so well
cleared of encumbering rubbish in the pioneer decision of this court known as the Billboard Case
(Churchill and Tait v. Rafferty [1915], 32 Phil., 580), and to resolve such doubt as exists in favor of
the validity of Ordinance No. 301 of the city of Manila.
The question in which I am interested in this case is as above indicated, and relates to the
determination of whether or not Ordinance No. 301 of the city of Manila is valid. For purposes of
reference, and without burdening this dissent with the facts and the provisions of law which appear in
the majority decision, I copy this ordinance, reading as follows:
jgc:chanrob les.c om.ph

"Whenever the owner, person in charge, or any other person or entity having a right in any property
located on the principal streets and avenues of the city of Manila, such as Legarda, R. Hidalgo,
Carriedo, Echague. Moriones. Azcarraga, Rizal, Taft, San Miguel, and others which may, by ordinance,
hereafter be designated by the Municipal Board, desires to erect or reconstruct a building or any other
construction on said property, the same shall pay, once the plan of the work has been approved by
the city engineer, one-half of the assessed value of the city land located within the arcades of said
building or construction, as a license fee for the use and occupation of said land: Provided, That the
construction of arcades on streets having a width of twenty or more meters, not hereinbefore
mentioned in this section, shall not be carried out, until after the plan of the work has been approved
by the city engineer, and half of the assessed value of the city land located within said arcades has
been paid for by the owner, person in charge or any other person or entity having a right in the
building which is to be erected or constructed, as a license fee for the use and occupation of said
land."
cra law virtua1aw li bra ry

No one would seriously contend that the construction of arcades in the city of Manila is not for the
public good. Under the conditions as they actually exist in the metropolis, the congestion on the
narrow public streets is relieved and the health of pedestrians is protected, by walking beneath
covered ways. The beautification of the city is effected by requiring the construction of uniform
projections beyond the first stories above the public streets. One has only to walk down Rizal Avenue

in this city to realize the great benefit derived from arcades. To assist the municipal authorities in
making of Manila a better and more beautiful city, should consequently be our purpose.
It must be frankly admitted that in its effort to accomplish a good purpose, the Municipal Board has
complicated matters by making use of a nearly impossible procedure. It is, however, not for the courts
to condemn legislative action, but rather to look behind the verbiage to the intent, and then to enforce
this intent. Awkward as are the expressions used in the ordinance, yet, having in mind the apparent
purpose, which is to advance the public welfare, it should not be so difficult as the majority decision
would make it appear, to validate the ordinance.
Where, in my opinion, the majority decision makes a mistake is in dismissing the real issue of the case
with this observation: "That the city does not possess such an extraordinary power as that of
compelling property holders to lease the portions of the public sidewalks which adjoin their lands
requires no argument." If the proposition so disdainfully dismissed were modified slightly, I would
unhesitatingly advocate the affirmative. In other words, conceded that the construction of arcades
over portions of the public streets is for the public good, the question in reality reduces itself to one of
the power of the city authorities to require the adjoining property owner who desires to build, to pay a
portion of the expenses of constructing the arcade in front of his property.
It is common knowledge that abutting owners cannot ordinarily erect and maintain permanent
structures encroaching on the street, such as awnings, bay windows, stairways, porches, and arcades,
without municipal permission which is in effect a license. Ordinances authorizing or regulating or
prohibiting such structures have been held valid.
It is also common knowledge that under varying procedure contiguous property owners have been
compelled to bear the expense of paving the street in front of their lots, in the construction of
sidewalks along the line of their property, and otherwise to pay large sums of money, which to an
extent benefit the property of the owner, but which to a greater extent benefit the public. That in this
instance the city has denominated the method by which the property owners are to be relieved of a
sum equal to one-half of the assessed value of the city land located within the arcades as a license fee
for the use and occupation of the land, does not change the nature of the case.
It is true both under the civil law and the common law, that public property such as streets are held in
trust for the use of the public and, on principle, that such trust property cannot be disposed of by the
municipality. On the other hand, it would be preposterous to suppose that a municipality could not
require the payment of money in the nature of rental for the use of public streets by benefited
property owners.
In conclusion, attention is earnestly invited to a decision of the United States Supreme Court (City of
St. Louis v. Western Union Telegraph Co. [1892], 148 U. S., 92), which seems to the writer of this
opinion to be conclusive. If, as against the authority of the decision of the higher court it be argued
that the ordinance therein in question related to a public service corporation, let the answer be that no
difference can be seen in the requirement of an ordinance that a public service corporation shall pay
the city for the use of the street and that an abutting owner shall pay the city for such use.
In the cited case it appears that on February 25, 1881, the City of Saint Louis passed an ordinance
known as Ordinance No. 11604, authorizing any telegraph or telephone company duly incorporated
according to law, doing business or desiring to do business in the City of Saint Louis, to set its poles
and other fixtures along and across any of the public streets of the city, subject to certain prescribed
regulations. On March 22, 1884, another ordinance, known as Ordinance No. 12733, was passed. This
ordinance amended Ordinance No. 11604 by providing that thereafter all telegraph and telephone
companies which are not by ordinance taxed on their gross income for city purposes, shall pay to the
City of Saint Louis for the privilege of using the streets, the sum of 5 dollars per annum for each and
every telegraph or telephone pole erected or used by them in the streets in said city. The ordinance
was incorporated into the Revised Ordinances of the City of Saint Louis as section 671.
The Western Union Telegraph Co., one of the companies designated in section 671, having failed to
pay the sum of 6 dollars per annum for each telegraph pole, a suit was instituted to recover from the
telegraph company the sum of $22,635. The company denied the validity of the ordinance and the

authority of the city to pass it. The case was tried by the Federal Court and a judgment was entered in
favor of the defendant. On appeal to the United States Supreme Court, this judgment was reversed in
a decision delivered by Mr. Justice Brewer, with Mr. Justice Brown dissenting. Pertinent portions of the
majority decision are as follows:
jgc:chanro bles.c om.ph

"And, first, with reference to the ruling that this charge was a privilege or license tax. To determine
this question, we must refer to the language of the ordinance itself, and by that we find that the
charge is imposed for the privilege of using the streets, alleys, and public places, and is graduated by
the amount of such use. Clearly, this is no privilege or license tax. The amount to be paid is not
graduated by the amount of the business, nor is it a sum fixed for the privilege of doing business. It is
more in the nature of a charge for the use of property belonging to the city — that which may properly
be called rental.’A tax is a demand of sovereignty; a toll is a demand of proprietorship.’ (Philadelphia
& R. R. Co. v. Pennsylvania [State Freight Tax Case] 82 U. S., —; 15 Wall., 232, 278.) If, instead of
occupying the streets and public places with its telegraph poles, the company should do what it may
rightfully do, purchase ground in the various blocks from private individuals, and to such ground
remove its poles, the section would no longer have any application to it. That by it the city receives
something which it may use as revenue, does not determine the character of the charge or make it a
tax. The revenues of a municipality may come from rentals as legitimately and as properly as from
taxes. Supposing the City of St. Louis should find its city hall too small for its purposes, or too far
removed from the center of business, and should purchase or build another more satisfactory in this
respect; it would not thereafter be forced to let the old remain vacant or to immediately sell it, but
might derive revenue by renting its various rooms. Would an ordinance fixing the price at which those
rooms could be occupied be in any sense one imposing a tax? Nor is the character of the charge
changed by reason of the fact that it is not imposed upon such telegraph companies as by ordinance
are taxed on their gross income for city purposes. In the illustration just made in respect to a city hall,
suppose that the city, in its ordinance fixing a price for the use of rooms, should permit persons who
pay a certain amount of taxes to occupy a portion of the building free of rent, that would not make the
charge upon others for their use of rooms a tax. Whatever the reasons may have been for exempting
certain classes of companies from this charge, such exemption does not change the character of the
charge, or make that a tax which would otherwise be a matter of rental. Whether the city has power
to collect rental for the use of streets and public places, or whether, if it has, the charge as here made
is excessive, are questions entirely distinct. That this is not a tax upon the property of the corporation,
or upon its business, or for the privilege of doing business, is thus disclosed by the very terms of the
section. The city has attempted to make the telegraph company pay for appropriating to its own and
sole use a part of the streets and public places of the city. It is seeking to collect rent. While we think
that the Circuit Court erred in its conclusions as to the character of this charge, it does not follow
therefrom that the judgment should be reversed, and a judgment entered in favor of the city. Other
questions are presented which compel examination.
"Has the city a right to charge this defendant for the use of its streets and public places? And here,
first, it may be well to consider the nature of the use which is made by the defendant of the streets,
and the general power of the public to exact compensation for the use of streets and roads. The use
which the defendant makes of the streets is an exclusive and permanent one, and not one temporary,
shifting and in common with the general public. The ordinary traveller, whether on foot or in a vehicle,
passes to and fro along the streets, and his use and occupation thereof are temporary and shifting.
The space he occupies one moment he abandons the next to be occupied by any other traveller. This
use is common to all members of the public, and it is a use open equally to citizens of other States
with those of the State in which the street is situate But the use made by the telegraph company is, in
respect to so much of the space as it occupies with its poles, permanent and exclusive. It as
effectually and permanently dispossesses the general public as if it had destroyed that amount of
ground. Whatever benefit the public may receive in the way of transportation of messages, that space
is, so far as respects its actual use for purposes of a highway and personal travel, wholly lost to the
public. By sufficient multiplication of telegraph and telephone companies the whole space of the
highway might be occupied, and that which was designed for general use for purposes of travel
entirely appropriated to the separate use of companies and for the transportation of messages.
"We do not mean to be understood as questioning the right of municipalities to permit such occupation
of the streets by telegraph and telephone companies, nor is there involved here the question whether
such use is a new servitude or burden placed upon the easement, entitling the adjacent lot owners to

additional compensation. All that we desire or need to notice is the fact that this use is an absolute,
permanent and exclusive appropriation of that space in the streets which is occupied by the telegraph
poles. To that extent it is a use different in kind and extent from that enjoyed by the general public.
Now, when there is this permanent and exclusive appropriation of a part of the highway, is there in
the nature of things anything to inhibit the public from exacting rental for the space thus occupied?
Obviously not. Suppose a municipality permits one to occupy space in a public park, for the erection of
a booth in which to sell fruit and other articles; who would question the right of the city to charge for
the use of the ground thus occupied, or call such charge a tax, or anything else except rental? So, in
like manner, while permission to a telegraph company to occupy the streets is not technically a lease,
and does not in terms create the relation of landlord and tenant, yet it is the giving of the exclusive
use of real estate, for which the giver has a right to exact compensation, which is in the nature of
rental. We do not understand it to be questioned by counsel for the defendant that, under the
constitution and laws of Missouri, the City of St. Louis has the full control of its streets, and in this
respect represents the public in relation thereto."
cralaw vi rtua 1aw lib rary

Ordinance No. 301 of the city of Manila should be held to be valid and the judgment should be
reversed.

G.R. No. L-28972 October 31, 1972
CITY COUNCIL OF CEBU CITY represented by COUNCILORS FLORENCIO S. UROT,
EULOGIO E. BORRES, RONALD DUTERTE, RAYMUNDO A. CRYSTAL, BIENVENIDO
A. TUDTUD, JOHN H. OSMEÑA and MARIO R. VELOSO, in their capacity as the
Majority Members of the City Council of Cebu and as Citizens of the said
City; plaintiffs-appellants,
vs.
CARLOS J. CUIZON, Mayor of the City of Cebu, JESUS E. ZABATE, Acting City
Treasurer of the City of Cebu, PHILIPPINE NATIONAL BANK and TROPICAL
COMMERCIAL COMPANY, INCORPORATED, defendants-appellees.
City Attorneys Nazario R. Pacquiao and Metudio P. Belarmino for plaintiffs-appellants.
Ronald R. Duterte for and in his own behalf.
Jesus E. Zabate for and in his own behalf.
Conrado E. Medina, Andres L. Africa, Edgardo M. Magtalas and Artemio S. Tipon for
defendant-appellee Philippine National Bank.
Siguion Reyna, Montecillo, Belo and Ongsiako for defendant-appellee Tropical Commercial
Co., Inc.
Emilio Benitez for other defendant-appellee.

TEEHANKEE, J.:p
Appeal on pure questions of law from an order of the Court of First Instance of Cebu,
dismissing plaintiffs' complaint upon the ground of their lack of legal capacity to institute the
action.
The seven above-named plaintiffs-appellants "by themselves and representing the City
Council of Cebu, as majority members thereof" 1 filed on May 31, 1966 their complaint in the court
of first instance of Cebu against defendants-appellees Carlos J. Cuizon, as mayor of Cebu City, Jesus E.
Zabate, as acting Cebu City treasurer, Philippine National Bank (hereinafter referred to as the bank) and
Tropical Commercial Company, Inc. (hereinafter referred to as Tropical), praying inter alia that the
contract entered into on February 5, 1966 by and between defendant Mayor Cuizon on behalf of the city
for the purchase of road construction equipment from Tropical (for $520,912.00 on a cash basis or
$687,767.30 on a deferred payment basis) be declared as null and void ab initio. (The contract, as
eventually annexed by defendant Tropical with its answer, shows that its total was for $685,767.30 on a
2
five-year deferred payment plan.)

Among the grounds invoked by plaintiffs-appellants for the nullity of the said contract and
the complementary transactions with the bank arising therefrom such as the corresponding

letters of credit opened therefor, were that the same were entered into without the
necessary authority and approval of the city council, and that the city treasurer had not
certified to the city mayor, as required by section 607 of the Revised Administrative Code
that funds have been duly appropriated for the said contract and that the amount necessary
to cover the contract was available for expenditure on account thereof, and that accordingly,
the purported contract entered into by the city mayor was "wholly void" under the provisions
of section 608 of the same code, which make "the officer assuming to make such contract
... liable to the government or other contracting party for any consequent damage to the
same extent as if the transaction had been wholly between private parties." As summarized
by plaintiffs-appellants, the background facts that led to their filing of their complaint were as
follows:
a) On November 20, 1965, the City Council approved Resolution No. 1648,
quoted as follows:
RESOLUTION NO. 1648
The City Council, on motion of City Councilor Borres, seconded
by City Councilor Tudtud,
RESOLVED, to authorize His Honor, the City Mayor, for and in
behalf of the City of Cebu, to negotiate and to contract for, by
public bidding, on deferred payment plan and by lot bid, U.S. or
European made road construction equipments for the City of
Cebu and authorizing him for this purposes, to sign the
corresponding contract and other pertinent papers.
RESOLVED FURTHER, to request the City Mayor to call soon
a public bidding for the early acquisition of said equipments.
CARRIED UNANIMOUSLY
b) On December 23, 1965, the City Council of Cebu approved Resolution No.
1831, which also reads as follows:
RESOLUTION NO. 1831
The City Council, on motion of City Councilor Llanos, seconded
by City Councilor Veloso,
RESOLVED, to authorize the City Mayor, in connection with the
authority granted him under Resolution No. 1648, current
series, to utilize the Time Deposit of the City of Cebu with the
Philippine National Bank, as Bond guarantee in the opening of
a Letter of Credit in connection with the City of Cebu's
application to directly purchase road construction equipments
from abroad, to the extent of the amount that the Letter of
Credit may require.

CARRIED UNANIMOUSLY
c) By reason of the fact that the call to bid by the defendant City Mayor Carlos
J. Cuizon were for bidders who should be exclusive distributors of the
equipments being bidded and the said supplier must have a sales and service
outlet in the City of Cebu, the other bidders then became disqualified and the
bid was awarded to the only bidder, the defendant Tropical Commercial Co.,
Inc. Hence, on January 20, 1966, the City Council approved Resolution No.
122, which we quote as follows:
RESOLUTION NO. 122
The City Council on motion of City Councilor Borres, seconded
by Councilor Osmeña,
RESOLVED, to request the Award Committee to forward to this
Body the pertinent papers in connection with the bidding for two
(2) complements of light and heavy equipments to be used by
the City Engineering Department for ratification by this Body.
CARRIED UNANIMOUSLY
d) Notwithstanding the request contained in Resolution No. 122, the
defendant City Mayor, Carlos J. Cuizon, without having been duly authorized
thru proper resolution of the City Council, and without compliance with
Resolution No. 122, signed a contract with the Tropical Commercial Co., Inc.
for the acquisition of the heavy equipments on February 5, 1966. 3
e) On February 14, 1966, the City Council, without knowledge that the contract had
already been signed by defendant City Mayor Carlos J. Cuizon and the Tropical
Commercial Co., Inc. — since the same was signed in the City of Manila — approved
Resolution No. 292, which we quote as follows:

RESOLUTION NO. 292
The City Council, on motion of City Councilor Osmeña,
seconded by City Councilor Tudtud,
RESOLVED, to reiterate this City Council's request embodied
in its Resolution No. 122, current series, addressed to the
Award Committee to forward to this body the pertinent papers
in connection with the bidding for two (2) complements of light
and heavy equipments to be used by the City Engineering
Department for ratification by this Body.
CARRIED UNANIMOUSLY

f) On March 10, 1966, in view of the fact that the defendant City Mayor
ignored the requests of the City Council, the said City Council approved
Resolution No. 473, which we quote as follows:
RESOLUTION NO. 473
The City Council, on motion of City Councilor Crystal,
seconded by City Councilor Duterte,
RESOLVED, to revoke Resolution No. 1648 dated November
29, 1965 and Resolution No. 1831, dated December 23, 1965,
authorizing His Honor, the City Mayor, to negotiate and to
contract for, by public bidding, on deferred payment plan and
by lot bid, U.S. or European made road construction
equipments for the City of Cebu and authorizing him for this
purpose, to sign the corresponding contract and other pertinent
papers and authorizing the City Mayor to utilize the Time
Deposit of the City of Cebu with the Philippine National Bank,
as bond guarantee in the opening of a Letter of Credit in
connection with the City of Cebu's application to directly
purchase road construction equipments from abroad, to the
extent of the amount that the Letter of Credit may require,
respectively.
RESOLVED FURTHER, to inform His Honor the City Mayor,
that the City Council, after careful deliberation, has decided
to discontinue with the purchase of road construction
equipments.
RESOLVED FINALLY, to advise all bidders of the action of the
City Council and to reject their bids on the basis thereof.
CARRIED BY MAJORITY VOTES
Voting in favor: City Councilors Crystal, Duterte, Tudtud,
Borres, Osmeña, Veloso and Zamora (Presiding Officer Urot
voted in favor)
Voting against: City Councilor Llanos.
g) On March 18, 1966, the presiding officer of the City Council, City Councilor
Florencio S. Urot, sent a telegram to the Manager of the Philippine National
Bank, which we quote as follows:
TELEGRAM

MANAGER
PHILNABANK
MANILA
BEEN INFORMED BY MANAGER DIKITANAN CEBU
BRANCH THAT MAYOR CUIZON CEBU CITY OPENED
LETTER OF CREDIT FOR PURCHASE OF HEAVY
EQUIPMENT STOP PLEASE BE INFORMED THAT CEBU
CITY COUNCIL HAS REVOKED MAYOR'S AUTHORITY ON
THIS PARTICULAR MATTER LAST MARCH TEN THEREBY
SUSPENDING FURTHER NEGOTIATIONS ON THIS
TRANSACTION END.
PRESI
DING
OFFIC
ER
UROT
h) On March 18, 1966, the defendant Acting City Treasurer, Jesus E. Zabate,
sent a reply to the Asst. Vice-President of the defendant Philippine National
Bank in Cebu City refusing the request of the Philippine National Bank (to
withhold P3,000,000.00 from the time deposit of the City of Cebu) on the
ground that no appropriation for the purchase of heavy equipments was made
by the City Council.
i) That notwithstanding the knowledge of the revocation by Resolution No.
473 of Resolution No. 1648 and Resolution No. 1831, series of 1965 of the
City Council of Cebu City, the said City Mayor, Carlos J. Cuizon, continued
with the transaction by placing the order with the Equipment Division of the
Continental Ore Corporation of New York U.S.A. for the purchase of the said
heavy equipments. 4
Hence, plaintiffs-appellants filed their complaint against defendants-appellees, incorporating
the foregoing antecedents and averments, and praying for judgment of the court
(a) to declare null and void ab initio the contract entered into by and between
the City Mayor, Carlos J. Cuizon and the defendant Tropical Commercial
Company, Inc., for the purchase of the equipments referred to in paragraph
VII of this complaint;
(b) to declare null and void ab initio and without any effect the Letters of
Credit opened with the defendant Philippine National Bank by the defendant
City Mayor of Cebu, Carlos J. Cuizon;
(c) to exempt the City of Cebu and to hold the same not liable for any and all
obligations to the defendant Philippine National Bank which may result from

the unauthorized opening of the Letters of Credit by the defendant City Mayor
of Cebu;
(d) to exempt and hold not liable the City Government of the City of Cebu
from any obligation regarding the contract specified in paragraph (a) hereof;
(e) to enjoin and order the defendant City Mayor of Cebu, the defendant City
Treasurer of Cebu, the City Auditor, City Engineer and any and all public
officials and employees of the City of Cebu not to receive the equipments if
they were already ordered and in the event that they will arrive for delivery;
(f) to grant any and other remedies to which the plaintiffs may be entitled
under the law. 5
Defendants City Mayor and Tropical filed in due course their respective answers to the
Complaint, with counterclaims and traversed the allegations of the complaint.
Defendant mayor's counterclaim, contending that the suit was unfounded and intended to
harass and embarrass him prayed for judgment against plaintiffs for actual and temperate
damages as may be ascertained by the trial court, P1-million moral damages, P50,000. —
exemplary damages, P50,000. — attorney's fees and expenses of litigation with costs. 6
Defendant Tropical's counterclaim, prayed for judgment "in the event that this Honorable
Court should hold that the plaintiffs have the capacity or interest to bring this suit in behalf of
the City of Cebu," 7 in the total sum of P242,939.90 with legal interest, representing bank charges in the
sums of P86,267.76 and P156,672.14 which it had as seller advanced in cash for two letters of credit
opened by the bank to cover the price of the equipment contracted for by the city mayor on behalf of the
city. Defendant Tropical averred that "said advances were actually cash payments made by (it) to the
Philippine National Bank upon request of the city mayor and upon the representation of the city mayor
8
that (he) was acting for and in behalf of the City of Cebu."

Defendant acting city treasurer filed his separate answer in effect affirming the nullity ab
initio of the questioned contract for the reasons and circumstances averred in plaintiffs'
complaint. He further set up special defenses averring that the assignment by way of
guaranty by the city mayor of P3-million of the city's time deposit with the defendant bank
was null and void and done without his consent nor knowledge as the official responsible for
said fund, and prayed for the dismissal of the case against him alone.
Defendant bank in its turn filed a motion to dismiss the plaintiffs' complaint on the grounds
of plaintiffs' lack of legal capacity to sue and failure of the complaint to state a cause of
action against it. The first stated ground of plaintiffs' alleged lack of legal capacity to bring
the suit had also been alleged as an affirmative defense by defendants mayor and Tropical
in their respective answers, with defendant mayor asking for a preliminary hearing on his
affirmative defenses as if a motion to dismiss had been filed. 9
Plaintiffs on their part filed their responsive pleadings. In their answer to the mayor's
counterclaim, they averred that "the present complaint was filed with no other purpose than
to secure the annulment of a contract which had been entered into by defendant mayor in
violation of his authority from the City Council of Cebu City, to the great prejudice and

detriment of the City of Cebu and accordingly, well within the concern of the plaintiffs to
pursue, not only as majority members of the City Council but also as individual taxpayers
and citizens of this community which is the City of Cebu." 10
In their opposition to the motion to dismiss, 11 plaintiffs asserted inter alia their right as city officials
and taxpayers to question the validity of the contract entered into by the defendant city mayor and to
contest the expenditures of the city's funds therefor beyond the mayor's authority or the disposition
thereof in an unlawful or prohibited manner.

Plaintiffs also filed a separate reply to the mayor's affirmative defenses,

12

refuting the mayor's
claim of estoppel by citing the principle that estoppel cannot be founded upon an illegal act and
submitting therewith the Auditor General's endorsement of June 16, 1966 affirming the city auditor's prior
endorsement of nullity ab initio of the questioned contract for non-compliance with the requirements of
sections 607 and 608 of the Revised Administrative Code. Pertinent excerpts of Auditor-General Ismael
Mathay, Sr.'s endorsement read:

xxx xxx xxx
Opinion of this Office is being requested on the validity of the herein contract
for the purchase of heavy equipment and machineries entered into by and
between Mayor Carlos J. Cuizon of Cebu City for and in behalf of the City
Government of Cebu by virtue of Resolution No. 1648, series of 1965, of the
City Council, and Tropical Commercial Co., Inc.
xxx xxx xxx
It appearing from the within papers that the City Council of Cebu has not
appropriated funds for purposes of the contract in question, for which reason
the City Treasurer could not have certified, even if he wanted to, as in fact he
did not make the certification required under the aforequoted provisions of
law, which is a condition precedent to the validity of the contract, this Office
concurs in view of the City Auditor in the preceding second indorsement that
the said contract is null and void ab initio.
In view of the nullity of the herein contract, all claims arising therefrom may
not be allowed. 13
Defendant mayor, in turn, in his motion for immediate resolution of pending motion to
dismiss dated October 5, 1966, 14 contended that "the General Auditing Office, through the Auditor
General, has already withdrawn or recalled its ruling declaring the said contract null and void ab initio."

On October 6, 1966, the lower court issued the order of dismissal appealed from. In
ordering the dismissal of plaintiffs' complaint on the ground of their lack of legal capacity to
sue and their not being the "real party in interest," the lower court reasoned as follows:
It is uncontroverted that the contract now sought to be annulled was signed
by the City Mayor in behalf of the contracting party, the City of Cebu, by virtue
of the authority granted him by Resolution No. 1648 of the city council. Now,
the majority members of this council who have given authority to the City

Mayor to execute the contract are filing this complaint and seek to annul the
said contract. Their power to file the action either as such councilors or as
private citizens is being questioned.
Article 1397 of the New Civil Code provides that action for annulment of
contracts may be instituted by all who are thereby obliged principally or
subsidiarily. In other words, the plaintiffs must have an interest in the contract.
In the instant case the plaintiffs, in their capacity as city councilors or tax
payers are not parties to the contract executed by the City of Cebu and there
is no evidence to show that because of the contract they may be prejudiced
or may suffer injury different from that of the public in general. The City of
Cebu being the party to the contract, any action brought regarding the said
contract must be instituted in the name of the City of Cebu and by the person
authorized to do so. Section 20(c) of the Revised Charter of Cebu City
(Republic Act No. 3857) empowers the City Mayor to "cause to be instituted
judicial proceedings to recover properties and funds of the city wherever
found and cause to be defended all suits against the City." There is no
provision in the said Charter which authorizes expressly or impliedly the city
council or its members to bring an action in behalf of the City.
Section 2, Rule 3 of the new Rules of Court provides that every action must
be prosecuted in the name of the real party in interest. "The real party in
interest is the party who would be benefited or injured by the judgment, or the
party entitled to the avails of the suit" (Salonga vs. Warner Barnes & Co. Ltd.,
L-2246, Jan. 1, 1951). As stated above, the plaintiffs acting either as
members of the city council or as private citizens are not bound by the
contract in question and cannot maintain an action to annul the same since
they will not be benefited or prejudiced by the judgment of the case. They
have no right to the contract and they will not suffer injuries different from that
of the public in general. They are not, therefore, the real party in interest. In
the same way as the plaintiffs are not the real party in interest, the defendant
Carlos Cuizon may not be bound by the judgment herein and he cannot be
sued as party defendant.
Hence this appeal. Plaintiffs-appellants and defendant-appellee Philippine National Bank
filed their respective briefs in due course. The other defendants-appellees, the city mayor,
the city treasurer and Tropical failed to file their briefs, with Tropical's extended period to do
so having expired on January 4, 1969, and the case was deemed submitted for decision on
March 17, 1969.
1. It seems clearly self-evident from the foregoing recitation of the undisputed antecedents
and factual background that the lower court gravely erred in issuing its dismissal order on
the ground of plaintiffs' alleged lack of interest or legal standing as city councilors or as
taxpayers to maintain the case at bar. The lower court founded its erroneous conclusion on
the equally erroneous premise of citing and applying Article 1397 of the Civil Code that "the
action for the annulment of contracts may be instituted (only) by all who are thereby obliged
principally or subsidiarily." 15

The lower court's fundamental error was in treating plaintiffs' complaint as a personal suit on
their own behalf and applying the test in such cases that plaintiffs should
show personal interest as parties who would be benefited or injured by the judgment
sought. Plaintiffs' suit is patently not a personal suit. Plaintiffs clearly and by the express
terms of their complaint filed the suit as a representative suit on behalf and for the benefit of
the city of Cebu.
Without passing upon or prejudging the merits of the complaint, it is not disputed that taken
by themselves without considering the contrary evidence or defenses that might properly be
set up by defendants at the trial, the allegations of the complaint state a sufficient cause of
action on the basis of which judgment could be validly rendered by the lower court declaring
the nullity of the questioned contract and letters of credit and declaring the City of Cebu
exempt and free from any and all liability on account thereof, as prayed for by plaintiffs.
Defendant bank in its brief concedes that "we find no ruling that the complaint was
dismissed for lack of cause of action against the appellee Philippine National Bank." 16
The appeal at bar must therefore be granted and the case ordered remanded to the lower
court where the parties may be properly given the opportunity at the trial to present
evidence in support of their respective contentions for disposition and judgment on the
merits.
2. The lower court entirely missed the point that the action filed by plaintiffs-appellants as
city councilors (composing practically the entire city council, at that) and as city taxpayers is
to declare null and void the P3-million contract executed by defendant city mayor for the
purchase of road construction equipment purportedly on behalf of the city from its codefendant Tropical and to declare equally null and void the corresponding letters of credit
opened with the bank by defendant mayor and to prevent the disbursement of any city
funds therefor and toexempt the City of Cebu and hold it not liable for any obligation arising
from such contract and letters of credit specifically and precisely questioned in the
complaint filed by plaintiffs on behalf of the City as having beenexecuted without authority
and contrary to law.
Plaintiffs' suit is clearly not one brought by them in their personal capacity for the annulment
of a particular contract entered into between two other contracting parties, in which situation
Article 1397 of the Civil Code may rightfully be invoked to question their legal capacity or
interest to file the action, since they are not in such case in anyway obliged thereby
principally or subsidiarily.
On the contrary, plaintiffs' suit is one filed on behalf of the City of Cebu, instituted by them in
pursuance of their prerogative and duty as city councilors and taxpayers, in order to
question and declare null and void a contract which according to their complaint was
executed by defendant city mayor purportedly on behalf of the city without valid authority
and which had been expressly declared by the Auditor-General to be null and void ab
initio and therefore could not give rise to any valid or allowable monetary claims against the
city.
3. Plaintiffs' right and legal interest as taxpayers to file the suit below and seek judicial
assistance to prevent what they believe to be an attempt to unlawfully disburse public funds

of the city and to contest the expenditure of public funds under contracts and commitments
with defendants bank and Tropical which they assert to have been entered into by the
mayor without legal authority and against the express prohibition of law have long received
the Court's sanction and recognition. In Gonzales vs. Hechanova, 17 the Court through the now
Chief Justice dismissed the challenge against the sufficiency of therein petitioner's interest to file the
action, stating that "since the purchase of said commodity will have to be effected with public funds mainly
raised by taxation, and as a rice producer and landowner petitioner must necessarily be a taxpayer, it
follows that he has sufficient personality and interest to seek judicial assistance with a view to restraining
what he believes to be an attempt to unlawfully disburse said funds."

Even defendant Tropical so understood that plaintiffs' suit was a representative suit in
behalf of the City of Cebu, hence their counterclaim in their answer, should the lower court
uphold plaintiffs' "capacity or interest to bring this suit in behalf of the City of Cebu," for
judgment against the City of Cebu for the repayment with legal interest of bank charges in
the total sum of P242,939.90 which it had advanced on the letters of credit opened by the
defendant bank at the mayor's instance in favor of its U.S. supplier, supra." 18
Parenthetically, it may be noted with reference to said letters of credit opened by the bank
at the mayor's instance, that the same were caused by the mayor to be established,
according to the allegations of the complaint, notwithstanding the mayor's knowledge and
notice of the city council having revoked by its resolution No. 473 onMarch 10, 1966 its
previous resolutions authorizing him to enter into the transaction, supra. 19
4. Plaintiffs' right and legal interest as city councilors to file the suit below and to prevent
what they believe to be unlawful disbursements of city funds by virtue of the questioned
contracts and commitments entered into by the defendant city mayor notwithstanding the
city council's revocation of his authority with due notice thereof to defendant bank must
likewise be recognized.
The lower court's narrow construction of the city charter, Republic Act No. 3857, that under
section 20 (c) thereof, it is only the city mayor who is empowered "to cause to be instituted
judicial proceedings to recover properties and funds of the city wherever found and cause to
be defended all suits against the city," and that plaintiffs' suit must therefore fail since "there
is no provision in the said charter which authorizes expressly or impliedly the city council or
its members to bring an action in behalf of the city" cannot receive the Court's sanction.
The case at bar shows the manifest untenability of such a narrow construction. Here where
the defendant city mayor's acts and contracts purportedly entered into on behalf of the city
are precisely questioned as unlawful, ultra vires and beyond the scope of his authority, and
the city should therefore not be bound thereby nor incur any liability on account thereof, the
city mayor would be the last person to file such a suit on behalf of the city, since he
precisely maintains the contrary position that his acts have been lawful and duly bind the
city.
To adhere to the lower court's narrow and unrealistic interpretation would mean that no
action against a city mayor's actuations and contract in the name and on behalf of the city
could ever be questioned in court and subjected to judicial action for a declaration of nullity
and invalidity, since no city mayor would file such an action on behalf of the city to question,

much less nullify, contracts executed by him on behalf of the city and which he naturally
believes to be valid and within his authority.
5. Section 20 (c) of the city charter invoked by the lower court, however, has no applicability
to the present suit, which is not one to recover properties and funds of the city or a
suit against the city, but rather a representativesuit on behalf of and purportedly for the
benefit of the city, which the city mayor is however loath to institute.
Under such circumstances, in the same manner that a stockholder of a corporation is
permitted to institute derivative or representative suits as nominal party plaintiff for the
benefit of the corporation which is the real party in interest, 20 more so may plaintiffs as city
councilors exclusively empowered by the city charter to "make all appropriations for the expenses of the
21
government of the city" and who were the very source of the authority granted to the city mayor to enter
into the questioned transactions which authority was later revoked by them, as per the allegations of the
complaint at bar, be deemed to possess the necessary authority, and interest, if not duty, to file the
present suit on behalf of the City and to prevent the disbursement of city funds under contracts impugned
by them to have been entered into by the city mayor without lawful authority and in violation of law.

ACCORDINGLY, the order appealed from is hereby set aside and the lower court is ordered
to proceed with the trial and disposition of the case below on its merits. No costs. So
ordered.

G.R. No. 78389 October 16, 1989
JOSE LUIS MARTIN C. GASCON, FAUSTINO "BONG" L. LAPIRA, and SPOUSES
ALBERTO and KARLA LIM,petitioners,
vs.
The Hon. JOKER T. ARROYO, in his official capacity as Executive Secretary to the
President, Hon. TEODORO C. BENIGNO, as Press Secretary, Hon. REINERIO REYES,
as the Secretary of Transportation and Communication, Hon. JOSE ALCUAZ, as
Chairman of the National Telecommunications Commission, Hon. CONRADO A.
LIMCAOCO, JR., as the Officer-in-Charge of the People's Television 4, ABS-CBN
BROADCASTING CORPORATION, and MESSRS. VICENTE ABAD SANTOS, PASTOR
DEL ROSARIO and CATALINO MACARAIG, JR., in their respective capacities as
Chairman and Members of the "Arbitration Committee", respondents.

PADILLA, J.:
In this petition for certiorari and prohibition, with prayer for issuance of writ of preliminary
injunction or temporary restraining order, petitioners seek to annul and set aside the
"Agreement to Arbitrate" entered into by and between the Republic of the Philippines,
represented by Executive Secretary Joker T. Arroyo, and ABS-CBN Broadcasting
Corporation, represented by its President, Eugenio Lopez, Jr., dated 6 January 1987, to
settle the claims of ABS-CBN for the return of radio and television stations (TV Station
Channel 4), and to enjoin the Arbitration Committee created under the aforesaid agreement
from adjudicating the claims of ABS-CBN.
The record discloses the following facts:
The Lopez family is the owner of two (2) television stations, namely: Channels 2 and 4
which they have operated through the ABS-CBN Broadcasting Corporation.
When martial law was declared on 21 September 1972, TV Channel 4 was closed by the
military; thereafter, its facilities were taken over by the Kanlaon Broadcasting System which
operated it as a commercial TV station.
In 1978, the said TV station and its facilities were taken over by the National Media
Production Center (NMPC), which operated it as the Maharlika Broadcasting System TV 4
(MBS-4).
After the February 1986 EDSA revolution, the Presidential Commission on Good
Government (PCGG) sequestered the aforementioned TV Stations, and, thereafter, the
Office of Media Affairs took over the operation of TV Channel 4.
On 17 April 1986, the Lopez family, through counsel, ex-Senator Lorenzo Tanada,
requested President Aquino to order the return to the Lopez family of TV Stations 2 and 4. 1

On 13 June 1986, the Lopez family made a written request to the PCGG for the return of TV
Station Channel 2. On 18 June 1986, the PCGG approved the return of TV Station Channel
2 to the Lopez family. 2 The return was made on 18 October 1986.
Thereafter, the Lopez family requested for the return of TV Station Channel 4. Acting upon
the request, respondent Executive Secretary, by authority of the President, entered into with
the ABS-CBN Broadcasting Corporation, represented by its President, Eugenio Lopez, Jr.,
an "Agreement to Arbitrate", 3 pursuant to which an Arbitration Committee was created, composed of
Atty. Catalino Macaraig, Jr., for the Republic of the Philippines, Atty. Pastor del Rosario, for ABS-CBN,
and retired Justice Vicente Abad Santos, as Chairman.

Thereupon, petitioners,as taxpayers, filed the instant petition.
Before discussing the issues raised in the present petition, the Court will first resolve the
question of whether or not the herein petitioners have the legal personality or standing to
the the instant case.
There have been several cases wherein the Court recognized the right of a taxpayer to file
an action questioning the validity or constitutionality of a statute or law, on the theory that
the expenditure of public funds by an officer of the government for the purpose of
administering or implementing an unconstitutional or invalid law, constitutes a
misapplication of such funds. 4
The present case, however, is not an action to question the constitutionality or validity of a
statute or law. It is an action to annul and set aside the "Agreement to Arbitrate", which, as
between the parties, is contractual in character. Petitioners have not shown that they have a
legal interest in TV Station Channel 4 and that they will be adversely affected if and when
the said television station is returned to the Lopez family. Petitioners, therefore, have no
legal standing to file the present petition.
In addition, the petition is devoid of merit.
Under the Provisional Constitution of the Republic of the Philippines also known as the
Freedom Constitution), which was in force and effect when the "Agreement to Arbitrate"
was signed by the parties thereto on 6 January 1987, the President exercised both the
legislative and executive powers of the Government. As Chief Executive, the President was
(and even now) "assisted by a Cabinet" composed of Ministers (now Secretaries), who were
appointed by and accountable to the President. 5 In other words, the Members of the cabinet, as
heads of the various departments, are the assistants and agents of the Chief Executive, and, except in
cases where the Chief Executive is required by the Constitution or the law to act in person, or where the
exigencies of the situation demand that he act personally, the multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive departments, and the acts of
the heads of such departments performed in the regular course of business, are, unless disapproved or
6
reprobated by the Chief Executive, presumptively the acts of the Chief Executive.

Respondent Executive Secretary had, therefore, the power and authority to enter into the
"Agreement to Arbitrate" with the ABS- CBN Broadcasting Corporation, as he acted for and
in behalf of the President when he signed it; hence, the aforesaid agreement is valid and
binding upon the Republic of the Philippines, as a party thereto.

Moreover, the settlement of controversies is not vested in the courts of justice alone to the
exclusion of other agencies or bodies. Whenever a controversy arises, either or both parties
to the controversy may file the proper action in court. However, the parties may also resort
to arbitration under RA 876 which is a much faster way of settling their controversy,
compared to how long it would take if they were to go to court. In entering into the
"Agreement to Arbitrate", the Executive branch of the government merely opted to avail
itself of an alternative mode of settling the claim of the private respondent ABS-CBN
Broadcasting Corporation for the return of TV Station Channel 4. Court held that where the
government takes property from a private landowner for public use without going through
the legal process of expropriation or negotiated sale, the aggrieved party may properly
maintain a suit against the government without thereby violating the doctrine of
governmental immunity from suit without its consent. That is, as it should be, for the
doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating
an injustice to a citizen. 8
Finally, neither the "convening of Congress" nor the "recent declaration of the President that
PTV-4 shall remain as the information arm of the government" can render "ineffective and
unenforceable" the "Agreement to Arbitrate" because at the time of the signing of the said
agreement, the President was exercising both the legislative and executive powers of the
Government, and since the "Agreement to Arbitrate" is valid, it is "enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of any contract." 9
WHEREFORE, the petition is DISMISSED.
SO ORDERED.

G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER
BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P.
CRUZ, respondents.

DAVIDE, JR., J.:
This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the
authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the
Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its
claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from
sales to the National Power Corporation, Atlas Consolidated Mining and Development Corporation
(ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to
offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are
still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
3

Commissions may be brought to this Court on certiorari by the aggrieved party within thirty (30) days
from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under Rule
4
65 of the Rules of Court.

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the
findings and rulings of the administrator of the fund itself and in disallowing a claim which is
still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely
without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it
may be required under the law to remit to the OPSF against any amount that it may receive by way of
reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and,
considering further the importance of the issues raised, the error in the designation of the remedy
pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree
(P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section
8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of
the Ministry of Energy to be designated as Oil Price Stabilization Fund
(OPSF) for the purpose of minimizing frequent price changes brought about
by exchange rate adjustments and/or changes in world market prices of crude
oil and imported petroleum products. The Oil Price Stabilization Fund may be
sourced from any of the following:

a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax
under this Decree arising from exchange rate adjustment, as
may be determined by the Minister of Finance in consultation
with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of
tax exemptions of government corporations, as may be
determined by the Minister of Finance in consultation with the
Board of Energy;
c) Any additional amount to be imposed on petroleum products
to augment the resources of the Fund through an appropriate
Order that may be issued by the Board of Energy requiring
payment by persons or companies engaged in the business of
importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using
the reference foreign exchange rate as fixed by the Board of
Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude
oil and imported petroleum products resulting from exchange
rate adjustment and/or increase in world market prices of crude
oil;
2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices
of petroleum products. The magnitude of the underrecovery, if
any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time of
the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry
of Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are
not disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter
referred to as Petitioner, directing the latter to remit to the OPSF its collection, excluding
that unremitted for the years 1986 and 1988, of the additional tax on petroleum products
authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987,
amounted to P335,037,649.00 and informing it that, pending such remittance, all of its
claims for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial
verification with the OEA showed that the grand total of its unremitted collections of the
above tax is P1,287,668,820.00, broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days
from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its
claims for reimbursement from the OPSF; and directing it to desist from further offsetting the
taxes collected against outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs
since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on
the lifting of pre-audit of government transactions of national government agencies and
government-owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of
the reimbursement certificates from the OPSF and repeated its earlier directive to petitioner
to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's
audit action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a
proposal for the payment of the collections and the recovery of claims, since the outright
payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said
claims against the OPSF will cause a very serious impairment of its cash position. 10 The
proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate
monitoring of payments and reimbursements will be
administered by the ERB/Finance Dept./OEA, as agencies
designated by law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA,
P1.287 billion as payment to OPSF, similarly OEA will deliver to
Caltex the same amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be
conducted expeditiously.
(4) The review of current claims (1989) will be conducted
expeditiously to preclude further accumulation of
reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No.
921 accepting the above-stated proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella,
President, Petron Corporation, and Mr. Francis Ablan, President and
Managing Director, Caltex (Philippines) Inc., for reconsideration of this
Commission's adverse action embodied in its letters dated February 2, 1989
and March 9, 1989, the former directing immediate remittance to the Oil Price
Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as
amended by E.O. No. 137, S. 1987, and the latter reiterating the same
directive but further advising the firms to desist from offsetting collections
against their claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy
Regulatory Board, the aforenamed oil companies were allowed to offset the
amounts due to the Oil Price Stabilization Fund against their outstanding
claims from the said Fund for the calendar years 1987 and 1988, pending
with the then Ministry of Energy, the government entity charged with
administering the OPSF. This Commission, however, expressing serious
doubts as to the propriety of the offsetting of all types of reimbursements from
the OPSF against all categories of remittances, advised these oil companies
that such offsetting was bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in support thereof clearly manifest
their intent to make arrangements for the remittance to the Office of Energy
Affairs of the amount of collections equivalent to what has been previously
offset, provided that this Commission authorizes the Office of Energy Affairs
to prepare the corresponding checks representing reimbursement from the
OPSF. It is alleged that the implementation of such an arrangement, whereby
the remittance of collections due to the OPSF and the reimbursement of
claims from the Fund shall be made within a period of not more than one

week from each other, will benefit the Fund and not unduly jeopardize the
continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this
Commission perceives no further objectionable feature in the proposed
arrangement, provided that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in
the course of audit and surcharges for late remittances without prejudice to
similar future retentions to answer for any deficiency in such surcharges, and
provided further that no offsetting of remittances and reimbursements for the
current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to
Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989,
and based on our initial verification of documents submitted to us by your
Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to
May 31, 1989, as well as its outstanding claims against the Oil Price
Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your
Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an
amount of P1,505,668,906, representing remittances to the OPSF which were
offset against its claims reimbursements (net of unsubmitted claims). In
addition, the Commission hereby authorize (sic) the Office of Energy Affairs
(OEA) to cause payment of P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled
P387,683,535, which included P130,420,235 representing those claims
disallowed by OEA, details of which is (sic) shown in Schedule 1 as
summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300

Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to
indicate that recovery of financing charges by oil companies is not among the
items for which the OPSF may be utilized. Therefore, it is our view that
recovery of financing charges has no legal basis. The mechanism for such
claims is provided in DOF Circular 1-87.
b. Product Sales –– Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA
Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity
date that (sic) oil companies should pay OPSF impost on export sales of
petroleum products. Effective February 7, 1987 sales to international
vessels/airlines should not be included as part of its domestic sales.
Changing the effectivity date of the resolution from February 7, 1987 to
October 20, 1987 as covered by subsequent ERB Resolution No. 88-12
dated November 18, 1988 has allowed Caltex to include in their domestic
sales volumes to international vessels/airlines and claim the corresponding
reimbursements from OPSF during the period. It is our opinion that the
effectivity of the said resolution should be February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions
including the related BLA agreement, as they affect the claims for
reimbursements of ad valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to reimbursements but
those of the borrower. Hence, we recommend reduction of the claim for July,
August, and November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges
whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected
by OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the
amount as herein authorized shall be subject to availability of funds of OPSF
as of May 31, 1989 and applicable auditing rules and regulations. With regard
to the disallowances, it is further informed that the aggrieved party has 30
days within which to appeal the decision of the Commission in accordance
with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the
decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING
RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE
DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD
PURSUANT TO EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF
EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND
ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE
RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY
COURTS OR REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS
AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with
Commissioner Fernandez dissenting in part, handed down Decision No. 1171 affirming the
disallowance for recovery of financing charges, inventory losses, and sales to
MARCOPPER and ATLAS, while allowing the recovery of product sales or those arising
from export sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has
the .authority to recover financing charges from the OPSF on the basis of
Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of financing working capital associated
with crude oil shipments," and provided a schedule of reimbursement in terms
of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of
these financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, . . . oil
companies (were authorized) to refinance their imports of crude
oil and petroleum products from the normal trade credit of 30
days up to 360 days from date of loading . . . Conformably . . .,
the oil companies deferred their foreign exchange remittances
for purchases by refinancing their import bills from the normal
30-day payment term up to the desired 360 days. This
refinancing of importations carried additional costs (financing
charges) which then became, due to government mandate, an
inherent part of the cost of the purchases of our country's oil
requirement.
We beg to disagree with such contention. The justification that financing
charges increased oil costs and the schedule of reimbursement rate in peso
per barrel (Exhibit 1) used to support alleged increase (sic) were not validated
in our independent inquiry. As manifested in Exhibit 2, using the same
formula which the DOF used in arriving at the reimbursement rate but using
comparable percentages instead of pesos, the ineluctable conclusion is that
the oil companies are actually gaining rather than losing from the extension of
credit because such extension enables them to invest the collections in
marketable securities which have much higher rates than those they incur
due to the extension. The Data we used were obtained from CPI (CALTEX)
Management and can easily be verified from our records.
With respect to product sales or those arising from sales to international
vessels or airlines, . . ., it is believed that export sales (product sales) are
entitled to claim refund from the OPSF.
As regard your claim for underrecovery arising from inventory losses, . . . It is
the considered view of this Commission that the OPSF is not liable to refund
such surtax on inventory losses because these are paid to BIR and not
OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that
you are entitled to claim recovery from the OPSF pursuant to LOI 1416
issued on July 17, 1984, since these copper mining companies did not pay
CPI (CALTEX) and OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that
the CPI (CALTEX) has no authority to claim reimbursement for this
uncollected OPSF impost because LOI 1416 dated July 17, 1984, which
exempts distressed mining companies from "all taxes, duties, import fees and
other charges" was issued when OPSF was not yet in existence and could
not have contemplated OPSF imposts at the time of its formulation.
Moreover, it is evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein
it imputes to the COA the commission of the following errors: 16
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF
FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
SALES TO NPC.

III
RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM
EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES
AGAINST ITS REIMBURSEMENT VIS-A-VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS
WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE
DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the
petition within ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz,
assisted by the Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and required the
parties to file their respective Memoranda within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the
Comment filed on 6 September 1990 be considered as the Memorandum for
respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which
added a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred
as a result of the reduction of domestic prices of petroleum products. The
magnitude of the underrecovery, if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of
Energy without the corresponding reduction in the landed cost
of oil inventories in the possession of the oil companies at the
time of the price change;
ii. Reduction in internal ad valorem taxes as a result of
foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry of
Finance to result in cost underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now
Department) of Finance may include financing charges for "in essence, financing charges
constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as
explained in the 6 November 1989 Memorandum to the President of the Department of
Finance; they "directly translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest income increases. The
relationship is such that the presence of underrecovery or overrecovery is directly
dependent on the amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed
on the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital
associated with crude oil shipments, the following guidelines on the utilization
of the Oil Price Stabilization Fund pertaining to the payment of the foregoing
(sic) exchange risk premium and recovery of financing charges will be
implemented:
1. The OPSF foreign exchange premium shall be reduced to a
flat rate of one (1) percent for the first (6) months and 1/32 of
one percent per month thereafter up to a maximum period of
one year, to be applied on crude oil' shipments from January 1,
1987. Shipments with outstanding financing as of January 1,
1987 shall be charged on the basis of the fee applicable to the
remaining period of financing.
2. In addition, for shipments loaded after January 1987, oil
companies shall be allowed to recover financing charges

directly from the OPSF per barrel of crude oil based on the
following schedule:
F
i
n
a
n
c
i
n
g
P
e
r
i
o
d
R
e
i
m
b
u
r
s
e
m
e
n
t
R
a
t
e
P
e
s
o
s
p
e
r

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

B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges
directly from the OPSF for both crude and product shipments
loaded after January 1, 1987 based on the following rates:
F
i
n
a
n
c
i
n
g
P
e
r
i
o
d
R
e
i
m
b
u
r
s
e
m
e
n
t
R
a
t
e
(
P
B
b
l

.
)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to review every sixty
days. 24
Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing
further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No.
1-87 dated February 18, 1987 which allowed the recovery of financing
charges directly from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment
basis.
2. The claim shall be filed with the Office of Energy Affairs
together with the claim on peso cost differential for a particular
shipment and duly certified supporting documents provided for
under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement
certificate (Annex A) to be issued by the Office of Energy
Affairs. The said certificate may be used to offset against
amounts payable to the OPSF. The oil companies may also
redeem said certificates in cash if not utilized, subject to
availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 8812-017. 26
The COA can neither ignore these issuances nor formulate its own interpretation of the laws
in the light of the determination of executive agencies. The determination by the Department
of Finance and the OEA that financing charges are recoverable from the OPSF is entitled to
great weight and consideration. 27 The function of the COA, particularly in the matter of allowing or
disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules for,
among others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
28
expenditures, or uses of government funds and properties.

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's
claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly
raised and not supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:
1. The Constitution gives the COA discretionary power to disapprove irregular
or unnecessary government expenditures and as the monetary claims of
petitioner are not allowed by law, the COA acted within its jurisdiction in
denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing
charges from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include
"factors which are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 187 of the Department of Finance violates P.D. No. 1956 and E.O. No. 137;
and
5. Department of Finance rules and regulations implementing P.D. No. 1956
do not likewise allow reimbursement of financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy, We find the
theory of petitioner –– that such does not extend to the disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or use of
government funds and properties, but only to the promulgation of accounting and auditing
rules for, among others, such disallowance –– to be untenable in the light of the provisions
of the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal
autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the government, which are
required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of
the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary and

appropriate to correct the deficiencies. It shall keep the general accounts, of
the Government and, for such period as may be provided by law, preserve
the vouchers and other supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations
in this Article, to define the scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the Commission,

30

are

broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the
Commission was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all
accounts pertaining to the revenues, and receipts of, and expenditures or
uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities
including government-owned or controlled corporations, keep the general
accounts of the Government and, for such period as may be provided by law,
preserve the vouchers pertaining thereto; and promulgate accounting and
auditing rules and regulations including those for the prevention of irregular,
unnecessary, excessive, or extravagant expenditures or uses of funds and
property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of the COA's
precursor, the General Auditing Office, were, unfortunately, limited; its very role was
markedly passive. Section 2 of Article XI thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts
pertaining to the revenues and receipts from whatever source, including trust
funds derived from bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or property pertaining to
or held in trust by the Government or the provinces or municipalities thereof.
He shall keep the general accounts of the Government and the preserve the
vouchers pertaining thereto. It shall be the duty of the Auditor General to
bring to the attention of the proper administrative officer expenditures of funds
or property which, in his opinion, are irregular, unnecessary, excessive, or
extravagant. He shall also perform such other functions as may be prescribed
by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the
power to issue rules and regulations to prevent the same. His was merely to bring that
matter to the attention of the proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in the
light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the
1935 Constitution and the Commission on Audit under the 1973 Constitution authorized
them to disallow illegal expenditures of funds or uses of funds and property. Our present
Constitution retains that same power and authority, further strengthened by the definition of
the COA's general jurisdiction in Section 26 of the Government Auditing Code of the
Philippines 34and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and
auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant
36
expenditures or uses of funds, the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since
the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure
to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed
37
by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas:

It should be noted, however, that whereas under Article XI, Section 2, of the
1935 Constitution the Auditor General could not correct "irregular,
unnecessary, excessive or extravagant" expenditures of public funds but
could only "bring [the matter] to the attention of the proper administrative
officer," under the 1987 Constitution, as also under the 1973 Constitution, the
Commission on Audit can "promulgate accounting and auditing rules and
regulations including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence, since the Commission on
Audit must ultimately be responsible for the enforcement of these rules and
regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more
active role and invested it with broader and more extensive powers, they did not intend
merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective,
efficient and independent watchdog of the Government.
The issue of the financing charges boils down to the validity of Department of Finance
Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars
of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137,
authorizing it to determine "other factors" which may result in cost underrecovery and a
consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing
charges are not included in "cost underrecovery" and, therefore, cannot be considered as
one of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does
not explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without
the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.
These "other factors" can include only those which are of the same class or nature as the
two specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is
that they are in the nature of government mandated price reductions. Hence, any other
factor which seeks to be a part of the enumeration, or which could qualify as a cost
underrecovery, must be of the same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of
Finance broad and unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words are
not to be construed in their widest extent, but are held to be as applying only to persons or
things of the same kind or class as those specifically mentioned. 38 A reading of subparagraphs
(i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the second refers to reduction in internal ad
valorem taxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly allows cost
underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum
products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery
in the sense that such were incurred as a result of the inability to fully offset financing
expenses from yields in money market placements, they do not, however, fall under the
foregoing provision of P.D. No. 1956, as amended, because the same did not result from
the reduction of the domestic price of petroleum products. Until paragraph (2), Section 8 of
the decree, as amended, is further amended by Congress, this Court can do nothing. The
duty of this Court is not to legislate, but to apply or interpret the law. Be that as it may, this
Court wishes to emphasize that as the facts in this case have shown, it was at the behest of
the Government that petitioner refinanced its oil import payments from the normal 30-day
trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing
to the extended period for payment, the financial institution which refinanced said payments
charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It
would appear then that equity considerations dictate that petitioner should somehow be
allowed to recover its financing losses, if any, which may have been sustained because it
accommodated the request of the Government. Although under Section 29 of the National
Internal Revenue Code such losses may be deducted from gross income, the effect of that

loss would be merely to reduce its taxable income, but not to actually wipe out such losses.
The Government then may consider some positive measures to help petitioner and others
similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in
order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of
the Department of Finance to determine or define "other factors" is to uphold an undue
delegation of legislative power, it clearly appearing that the subject provision does not
provide any standard for the exercise of the authority. It is a fundamental rule that
delegation of legislative power may be sustained only upon the ground that some standard
for its exercise is provided and that the legislature, in making the delegation, has prescribed
the manner of the exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered
irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that
petitioner failed to disprove COA's claim that it had in fact gained in the process. Otherwise
stated, petitioner failed to sufficiently show that it incurred a loss. Such being the case, how
can petitioner claim for reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the
petitioner. The respondents themselves admit in their Comment that underrecovery arising
from sales to NPC are reimbursable because NPC was granted full exemption from the
payment of taxes; to prove this, respondents trace the laws providing for such
exemption. 40 The last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24
June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . .
. are restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the
President, NPC's tax exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum
products to the NPC is evident in the recently passed Republic Act No. 6952 establishing
the Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2,
Republic Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies
for (a) cost increases of imported crude oil and finished
petroleum products resulting from foreign exchange rate
adjustments and/or increases in world market prices of crude
oil; (b) cost underrecovery incurred as a result of fuel oil sales
to the National Power Corporation (NPC); and (c) other cost
underrecoveries incurred as may be finally decided by the
Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum products to the
National Power Corporation.

III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER,
petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the
suspension of payments of all taxes, duties, fees and other charges, whether direct or
indirect, due and payable by the copper mining companies in distress to the national
government. Pursuant to this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued
Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated
Mining Corporation and Marcopper Mining Corporation are among those declared to be in
distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18
August 1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our
opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as
effected by OEA has no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX)
(Caltex) has no authority to claim reimbursement for this uncollected impost because LOI 1416 dated July
17, 1984, . . . was issued when OPSF was not yet in existence and could not have contemplated OPSF
43
imposts at the time of its formulation." It is further stated that: "Moreover, it is evident that OPSF was
not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing
oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have
intended to exempt said distressed mining companies from the payment of OPSF dues for
the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984.
P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while
E.O. 137, amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining
companies in line with the government's effort to prevent the collapse of the
copper industry. P.D No. 1956, as amended, was issued for the purpose of
minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and
other charges, whether direct or indirect, due and payable by the copper
mining companies in distress to the Notional and Local Governments . . ." On
the other hand, OPSF dues are not payable by (sic) distressed copper
companies but by oil companies. It is to be noted that the copper mining
companies do not pay OPSF dues. Rather, such imposts are built in or
already incorporated in the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by
distressed mining companies, it does not accord petitioner the same privilege with respect
to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons, however, it
is apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2
of the Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general
application, and unless so published they shall have no binding force and
effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and
private laws, shall be published as a condition for their effectivity, which shall
begin fifteen days after publication unless a different effectivity date is fixed
by the legislature.
Covered by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative powers whenever
the same are validly delegated by the legislature or, at present, directly
conferred by the Constitution. Administrative rules and regulations must also
be published if their purpose is to enforce or implement existing laws
pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall
immediately upon their approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to become effective only after fifteen
days from their publication, or on another date specified by the legislature, in
accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official
Gazette after its issuance or at any time after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued
on 18 June 1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general
circulation in the Philippines, unless it is otherwiseprovided.
We are not aware of the publication of LOI 1416 in any newspaper of general circulation
pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim
must still fail. Tax exemptions as a general rule are construed strictly against the grantee

and liberally in favor of the taxing authority.48 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption
must therefore be expressly mentioned in the exempting law or at least be within its purview by clear
legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales
to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416.
Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does
not give petitioner the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that
the Department of Finance has still to issue a final and definitive ruling thereon; accordingly,
it was premature for COA to disallow it. By doing so, the latter acted beyond its
jurisdiction. 49 Respondents, on the other hand, contend that said amount was already disallowed by the
50

OEA for failure to substantiate it. In fact, when OEA submitted the claims of petitioner for pre-audit, the
abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or
substantiate its contention that the amount of P130,420,235.00 is still pending before the
OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents
that said amount has already been passed upon by the OEA. Hence, the ruling of
respondent COA disapproving said claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF
from petitioner may be offset against petitioner's outstanding claims from said fund.
Petitioner contends that it should be allowed to offset its claims from the OPSF against its
contributions to the fund as this has been allowed in the past, particularly in the years 1987
and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code
on compensation and Section 21, Book V, Title I-B of the Revised Administrative Code
which provides for "Retention of Money for Satisfaction of Indebtedness to
Government." 52 Petitioner also mentions communications from the Board of Energy and the
Department of Finance that supposedly authorize compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there
can be no offsetting of taxes against the claims that a taxpayer may have against the government, as
taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law.
Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision empowers the COA to withhold payment
of a government indebtedness to a person who is also indebted to the government and apply the
government indebtedness to the satisfaction of the obligation of the person to the government, like
54
authority or right to make compensation is not given to the private person." The reason for this, as
55
stated in Commissioner of Internal Revenue vs.Algue, Inc., is that money due the government, either in
the form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of
giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the
respondents' duty to collect petitioner's indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise
as a result of taxation because "P.D. 1956, amended, did not create a source of taxation; it

instead established a special fund . . .," 56and that the OPSF contributions do not go to the general
fund of the state and are not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose behind
OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support
the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall
be used to pay any oil company which has an outstanding
obligation to the Government without said obligation being
offset first, subject to the requirements of compensation or
offset under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a public
purpose because they go to a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest
as to be within the police power of the state. 57 There can be no doubt that the oil industry is greatly
imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices
could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would
have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of
the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via
its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of
OPSF is taxation. No amount of semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he may have
against the government. 58Taxes cannot be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
59
demand, contract or judgment as is allowed to be set-off.

We may even further state that technically, in respect to the taxes for the OPSF, the oil
companies merely act as agents for the Government in the latter's collection since the taxes
are, in reality, passed unto the end-users –– the consuming public. In that capacity, the
petitioner, as one of such companies, has the primary obligation to account for and remit
the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be considered merely as a debtor.
In respect, therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot
be said to be mutually debtors and creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in
order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a
practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset
their claims against their OPSF contributions. Instead, it prohibits the government from
paying any amount from the Petroleum Price Standby Fund to oil companies which have
outstanding obligations with the government, without said obligation being offset first subject
to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the
challenged decision of the Commission on Audit, except that portion thereof disallowing
petitioner's claim for reimbursement of underrecovery arising from sales to the National
Power Corporation, which is hereby allowed.
With costs against petitioner.
SO ORDERED.

G.R. No. 101273 July 3, 1992
CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,
vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC
AND DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE,
and THE ENERGY REGULATORY BOARD,respondents.

FELICIANO, J.:
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any
other duties, taxes and charges imposed by law on all articles imported into the Philippines, an additional
duty of five percent (5%) ad valorem. This additional duty was imposed across the board on all imported
articles, including crude oil and other oil products imported into the Philippines. This additional duty was
subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the
promulgation of Executive Order No. 443, dated 3 January 1991.
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process
required by the Tariff and Customs Code for the imposition of a specific levy on crude oil and other
petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and
Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in
Section 401 of the Tariff and Customs Code, scheduled a public hearing to give interested parties an
opportunity to be heard and to present evidence in support of their respective positions.
Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of
additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except in
the cases of crude oil and other oil products which continued to be subject to the additional duty of nine
percent (9%) ad valorem.
Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on
Special Duty on Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate
action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which
levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other
existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil
and P1.00 per liter of imported oil products.
In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive
Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of Section 24,
Article VI of the 1987 Constitution which provides as follows:
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.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are
in the nature of revenue-generating measures.

Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and
Customs Code, which Section authorizes the President, according to petitioner, to increase, reduce or
remove tariff duties or to impose additional duties only when necessary to protect local industries or
products but not for the purpose of raising additional revenue for the government.
Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475
and 478, and asks us to restrain the implementation of those Executive Orders. We will examine these
questions in that order.
Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did
not render the instant Petition moot and academic. Executive Order No. 517 which is dated 30 April 1992
provides as follows:
Sec. 1. Lifting of the Additional Duty. — The additional duty in the nature of ad
valorem imposed on all imported articles prescribed by the provisions of Executive Order
No. 443, as amended, is herebylifted; Provided, however, that the selected articles
covered by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs
Code, as amended, subject of Annex "A" hereof, shall continue to be subject to the
additional duty of nine (9%) percent ad valorem.
Under the above quoted provision, crude oil and other oil products continue to be subject to the
additional duty of nine percent (9%) ad valorem under Executive Order No. 475 and to the special
duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under
Executive Order No. 478.
Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the
enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of
the Legislative rather than the Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are
prohibited to the President, that they must be enacted instead by the Congress of the Philippines. Section
28(2) of Article VI of the Constitution provides as follows:
(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, tonage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts . . ."
The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104
and 401, the pertinent provisions thereof. These are the provisions which the President explicitly invoked
in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code
provides in relevant part:
Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import
duty under Section 104 of Presidential Decree No. 34 and all subsequent amendments
issued under Executive Orders and Presidential Decrees are hereby adopted and form
part of this Code.
There shall be levied, collected, and paid upon all imported articles the rates of duty
indicated in the Section under this section except as otherwise specifically provided for in

this Code: Provided, that, the maximum rate shall not exceed one hundred per cent ad
valorem.
The rates of duty herein provided or subsequently fixed pursuant to Section Four
Hundred One of this Code shall be subject to periodic investigation by the Tariff
Commission and may be revised by the President upon recommendation of the National
Economic and Development Authority.
xxx xxx xxx
(Emphasis supplied)
Section 401 of the same Code needs to be quoted in full:
Sec. 401. Flexible Clause. —
a. In the interest of national economy, general welfare and/or national security, and
subject to the limitations herein prescribed, the President, upon recommendation of the
National Economic and Development Authority (hereinafter referred to as NEDA), is
hereby empowered: (1) to increase, reduce or remove existing protective rates of import
duty (including any necessary change in classification). The existing rates may be
increased or decreased but in no case shall the reduced rate of import duty be lower than
the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty
be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish
import quota or to ban imports of any commodity, as may be necessary; and (3) to
impose an additional duty on all imports not exceeding ten (10) per cent ad valorem,
whenever necessary; Provided, That upon periodic investigations by the Tariff
Commission and recommendation of the NEDA, the President may cause a gradual
reduction of protection levels granted in Section One hundred and four of this Code,
including those subsequently granted pursuant to this section.
b. Before any recommendation is submitted to the President by the NEDA pursuant to the
provisions of this section, except in the imposition of an additional duty not exceeding ten
(10) per cent ad valorem, the Commission shall conduct an investigation in the course of
which they shall hold public hearings wherein interested parties shall be afforded
reasonable opportunity to be present, produce evidence and to be heard. The
Commission shall also hear the views and recommendations of any government office,
agency or instrumentality concerned. The Commission shall submit their findings and
recommendations to the NEDA within thirty (30) days after the termination of the public
hearings.
c. The power of the President to increase or decrease rates of import duty within the
limits fixed in subsection "a" shall include the authority to modify the form of duty. In
modifying the form of duty, the corresponding ad valorem or specific equivalents of the
duty with respect to imports from the principal competing foreign country for the most
recent representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the Commission a copy of all
customs import entries as filed in the Bureau of Customs. The Commission or its duly
authorized representatives shall have access to, and the right to copy all liquidated
customs import entries and other documents appended thereto as finally filed in the
Commission on Audit.

e. The NEDA shall promulgate rules and regulations necessary to carry out the
provisions of this section.
f. Any Order issued by the President pursuant to the provisions of this section shall take
effect thirty (30) days after promulgation, except in the imposition of additional duty not
exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the
President. (Emphasis supplied)
Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and
401 of the Tariff and Customs Code, by contending that the President is authorized to act under the Tariff
and Customs Codeonly "to protect local industries and products for the sake of the national economy,
general welfare and/or national security." 2 He goes on to claim that:
E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local
industries and products for the sake of national economy, general welfare and/or national
security. On the contrary, they work in reverse, especially as to crude oil, an essential
product which we do not have to protect, since we produce only minimal quantities and
have to import the rest of what we need.
These Executive Orders are avowedly solely to enable the government to raise
government finances, contrary to Sections 24 and 28 (2) of Article VI of the Constitution,
as well as to Section 401 of the Tariff and Customs Code. 3 (Emphasis in the original)
The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of
401 of the Tariff and Customs Code that suggest such a sharp and absolute limitation of authority. The
entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1):
"existing protective rates of import duty," and the second in the proviso found at the end of Section 401
(a): "protection levels granted in Section 104 of this Code . . . . " We believe that the words "protective"
and ''protection" are simply not enough to support the very broad and encompassing limitation which
petitioner seeks to rest on those two (2) words.
In the second place, petitioner's singular theory collides with a very practical fact of which this Court may
take judicial notice — that the Bureau of Customs which administers the Tariff and Customs Code, is one
of the two (2) principal traditional generators or producers of governmental revenue, the other being the
Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that generates lower
but still comparable levels of revenue for the government — The Philippine Amusement and Games
Corporation [PAGCOR].)
In the third place, customs duties which are assessed at the prescribed tariff rates are very much like
taxes which are frequently imposed for both revenue-raising and for regulatory purposes. 4 Thus, it has
been held that "customs duties" is "the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign
country." 5 The levying of customs duties on imported goods may have in some measure the effect of
protecting local industries — where such local industries actually exist and are producing comparable
goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing
governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to
achieve one policy objective only. Most commonly, customs duties, which constitute taxes in the sense of
exactions the proceeds of which become public funds 6 — have either or both the generation of revenue
and the regulation of economic or social activity as their moving purposes and frequently, it is very difficult
to say which, in a particular instance, is the dominant or principal objective. In the instant case, since the
Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil consumed here, the
imposition of increased tariff rates and a special duty on imported crude oil and imported oil products may
be seen to have some "protective" impact upon indigenous oil production. For the effective, price of

imported crude oil and oil products is increased. At the same time, it cannot be gainsaid that substantial
revenues for the government are raised by the imposition of such increased tariff rates or special duty.
In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law,
is a stiflingly narrow one. Section 401 of the Tariff and Customs Code establishes general standards with
which the exercise of the authority delegated by that provision to the President must be consistent: that
authority must be exercised in "the interest of national economy, general welfare and/or national security."
Petitioner, however, insists that the "protection of local industries" is the only permissible objective that
can be secured by the exercise of that delegated authority, and that therefore "protection of local
industries" is the sum total or the alpha and the omega of "the national economy, general welfare and/or
national security." We find it extremely difficult to take seriously such a confined and closed view of the
legislative standards and policies summed up in Section 401. We believe, for instance, that the protection
of consumers, who after all constitute the very great bulk of our population, is at the very least as
important a dimension of "the national economy, general welfare and national security" as the protection
of local industries. And so customs duties may be reduced or even removed precisely for the purpose of
protecting consumers from the high prices and shoddy quality and inefficient service that tariff-protected
and subsidized local manufacturers may otherwise impose upon the community.
It seems also important to note that tariff rates are commonly established and the corresponding customs
duties levied and collected upon articles and goods which are not found at all and not produced in the
Philippines. The Tariff and Customs Code is replete with such articles and commodities: among the more
interesting examples areivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5,
5.14); Olives (Chapter 7, Notes);truffles or European fungi growing under the soil on tree roots (Chapter
7, Notes); dates (Chapter 8, 8.01); figs(Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88,
88.0l); special diagnostic instruments and apparatus for human medicine and surgery (Chapter 90,
Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed
either for revenue purposes purely or perhaps, in certain cases, to discourage any importation of the
items involved. In either case, it is clear that customs duties are levied and imposed entirely apart from
whether or not there are any competing local industries to protect.
Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to
be substantially moved by the desire to generate additional public revenues, are not, for that reason
alone, either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code.
Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those
Executive Orders are entitled.7
The conclusion we have reached above renders it unnecessary to deal with petitioner's additional
contention that, should Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal, there
should be a roll back of prices of petroleum products equivalent to the "resulting excess money not be
needed to adequately maintain the Oil Price Stabilization Fund (OPSF)." 8
WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby
DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.

G.R. No. 99886 March 31, 1993
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his
capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of
the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY
BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the
2

Rules of Court, upon the following posited grounds, viz.:

3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy
(now, the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956,
as amended, "said creation of a trust fund being contrary to Section 29 (3), Article VI of the .
. Constitution; 4
2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive
Order No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy
Regulatory Board;"

5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price
Stabilization Fund, 6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a
rollback of the pump prices and petroleum products to the levels prevailing prior to the said
Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956
creating a Special Account in the General Fund, designated as the Oil Price Stabilization
Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in
crude oil and imported petroleum products resulting from exchange rate adjustments and
from increases in the world market prices of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O.
1024, 7 and ordered released from the National Treasury to the Ministry of Energy. The same Executive

Order also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No.
137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for
possible cost underrecovery incurred as a result of the reduction of domestic prices of
petroleum products, the amount of the underrecovery being left for determination by the
Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a
"Terminal Fund Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the
Energy Regulatory Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products,"
and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the
respondents — Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao
de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are
9
poised to accept, process and pay claims not authorized under P.D. 1956."

The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purposes only. If the purpose
for which a special fund was created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended,
must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a
special tax is collected for a specific purpose, the revenue generated therefrom shall 'be
treated as a special fund' to be used only for the purpose indicated, and not channeled to
another government objective." 10 Petitioner further points out that since "a 'special fund' consists of
monies collected through the taxing power of a State, such amounts belong to the State, although the use
11
thereof is limited to the special purpose/objective for which it was created."

He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2).
Article VI of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program
of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the
limits, limitations and restrictions must be quantitative, that is, the law must not only
specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a
specific limit on how much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the
monies collected, which form part of the OPSF, should be maintained in a special
account of the general fund for the reason that the Constitution so provides, and because

they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is
formed from a tax undoubtedly because a portion thereof is taken from collections of ad
valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view
that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of
the taxation power of the State. The Solicitor General observes that the "argument rests on
the assumption that the OPSF is a form of revenue measure drawing from a special tax to
be expended for a special purpose." 13 The petitioner's perceptions are, in the Court's view, not quite
correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court
recalls its holding inValmonte v. Energy Regulatory Board, et al. 14 —
The foregoing arguments suggest the presence of misconceptions about the
nature and functions of the OPSF. The OPSF is a "Trust Account" which was
established "for the purpose of minimizing the frequent price changes brought
about by exchange rate adjustment and/or changes in world market prices of
crude oil and imported petroleum products." 15 Under P.D. No. 1956, as amended
by Executive Order No. 137 dated 27 February 1987, this Trust Account may be funded
from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax
under this Decree arising from exchange rate adjustment, as
may be determined by the Minister of Finance in consultation
with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of
tax exemptions of government corporations, as may be
determined by the Minister of Finance in consultation with the
Board of Energy:
c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through an
appropriate Order that may be issued by the Board of Energy
requiring payment of persons or companies engaged in the
business of importing, manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using
the reference foreign exchange rate as fixed by the Board of
Energy.
xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling
crude oil and petroleum products from sources of supply to the Philippines
may also vary from time to time. The exchange rate of the peso vis-a-vis the
U.S. dollar and other convertible foreign currencies also changes from day to
day. These fluctuations in world market prices and in tanker rates and foreign
exchange rates would in a completely free market translate into
corresponding adjustments in domestic prices of oil and petroleum products
with sympathetic frequency. But domestic prices which vary from day to day
or even only from week to week would result in a chaotic market with
unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the
economy. Thus, the OPSF serves as a pocket, as it were, into which a portion
of the purchase price of oil and petroleum products paid by consumers as
well as some tax revenues are inputted and from which amounts are drawn
from time to time to reimburse oil companies, when appropriate situations
arise, for increases in, as well as underrecovery of, costs of crude
importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized,
instead of fluctuating every so often, and oil companies are allowed to
recover those portions of their costs which they would not otherwise recover
given the level of domestic prices existing at any given time.To the extent that
some tax revenues are also put into it, the OPSF is in effect a device through
which the domestic prices of petroleum products are subsidized in part. It
appears to the Court that the establishment and maintenance of the OPSF is
well within that pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-being of
the community, that comprehensive sovereign authority we designate as the
police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil — clearly critical in importance considering,
among other things, the continuing high level of dependence of the country
on imported crude oil — are appropriately regarded as public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of
which is not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court
upheld the legality of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the
power of the State to impose for the promotion of the sugar industry (Lutz v.
Araneta, 98 Phil. 148). . . . The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to provide a means for the
stabilization of the sugar industry. The levy is primarily in the exercise of the
police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers,
planters and producers for a special purpose — that of "financing the growth
and development of the sugar industry and all its components, stabilization of
the domestic market including the foreign market." The fact that the State has
taken possession of moneys pursuant to law is sufficient to constitute them
state funds, even though they are held for a special purpose (Lawrence v.
American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2,
p. 718). Having been levied for a special purpose, the revenues collected are
to be treated as a special fund, to be, in the language of the statute,
"administered in trust" for the purpose intended. Once the purpose has been
fulfilled or abandoned, the balance if any, is to be transferred to the general
funds of the Government. That is the essence of the trust intended (SEE
1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are
exacted in the exercise of the police power of the State. Moreover, that the OPSF is a
special fund is plain from the special treatment given it by E.O. 137. It is segregated from
the general fund; and while it is placed in what the law refers to as a "trust liability account,"
the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the constitutional description of a "special fund."
Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the
provision conferring the authority upon the ERB to impose additional amounts on petroleum
products provides a sufficient standard by which the authority must be exercised. In addition
to the general policy of the law to protect the local consumer by stabilizing and subsidizing
domestic pump rates, § 8(c) of P.D. 1956 18 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a
specific limit on how much to tax." 19 The Court is cited to this requirement by the petitioner on the
premise that what is involved here is the power of taxation; but as already discussed, this is not the case.
What is here involved is not so much the power of taxation as police power. Although the provision
authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it
cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of
the price of oil and petroleum products, and the frequently shifting need to either augment
or exhaust the Fund, do not conveniently permit the setting of fixed or rigid parameters in
the law as proposed by the petitioner. To do so would render the ERB unable to respond
effectively so as to mitigate or avoid the undesirable consequences of such fluidity. As such,

the standard as it is expressed, suffices to guide the delegate in the exercise of the
delegated power, taking account of the circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it
must fix a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation,
there must be a standard, which implies at the very least that the legislature
itself determines matters of principle and lays down fundamental policy.
Otherwise, the charge of complete abdication may be hard to repel. A
standard thus defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. It is the
criterion by which the legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above
guidelines promulgate supplemental rules and regulations. The standard may
either be express or implied. If the former, the non-delegation objection is
easily met. The standard though does not have to be spelled out specifically.
It could be implied from the policy and purpose of the act considered as a
whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can
be no ground upon which to sustain the petition, inasmuch as the challenged law sets forth
a determinable standard which guides the exercise of the power granted to the ERB. By the
same token, the proper exercise of the delegated power may be tested with ease. It seems
obvious that what the law intended was to permit the additional imposts for as long as there
exists a need to protect the general public and the petroleum industry from the adverse
consequences of pump rate fluctuations. "Where the standards set up for the guidance of
an administrative officer and the action taken are in fact recorded in the orders of such
officer, so that Congress, the courts and the public are assured that the orders in the
judgment of such officer conform to the legislative standard, there is no failure in the
performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the
express purpose for which the imposts are permitted and the general objectives and
purposes of the fund are readily discernible, and they constitute a sufficient standard upon
which the delegation of power may be justified.
In relation to the third question — respecting the illegality of the reimbursements to oil
companies, paid out of the Oil Price Stabilization Fund, because allegedly in contravention
of § 8, paragraph 2 (2) of P.D. 1956, amended 23— the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum
companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power

Corporation, etc.) because not authorized by law. Petitioner contends that "these claims are
not embraced in the enumeration in § 8 of P.D. 1956 . . since none of them was incurred 'as
a result of the reduction of domestic prices of petroleum products,'" 24 and since these items are
reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit
25
"should be reduced by P5,277.2 million." It is argued "that under the principle of ejusdem generis . . .
the term 'other factors' (as used in § 8 of P.D. 1956) . . can only include such 'other factors' which
26
necessarily result in the reduction of domestic prices of petroleum products."

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive
confines of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless
provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et
al., 27 passed upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration
of persons or things, by words of a particular and specific meaning, such
general words are not to be construed in their widest extent, but are held to
be as applying only to persons or things of the same kind or class as those
specifically mentioned." 28 A reading of subparagraphs (i) and (ii) easily discloses that
they do not have a common characteristic. The first relates to price reduction as directed
by the Board of Energy while the second refers to reduction in internal ad valorem taxes.
Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other
factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section which
explicitly allows the cost underrecovery only if such were incurred as a result of the
reduction of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by
paragraph 2 of § 8 of P.D. 1956, for the reason that they were not incurred as a result of the
reduction of domestic prices of petroleum products. Under the same provision, however, the
payment of inventory losses is upheld as valid, being clearly a result of domestic price
reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in
inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power
Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but in
virtue of other laws and regulations as held inCaltex 29 and which have been pointed to by the
Solicitor General. At any rate, doubts about the propriety of such reimbursements have been dispelled by
the enactment of R.A. 6952, establishing the Petroleum Price Standby Fund, § 2 of which specifically
authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National
Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has
been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General
taken any effort to defend the propriety of this refund. In fine, neither of the parties, beyond
the mere mention of overpayment refunds, has at all bothered to discuss the arguments for
or against the legality of the so-called overpayment refunds. To be sure, the absence of any
argument for or against the validity of the refund cannot result in its disallowance by the

Court. Unless the impropriety or illegality of the overpayment refund has been clearly and
specifically shown, there can be no basis upon which to nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been
rendered moot and academic. As of date hereof, the pump rates of gasoline have been
reduced to levels below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all
other respects.
SO ORDERED.

G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of
the President, HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of
indirect tax exemption of the private respondent National Power Corporation (NPC) is
brought to this Court a second time. Unfazed by the Decision We promulgated on May 31,
1991 1 petitioner Ernesto Maceda asks this Court to reconsider said Decision. Lest We be criticized for
denying due process to the petitioner. We have decided to take a second look at the issues. In the
process, a hearing was held on July 9, 1992 where all parties presented their respective arguments.
Etched in this Court's mind are the paradoxical claims by both petitioner and private respondents that
their respective positions are for the benefit of the Filipino people.

I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National
Power Corporation, a public corporation, mainly to develop hydraulic power from all water
sources in the Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the
3

Philippine Treasury for the purpose of organizing the NPC and conducting its preliminary work. The main
4
source of funds for the NPC was the flotation of bonds in the capital markets and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of
all taxes by the Commonwealth of the Philippines, or by any authority,
branch, division or political subdivision thereof and subject to the provisions of
the Act of Congress, approved March 24, 1934, otherwise known as the
Tydings McDuffle Law, which facts shall be stated upon the face of said
bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed
for the initial operations of the NPC and reiterating the provision of the flotation of bonds as
soon as the first construction of any hydraulic power project was to be decided by the NPC
Board. 6 The provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment
of the bond's principal and interest in "gold coins" but adding that payment could be made in
United States dollars. 7 The provision on tax exemption in relation to the issuance of the NPC bonds
was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of
any and all NPC loans. 8 He was also authorized to contract on behalf of the NPC with the
International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of
9
NPC's corporate objectives and for the reconstruction and development of the economy of the
10
country. It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts,
charges, contributions and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first
time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of
bonds. 12 As to the pertinent tax exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions
of the Republic of the Philippines, its provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the
IBRD, the President of the Philippines was authorized to negotiate, contract and guarantee
loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or any other international
financial institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was
not amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption
for real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, except real property tax, and from all duties,
fees, imposts, charges, and restrictions of the Republic of the Philippines, its
provinces, cities, and municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be
funded by the increased indebtedness 16 should bear the National Economic Council's stamp of
approval. The tax exemption provision related to the payment of this total indebtedness was not amended
nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans
NPC was authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in
R.A. No. 357. 17 The tax provision related to the repayment of these loans was not amended nor
deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to
December 31, 2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No.
2058 were expressly repealed.

19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation
into a stock corporation with an authorized capital stock of P100,000,000.00 divided into
1,000.000 shares having a par value of P100.00 each, with said capital stock wholly
subscribed to by the Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized
capital stock to P250,000,000.00 with the increase to be wholly subscribed by the
Government. 21 No tax provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax
provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A.
No. 120, as amended. Declared as primary objectives of the nation were:
Declaration of Policy. — Congress hereby declares that (1) the
comprehensive development, utilization and conservation of Philippine water
resources for all beneficial uses, including power generation, and (2) the total
electrification of the Philippines through the development of power from all
sources to meet the needs of industrial development and dispersal and the
needs of rural electrification are primary objectives of the nation which shall
be pursued coordinately and supported by all instrumentalities and agencies
of the government, including the financial institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a)
(Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign
Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from
the payment of all taxes by the Republic of the Philippines, or by any
authority, branch, division or political subdivision thereof which facts shall be
stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b),
states as follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedeness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,

other charges and restrictions, including import restrictions, by the Republic of
the Philippines, or any of its agencies and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which
declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations
and in furtherance and effective implementation of the policy enunciated in
Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and
service fees in any court or administrative proceedings in which it may be a
party, restrictions and duties to the Republic of the Philippines, its provinces,
cities, and municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and
projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces,
cities, municipalities and other government agencies and instrumentalities, on
all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country. And in
connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of associated
generation facilities in Luzon, Mindanao and major islands of the country,
including the Visayas, shall be the responsibility of the National Power
Corporation (NPC) as the authorized implementing agency of the State. 27
xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a
single integrated system all generating facilities supplying electric power to
the entire area embraced by any grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it
to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to

P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of
30

P3,000,000,000.00 at any one time, and the NPC was authorized to borrow a total of
31
US$1,000,000,000.00 in foreign loans.

The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and indirect taxes,
fees, imposts, other charges and restrictions, including import restrictions
previously and presently imposed, and to be imposed by the Republic of the
Philippines, or any of its agencies and political subdivisions.32 (Emphasis
supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and
restrictions to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities including
the taxes, duties, fees, imposts and other charges provided for under the
Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen
Hundred Thirty-Seven, as amended, and as further amended by Presidential
Decree No. 34 dated October 27, 1972, and Presidential Decree No. 69,
dated November 24, 1972, and costs and service fees in any court or
administrative proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and instrumentalities, on
all petroleum products used by the Corporation in the generation,
transmission, utilization and sale of electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's
sale of electricity to its different customers. 34 No tax exemption provision was amended, deleted or
added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be
appropriated annually to cover the unpaid subscription of the Government in the NPC
authorized capital stock, which amount would be taken from taxes accruing to the General
Funds of the Government, proceeds from loans, issuance of bonds, treasury bills or notes
to be issued by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and
transmission facilities which includes nuclear power generation, the present
capitalization of National Power Corporation (NPC) and the ceilings for
domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter,
the non-profit character of NPC has not been fully utilized because of
restrictive interpretation of the taxing agencies of the government on said
provisions; 37
xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared
objective of total electrification of the country, further amendments of certain
sections of Republic Act No. 6395, as amended by Presidential Decrees Nos.
380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00,

39

the total domestic indebtedness
ceiling was increased to P12,000,000,000.00, the total foreign loan ceiling was raised to
41
US$4,000,000,000.00 and Section 13 of R.A. No. 6395, was amended to read as follows:
40

The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay to its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882,
1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with
regard to imports as follows:
WHEREAS, importations by certain government agencies, including
government-owned or controlled corporation, are exempt from the payment of
customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect
domestic industries, it is necessary to restrict and regulate such tax-free
importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution, and do
hereby decree and order the following:
Sec. 1. All importations of any government agency, including governmentowned or controlled corporations which are exempt from the payment of
customs duties and internal revenue taxes, shall be subject to the prior
approval of an Inter-Agency Committee which shall insure compliance with
the following conditions:
(a) That no such article of local manufacture are available in sufficient
quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and will
be used exclusively by the grantee of the exemption for its operations and
projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the name of the
grantee to whom the goods shall be delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the taxfree importation of government agencies in accordance with the conditions
set forth in Section 1 hereof and the regulations to be promulgated to
implement the provisions of this Decree. Provided, however, That any
government agency or government-owned or controlled corporation, or any
local manufacturer or business firm adversely affected by any decision or
ruling of the Inter-Agency Committee may file an appeal with the Office of the
President within ten days from the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar
provisions of all general and special laws and decrees are hereby amended
accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National
Budget that is an instrument of national development, reflective of national
objectives, strategies and plans. The budget shall be supportive of and
consistent with the socio-economic development plan and shall be oriented
towards the achievement of explicit objectives and expected results, to
ensure that funds are utilized and operations are conducted effectively,
economically and efficiently. The national budget shall be formulated within a

context of a regionalized government structure and of the totality of revenues
and other receipts, expenditures and borrowings of all levels of governmentowned or controlled corporations. The budget shall likewise be prepared
within the context of the national long-term plan and of a long-term budget
program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall pay
income taxes, customs duties and other taxes and fees are imposed under revenues laws:
provided, that organizations otherwise exempted by law from the payment of such
taxes/duties may ask for a subsidy from the General Fund in the exact amount of
taxes/duties due: provided, further, that a procedure shall be established by the Secretary of
Finance and the Commissioner of the Budget, whereby such subsidies shall automatically
be considered as both revenue and expenditure of the General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof
which are inconsistent with the provisions of the Decree are hereby repealed
and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in
after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed
the grant of tax privileges to any government-owned or controlled corporation
and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units
of government enjoying tax privileges to share in the requirements of
development, fiscal or otherwise, by paying the duties, taxes and other
charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes, fees,
imposts and other charges heretofore granted in favor of government-owned
or controlled corporations including their subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board created under
Presidential Decree No. 776, is hereby empowered to restore, partially or
totally, the exemptions withdrawn by Section 1 above, any applicable tax and
duty, taking into account, among others, any or all of the following:

1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other
laws, decrees, executive orders, administrative orders, rules, regulations or
parts thereof which are inconsistent with this Decree are hereby repealed,
amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential
restoration or grant of tax exemption to other government and private entities without benefit
of review by the Fiscal Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11,
1984 and October 14, 1984, respectively, withdrew the tax and duty
exemption privileges, including the preferential tax treatment, of government
and private entities with certain exceptions, in order that the requirements of
national economic development, in terms of fiscals and other resources, may
be met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were
restored by the Fiscal Incentives Review Board (FIRB), a number of affected
entities, government and private, had their tax and duty exemption privileges
restored or granted by Presidential action without benefit or review by the
Fiscal Incentives Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better provided where
necessary by explicit subsidy and budgetary support rather than tax and duty
exemption privileges if only to improve the fiscal monitoring aspects of
government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and
private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the
Government of the Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No.
1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66 as amended;
(iii) the Philippine Veterans Investment Development
Corporation Industrial Authority pursuant to Presidential Decree
No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions of
Letter of Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation
of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential
Decree No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in
part;
b) revise the scope and coverage of tax and/or duty exemption that may be
restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or
duty exemption;

e) formulate and submit to the President for approval, a complete system for
the grant of subsidies to deserving beneficiaries, in lieu of or in combination
with the restoration of tax and duty exemptions or preferential treatment in
taxation, indicating the source of funding therefor, eligible beneficiaries and
the terms and conditions for the grant thereof taking into consideration the
international commitment of the Philippines and the necessary precautions
such that the grant of subsidies does not become the basis for countervailing
action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives
Review Board shall take into account any or all of the following
considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and
49

regulations, to be issued by the Ministry of Finance. Said rules and regulations were promulgated and
published in the Official Gazette
50
on February 23, 1987. These became effective on the 15th day after promulgation in the Official
51
Gasetter, which 15th day was March 10, 1987.

III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers,
learn in their TAXATION I course, which fro convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax — the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate
tax, donor's tax), residence tax, immigration tax

b. Indirect Tax — that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it, not as a
tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes,
(VAT) and the tariff and customs indirect taxes (import duties, special import
tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be
reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the
phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as
amended by P.D. No. 380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention
that the NPC was to be completely tax exempt from all forms of taxes — direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans
obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds — aside issuance of
bonds — it was again specifically exempted from all types of taxes "to facilitate payment of
its indebtedness." Even when the ceilings for domestic and foreign borrowings were
periodically increased, the tax exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep.
Act No. 987, as above stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is the starting point of this bone of contention
among the parties. For easy reference, it is reproduced as follows:

[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used
by the Corporation in the generation, transmission, utilization, and sale of
electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as
follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and instrumentalities, on
all petroleum products used by the Corporation in the generation,
transmission, utilization and sale of electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple
paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations
and in furtherance and effective implementation of the policy enunciated in
Section one of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of ALL FORMS OF taxes, duties, fees,
imposts as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings. (Emphasis
supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive and
Legislative. 53
xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would
have been very easy for him to retain the same or similar language used in
P.D. No. 380 P.D. No. 938 if his intention were to preserve the indirect tax
exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter
what his fault were. It should be noted that section 13, R.A. No. 6395, provided for tax
exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES,
ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have
considered all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No.
380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No.
6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from
all forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be
remembered that to pay the government share in its capital stock P.D. No. 758 was issued
mandating that P200 Million would be appropriated annually to cover the said unpaid
subscription of the Government in NPC's authorized capital stock. And significantly one of
the sources of this annual appropriation of P200 million is TAX MONEY accruing to the
General Fund of the Government. It does not stand to reason then that former President
Marcos would order P200 Million to be taken partially or totally from tax money to be used
to pay the Government subscription in the NPC, on one hand, and then order the NPC to
pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d)
into the phrase "All FORMS OF" is supported by the fact that he did not do the same for the
tax exemption provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,

other charges and restrictions, including import restrictions, by the Republic of
the Philippines, or any of its agencies and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and indirect taxes,
fees, imposts, other charges and restrictions, including import
restrictions previously and presently imposed, and to be imposed by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A.
No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8
(b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood as is — with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes,
fees, imposts, other charges . . . to be imposed" in the future — surely, an indication that the lawmakers
wanted the NPC to be exempt from ALL FORMS of taxes — direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to
rationalize government receipts and expenditures by formulating and implementing a
National Budget. 60 The NPC, being a government owned and controlled corporation had to be shed off
its tax exemption status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy
from the General Fund in the exact amount of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation
privileges. It allowed, however, NPC to appeal said repeal with the Office of the President
and to avail of tax-free importation privileges under its Section 1, subject to the prior
approval of an Inter-Agency Committed created by virtue of said P.D. No. 882. It is
presumed that the NPC, being the special creation of the State, was allowed to continue its
tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the
abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common
Reply/Comment to private Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four
(4) months AFTER the motion for Reconsideration had been filed. During oral arguments heard on July 9,
1992, he proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice
62
Vicente Abad Santos in opinion No. 133 (S '77). A careful perusal of petitioner's senate Blue Ribbon
Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said P.D. No.
63
64
1177's effect on NPC's tax exemption privileges. Applying by analogy Pulido vs. Pablo, the court

declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not seasonably
65
invoked by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax
exemption privileges as this statute has been reiterated twice in P.D. No. 1931. The express
repeal of tax privileges of any government-owned or controlled corporation (GOCC). NPC
included, was reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The
subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D.
No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with
recommending the partial or total restoration of tax exemptions withdrawn by Section 1,
P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy
contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section 16 of
P.D. No. 1177, NPC had to submit to the Office of the President its request for the P200
million mandated by P.D. No. 758 to be appropriated annually by the Government to cover
its unpaid subscription to the NPC authorized capital stock and that under Section 22, of the
same P.D. No. NPC had to likewise submit to the Office of the President its internal
operating budget for review due to capital inputs of the government (P.D. No. 758) and to
the national government's guarantee of the domestic and foreign indebtedness of the NPC,
it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that
suddenly found themselves having to pay taxes. It will be noted that Section 23, P.D. No.
1177, mandated that the Secretary of Finance and the Commissioner of the Budget had to
establish the necessary procedure to accomplish the tax payment/tax subsidy scheme of
the Government. In effect, NPC, did not put any cash to pay any tax as it got from the
General Fund the amounts necessary to pay different revenue collectors for the taxes it had
to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all
its duty and tax exemptions, whether direct or indirect. And so there was
nothing to be withdrawn or to be restored under P.D. No. 1931, issued on
June 11, 1984. This is evident from sections 1 and 2 of said P.D. No. 1931,
which reads:
"Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment of
duties, taxes, fees, imports and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives
Review Board created under P.D. No. 776, is hereby

empowered to restore partially or totally, the exemptions
withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status.
Since it had already lost all its tax exemptions privilege with the issuance of
P.D. No. 1177 seven (7) years earlier or on July 30, 1977, there were no tax
exemptions to be withdrawn by section 1 which could later be restored by the
Minister of Finance upon the recommendation of the FIRB under Section 2 of
P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-86, were all
illegally and validly issued since FIRB acted beyond their statutory authority
by creating and not merely restoring the tax exempt status of NPC. The same
is true for FIRB Res. No. 17-87 which restored NPC's tax exemption under
E.O. No. 93 which likewise abolished all duties and tax exemptions but
allowed the President upon recommendation of the FIRB to restore those
abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially
the same terms the provisions of the act or acts so revised and consolidated,
the revision and consolidation shall be taken to be a continuation of the
former act or acts, although the former act or acts may be expressly repealed
by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be
enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of
Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said
Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of Section 23,
P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the subsidy
scheme for former tax exempt GOCCs had been expressly repealed by Section 2 with its
institution of the FIRB recommendation of partial/total restoration of tax exemption
privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same
NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no
longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931,
ask for a total restoration of its tax exemption privileges, which, it did, and the same were
granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86
were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not
created NPC's tax exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the
now rather infamous Amendment No. 6 70 as there was no showing that President Marcos'

encroachment on legislative prerogatives was justified under the then prevailing condition that he could
legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in
71
his judgment required immediate action' to meet the 'exigency'.

Actually under said Amendment No. 6, then President Marcos could issue decrees not only
when the Interim Batasang Pambansa failed or was unable to act adequately on any matter
for any reason that in his (Marcos') judgment required immediate action, but also when
there existed a grave emergency or a threat or thereof. It must be remembered that said
Presidential Decree was issued only around nine (9) months after the Philippines
unilaterally declared a moratorium on its foreign debt payments 72 as a result of the economic
crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The
73
Philippines was then trying to reschedule its debt payments. One of the big borrowers was the
74
75
NPC which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. From
all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to
76
issue P.D. No. 1931, under his Amendment 6 power.

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall
be passed without the concurrence of a majority of all the members of the Batasang
Pambansa" 77 does not apply as said P.D. No. 1931 was not passed by the Interim Batasang
Pambansa but by then President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time,
President Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax
exemption privileges. The same was granted under FIRB Resolution No. 17-87 78 dated June
24, 1987 which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of
effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987.

79

There is no
indication, however, from the records of the case whether or not similar approvals were given by then
President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that
a "travesty of justice" might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what happened inZambales
80
Chromate vs. Court of Appeals when the Secretary of Agriculture and Natural Resources approved a
81
82
decision earlier rendered by him when he was the Director of Mines, and in Anzaldo vs. Clave where
Presidential Executive Assistant Clave affirmed, on appeal to Malacañang, his own decision as Chairman
83
of the Civil Service Commission.

Upon deeper analysis, the question arises as to whether one can talk about "due process"
being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister
of Finance when the same were recommended by him in his capacity as Chairman of the
Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups
and scientist-doctors, respectively. Thus, there was a need for procedural due process to be
followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity —
not even a single public or private corporation — whose rights would be violated if NPC's

tax exemption privileges were to be restored. While there might have been a MERALCO
before Martial Law, it is of public knowledge that the MERALCO generating plants were sold
to the NPC in line with the State policy that NPC was to be the State implementing arm for
the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO — as a producer of electricity —
which could have objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the
first time. It was just asking that its tax exemption privileges be restored. It is for these
reasons that, at least in NPC's case, the recommendation and approval of NPC's tax
exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same
person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino
on October 5, 1987, the view has been expressed that President Aquino, at least with
regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly
not a delegate of the legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93
(S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy
to be carried out 85 and it fixed the standard to which the delegate had to conform in the performance of
his functions,

86

both qualities having been enunciated by this Court in Pelaez vs. Auditor General.

87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges
restored from June 11, 1984 up to the present.
VII
The next question that projects itself is — who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries
of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants
but groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad
valorem and other taxes on the goods earmarked for AFP Commissaries as an added cost
of operation and distribute it over the total units of goods sold as it would any other cost.
Thus, even the ordinary supermarket buyer probably pays for the specific,ad valorem and
other taxes which theses suppliers do not charge the AFP Commissaries. 89

IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to
absorb the taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice
renders an opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines and its provinces, cities, and municipalities." This exemption is
broad enough to include all taxes, whether direct or indirect, which the
National Power Corporation may be required to pay, such as the specific tax
on petroleum products. That it is indirect or is of no amount [should be of no
moment], for it is the corporation that ultimately pays it. The view which
refuses to accord the exemption because the tax is first paid by the seller
disregards realities and gives more importance to form than to substance.
Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly
as knowledge that many impositions taxpayers have to pay are in the nature
of indirect taxes. To limit the exemption granted the National Power
Corporation to direct taxes notwithstanding the general and broad language
of the statue will be to thwrat the legislative intention in giving exemption from
all forms of taxes and impositions without distinguishing between those that
are direct and those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold
to NPC. By the very nature of indirect taxation, the economic burden of such taxation is
expected to be passed on through the channels of commerce to the user or consumer of
the goods sold. Because, however, the NPC has been exempted from both direct and
indirect taxation, the NPC must beheld exempted from absorbing the economic burden of
indirect taxation. This means, on the one hand, that the oil companies which wish to sell to
NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which
could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This means
also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase
price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies —
because to do so may be more convenient and ultimately less costly for NPC than NPC
itself importing and hauling and storing the oil from overseas — NPC is entitled to be
reimbursed by the BIR for that part of the buying price of NPC which verifiably represents
the tax already paid by the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect
taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16,

1987 by virtue of which the ad valorem tax rate on bunker fuel oil was reduced to ZERO
(0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REVISING THE EXCISE
TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code,
as amended, is hereby amended to read as follows:
Par. (b) — For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having
more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord,
nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about
who is going to bear the economic burden of the ad valorem taxes. What this Court will now
dispose of are petitioner's complaints that some indirect tax money has been illegally
refunded by the Bureau of Internal Revenue to the NPC and that more claims for refunds by
the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of
the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific
and ad valorem taxes during the period from October 31, 1984 to April 27, 1985. 91 Petitioner
asks Us to declare this Tax Credit Memo illegal as the PNC did not have indirect tax exemptions with the
enactment of P.D. No. 938. As We have already ruled otherwise, the only questions left are whether NPC
Is entitled to a tax refund for the tax component of the price of the bunker fuel oil purchased from Caltex
(Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when the BIR
issues its letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from
the oil companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration
was retroactive to June 11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.)
Inc. had already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the
93
period above indicated and had billed NPC correspondingly. It should be noted that the NPC, in its
letter-claim dated September 11, 1985 to the Commissioner of the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the
94
bunker fuel oil price it purchased from Caltex (Phils) Inc.

The law governing recovery of erroneously or illegally, collected taxes is section 230 of the
National Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. — No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessive or in any
Manner wrongfully collected. until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be begun after the expiration of
two years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment; Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any
tax, where on the face of the return upon which payment was made, such
payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985,

95

the
Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's
claim for P410.580,000.00 which represents specific and ad valorem taxes paid by the oil
companies to the BIR from June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not
reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In
paragraph No. 2 of the Deed of Assignment 97executed by and between NPC and Caltex (Phils.)
Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of
Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of which is
due to Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount because of Our ruling that NPC has both direct
and indirect tax exemption privileges. Neither can We order the BIR to refund said amount
to NPC as there is no pending petition for review on certiorari of a suit for its collection
before Us. At any rate, at this point in time, NPC can no longer file any suit to collect said
amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under
Section 230 of the National Internal Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration of
two years from the date of payment of the tax or penalty REGARDLESS of
any supervening cause that may arise afterpayment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that
payment by NPC for the amount of P410,580,000.00 had been made on said date. it is
clear that more than two (2) years had already elapsed from said date. At the same time,
We should note that there is no legal obstacle to the BIR granting, even without a suit by
NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been made
seasonably, and assuming the amounts covered had actually been paid previously by the
oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is
hereby DENIED for lack of merit and the decision of this Court promulgated on May 31,
1991 is hereby AFFIRMED.
SO ORDERED.

G.R. No. 96541 August 24, 1993
DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA SIGUION REYNA, PROF. RICARTE M. PURUGANAN, IRMA
POTENCIANO, ADRIAN CRISTOBAL, INGRID SANTAMARIA, CORAZON FIEL, AMBASSADOR E. AGUILAR CRUZ, FLORENCIO R.
JACELA, JR., MAURO MALANG, FEDERICO AGUILAR ALCUAZ, LUCRECIA R. URTULA, SUSANO GONZALES, STEVE SANTOS,
EPHRAIM SAMSON, SOLER SANTOS, ANG KIU KOK, KERIMA POLOTAN, LUCRECIA KASILAG, LIGAYA DAVID PEREZ, VIRGILIO
ALMARIO, LIWAYWAY A. ARCEO, CHARITO PLANAS, HELENA BENITEZ, ANNA MARIA L. HARPER, ROSALINDA OROSA, SUSAN
CALO MEDINA, PATRICIA RUIZ, BONNIE RUIZ, NELSON NAVARRO, MANDY NAVASERO, ROMEO SALVADOR, JOSEPHINE
DARANG, and PAZ VETO PLANAS, petitioners,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), CATALINO MACARAIG, JR., in his official capacity, and/or the
Executive Secretary, and CHAIRMAN MATEO A.T. CAPARAS, respondents.
M.M. Lazaro & Associates for petitioners.
The Solicitor General for respondents.

BELLOSILLO, J.:
All thirty-five (35) petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for Preliminary Injunction and/or
Restraining Order seek to enjoin the Presidential Commission on Good Government (PCGG) from proceeding with the auction sale
scheduled on 11 January 1991 by Christie's of New York of the Old Masters Paintings and 18th and 19th century silverware seized from
Malacañang and the Metropolitan Museum of Manila and placed in the custody of the Central Bank.
The antecedents: On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG, wrote then President Corazon C. Aquino, requesting
her for authority to sign the proposed Consignment Agreement between the Republic of the Philippines through PCGG and Christie, Manson
and Woods International, Inc. (Christie's of New York, or CHRISTIE'S) concerning the scheduled sale on 11 January 1991 of eighty-two (82)
Old Masters Paintings and antique silverware seized from Malacañang and the Metropolitan Museum of Manila alleged to be part of the illgotten wealth of the late President Marcos, his relatives and cronies.
On 14 August 1990, then President Aquino, through former Executive Secretary Catalino Macaraig, Jr., authorized Chairman Caparas to
sign the Consignment Agreement allowing Christie's of New York to auction off the subject art pieces for and in behalf of the Republic of the
Philippines.
On 15 August 1990, PCGG, through Chairman Caparas, representing the Government of the Republic of the Philippines, signed the
Consignment Agreement with Christie's of New York. According to the agreement, PCGG shall consign to CHRISTIE'S for sale at public
auction the eighty-two (82) Old Masters Paintings then found at the Metropolitan Museum of Manila as well as the silverware contained in
seventy-one (71) cartons in the custody of the Central Bank of the Philippines, and such other property as may subsequently be identified by
1
PCGG and accepted by CHRISTIE'S to be subject to the provisions of the agreement.

On 26 October 1990, the Commission on Audit (COA) through then Chairman Eufemio C. Domingo
submitted to President Aquino the audit findings and observations of COA on the Consignment
Agreement of 15 August 1990 to the effect that: (a) the authority of former PCGG Chairman Caparas to
enter into the Consignment Agreement was of doubtful legality; (b) the contract was highly
disadvantageous to the government; (c) PCGG had a poor track record in asset disposal by auction in the
U.S.; and, (d) the assets subject of auction were historical relics and had cultural significance, hence,
2
their disposal was prohibited by law.
On 15 November 1990, PCGG through its new Chairman David M. Castro, wrote President Aquino
3
defending the Consignment Agreement and refuting the allegations of COA Chairman Domingo. On the
same date, Director of National Museum Gabriel S. Casal issued a certification that the items subject of
the Consignment Agreement did not fall within the classification of protected cultural properties and did
4
not specifically qualify as part of the Filipino cultural heritage. Hence, this petition originally filed on 7
January 1991 by Dean Jose Joya, Carmen Guerrero Nakpil, Armida Siguion Reyna, Prof. Ricarte M.
Puruganan, Irma Potenciano, Adrian Cristobal, Ingrid Santamaria, Corazon Fiel, Ambassador E. Aguilar
Cruz, Florencio R. Jacela, Jr., Mauro Malang, Federico Aguilar Alcuaz, Lucrecia R. Urtula, Susano
Gonzales, Steve Santos, Ephraim Samson, Soler Santos, Ang Kiu Kok, Kerima Polotan, Lucrecia
Kasilag, Ligaya David Perez, Virgilio Almario and Liwayway A. Arceo.

After the oral arguments of the parties on 9 January 1991, we issued immediately our resolution denying
the application for preliminary injunction to restrain the scheduled sale of the artworks on the ground that
petitioners had not presented a clear legal right to a restraining order and that proper parties had not
been impleaded.
On 11 January 1991, the sale at public auction proceeded as scheduled and the proceeds of
5
$13,302,604.86 were turned over to the Bureau of Treasury.
On 5 February 1991, on motion of petitioners, the following were joined as additional petitioners: Charito
Planas, Helena Benitez, Ana Maria L. Harper, Rosalinda Orosa, Susan Carlo Medina, Patricia Ruiz,
Bonnie Ruiz, Nelson Navarro, Mandy Navasero, Romeo Salvador, Josephine Darang and Paz Veto
Planas.
On the other hand, Catalino Macaraig, Jr., in his capacity as former Executive Secretary, the incumbent
Executive Secretary, and Chairman Mateo A.T. Caparas were impleaded as additional respondents.
Petitioners raise the following issues: (a) whether petitioners have legal standing to file the instant
petition; (b) whether the Old Masters Paintings and antique silverware are embraced in the phrase
"cultural treasure of the nation" which is under the protection of the state pursuant to the 1987
Constitution and/or "cultural properties" contemplated under R.A. 4846, otherwise known as "The Cultural
Properties Preservation and Protection Act;" (c) whether the paintings and silverware are properties of
public dominion on which can be disposed of through the joint concurrence of the President and
Congress;
(d) whether respondent, PCGG has the jurisdiction and authority to enter into an agreement with
Christie's of New York for the sale of the artworks; (e) whether, PCGG has complied with the due process
clause and other statutory requirements for the exportation and sale of the subject items; and, (f) whether
the petition has become moot and academic, and if so, whether the above issues warrant resolution from
this Court.
The issues being interrelated, they will be discussed jointly hereunder. However, before proceeding, we
wish to emphasize that we admire and commend petitioners' zealous concern to keep and preserve
within the country great works of art by well-known old masters. Indeed, the value of art cannot be
gainsaid. For, by serving as a creative medium through which man can express his innermost thoughts
and unbridled emotions while, at the same time, reflecting his deep-seated ideals, art has become a true
expression of beauty, joy, and life itself. Such artistic creations give us insights into the artists' cultural
heritage — the historic past of the nation and the era to which they belong — in their triumphant, glorious,
as well as troubled and turbulent years. It must be for this reason that the framers of the 1987
Constitution mandated in Art. XIV, Sec. 14, that is the solemn duty of the state to "foster the preservation,
enrichment, and dynamic evolution of a Filipino national culture based on the principle of unity in diversity
in a climate of free artistic and intellectual expression." And, in urging this Court to grant their petition,
petitioners invoke this policy of the state on the protection of the arts.
But, the altruistic and noble purpose of the petition notwithstanding, there is that basic legal question
which must first be resolved: whether the instant petition complies with the legal requisites for this Court
to exercise its power of judicial review over this case.
The rule is settled that no question involving the constitutionality or validity of a law or governmental act
may be heard and decided by the court unless there is compliance with the legal requisites for judicial
inquiry, namely: that the question must be raised by the proper party; that there must be an actual case or
controversy; that the question must be raised at the earliest possible opportunity; and, that the decision
6
on the constitutional or legal question must be necessary to the determination of the case itself. But the
most important are the first two (2) requisites.

On the first requisite, we have held that one having no right or interest to protect cannot invoke the
jurisdiction of the court as party-plaintiff in an
7
action. This is premised on Sec. 2, Rule 3, of the Rules of Court which provides that every action must
be prosecuted and defended in the name of the real party-in-interest, and that all persons having interest
in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. The Court will
exercise its power of judicial review only if the case is brought before it by a party who has the legal
standing to raise the constitutional or legal question. "Legal standing" means a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged. The term "interest" is material interest, an interest in issue and
to be affected by the decree, as distinguished from mere interest in the question involved, or a mere
8
incidental interest. Moreover, the interest of the party plaintiff must be personal and not one based on a
9
desire to vindicate the constitutional right of some third and related party.
There are certain instances however when this Court has allowed exceptions to the rule on legal
standing, as when a citizen brings a case for mandamus to procure the enforcement of a public duty for
10
the fulfillment of a public right recognized by the Constitution, and when a taxpayer questions the
11
validity of a governmental act authorizing the disbursement of public funds.
Petitioners claim that as Filipino citizens, taxpayers and artists deeply concerned with the preservation
and protection of the country's artistic wealth, they have the legal personality to restrain respondents
Executive Secretary and PCGG from acting contrary to their public duty to conserve the artistic creations
as mandated by the 1987 Constitution, particularly Art. XIV, Secs. 14 to 18, on Arts and Culture, and R.A.
4846 known as "The Cultural Properties Preservation and Protection Act," governing the preservation and
disposition of national and important cultural properties. Petitioners also anchor their case on the premise
that the paintings and silverware are public properties collectively owned by them and by the people in
general to view and enjoy as great works of art. They allege that with the unauthorized act of PCGG in
selling the art pieces, petitioners have been deprived of their right to public property without due process
12
of law in violation of the Constitution.
Petitioners' arguments are devoid of merit. They lack basis in fact and in law. They themselves allege that
the paintings were donated by private persons from different parts of the world to the Metropolitan
Museum of Manila Foundation, which is a non-profit and non-stock corporations established to promote
non-Philippine arts. The foundation's chairman was former First Lady Imelda R. Marcos, while its
president was Bienvenido R. Tantoco. On this basis, the ownership of these paintings legally belongs to
the foundation or corporation or the members thereof, although the public has been given the opportunity
to view and appreciate these paintings when they were placed on exhibit.
Similarly, as alleged in the petition, the pieces of antique silverware were given to the Marcos couple as
gifts from friends and dignitaries from foreign countries on their silver wedding and anniversary, an
occasion personal to them. When the Marcos administration was toppled by the revolutionary
government, these paintings and silverware were taken from Malacañang and the Metropolitan Museum
of Manila and transferred to the Central Bank Museum. The confiscation of these properties by the
Aquino administration however should not be understood to mean that the ownership of these paintings
has automatically passed on the government without complying with constitutional and statutory
requirements of due process and just compensation. If these properties were already acquired by the
government, any constitutional or statutory defect in their acquisition and their subsequent disposition
must be raised only by the proper parties — the true owners thereof — whose authority to recover
emanates from their proprietary rights which are protected by statutes and the Constitution. Having failed
to show that they are the legal owners of the artworks or that the valued pieces have become publicly
owned, petitioners do not possess any clear legal right whatsoever to question their alleged unauthorized
disposition.
Further, although this action is also one of mandamus filed by concerned citizens, it does not fulfill the
13
criteria for a mandamus suit. In Legaspi v. Civil Service Commission, this Court laid down the rule that
a writ of mandamus may be issued to a citizen only when the public right to be enforced and the

concomitant duty of the state are unequivocably set forth in the Constitution. In the case at bar,
petitioners are not after the fulfillment of a positive duty required of respondent officials under the 1987
Constitution. What they seek is the enjoining of an official act because it is constitutionally infirmed.
Moreover, petitioners' claim for the continued enjoyment and appreciation by the public of the artworks is
at most a privilege and is unenforceable as a constitutional right in this action for mandamus.
Neither can this petition be allowed as a taxpayer's suit. Not every action filed by a taxpayer can qualify to
challenge the legality of official acts done by the government. A taxpayer's suit can prosper only if the
governmental acts being questioned involve disbursement of public funds upon the theory that the
expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional
14
act constitutes a misapplication of such funds, which may be enjoined at the request of a taxpayer.
Obviously, petitioners are not challenging any expenditure involving public funds but the disposition of
what they allege to be public properties. It is worthy to note that petitioners admit that the paintings and
antique silverware were acquired from private sources and not with public money.
Anent the second requisite of actual controversy, petitioners argue that this case should be resolved by
this Court as an exception to the rule on moot and academic cases; that although the sale of the paintings
and silver has long been consummated and the possibility of retrieving the treasure trove is nil, yet the
novelty and importance of the issues raised by the petition deserve this Court's attention. They submit
that the resolution by the Court of the issues in this case will establish future guiding principles and
doctrines on the preservation of the nation's priceless artistic and cultural possessions for the benefit of
15
the public as a whole.
For a court to exercise its power of adjudication, there must be an actual case of controversy — one
which involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
resolution; the case must not be moot or academic or based on extra-legal or other similar considerations
16
not cognizable by a court of justice. A case becomes moot and academic when its purpose has
17
become stale, such as the case before us. Since the purpose of this petition for prohibition is to enjoin
respondent public officials from holding the auction sale of the artworks on a particular date — 11 January
1991 — which is long past, the issues raised in the petition have become moot and academic.
At this point, however, we need to emphasize that this Court has the discretion to take cognizance of a
suit which does not satisfy the requirements of an actual case or legal standing when paramount public
18
interest is involved. We find however that there is no such justification in the petition at bar to warrant
the relaxation of the rule.
Section 2 of R.A. 4846, as amended by P.D. 374, declares it to be the policy of the state to preserve and
protect the important cultural properties and national cultural treasures of the nation and to safeguard
their intrinsic value. As to what kind of artistic and cultural properties are considered by the State as
involving public interest which should therefore be protected, the answer can be gleaned from reading of
the reasons behind the enactment of R.A. 4846:
WHEREAS, the National Museum has the difficult task, under existing laws and
regulations, of preserving and protecting the cultural properties of the nation;
WHEREAS, inumerable sites all over the country have since been excavated for cultural
relics, which have passed on to private hands, representing priceless cultural treasure
that properly belongs to the Filipino people as their heritage;
WHEREAS, it is perhaps impossible now to find an area in the Philippines, whether
government or private property, which has not been disturbed by commercially-minded
diggers and collectors, literally destroying part of our historic past;

WHEREAS, because of this the Philippines has been charged as incapable of preserving
and protecting her cultural legacies;
WHEREAS, the commercialization of Philippine relics from the contact period, the
Neolithic Age, and the Paleolithic Age, has reached a point perilously placing beyond
reach of savants the study and reconstruction of Philippine prehistory; and
WHEREAS, it is believed that more stringent regulation on movement and a limited form
of registration of important cultural properties and of designated national cultural
treasures is necessary, and that regardless of the item, any cultural property exported or
sold locally must be registered with the National Museum to control the deplorable
situation regarding our national cultural properties and to implement the Cultural
Properties Law (emphasis supplied).
Clearly, the cultural properties of the nation which shall be under the protection of the state are classified
as the "important cultural properties" and the "national cultural treasures." "Important cultural properties"
are cultural properties which have been singled out from among the innumerable cultural properties as
having exceptional historical cultural significance to the Philippines but are not sufficiently outstanding to
19
merit the classification of national cultural treasures. On the other hand, a "national cultural treasures"
is a unique object found locally, possessing outstanding historical, cultural, artistic and/or scientific value
20
which is highly significant and important to this country and nation. This Court takes note of the
certification issued by the Director of the Museum that the Italian paintings and silverware subject of this
petition do not constitute protected cultural properties and are not among those listed in the Cultural
Properties Register of the National Museum.
We agree with the certification of the Director of the Museum. Under the law, it is the Director of the
Museum who is authorized to undertake the inventory, registration, designation or classification, with the
21
aid of competent experts, of important cultural properties and national cultural treasures. Findings of
administrative officials and agencies who have acquired expertise because their jurisdiction is confined to
specific matters are generally accorded not only respect but at times even finality if such findings are
supported by substantial evidence and are controlling on the reviewing authorities because of their
22
acknowledged expertise in the fields of specialization to which they are assigned.
In view of the foregoing, this Court finds no compelling reason to grant the petition. Petitioners have failed
to show that respondents Executive Secretary and PCGG exercised their functions with grave abuse of
discretion or in excess of their jurisdiction.
WHEREFORE, for lack of merit, the petition for prohibition and mandamus is DISMISSED.
SO ORDERED.

G.R. Nos. L-31776-78 October 21, 1993
THE COMMISSIONER OF CUSTOMS, petitioner,
vs.
MANILA STAR FERRY, INC., UNITED NAVIGATION & TRANSPORT CORPORATION, CEABA SHIPPING AGENCY, INC., and THE
COURT' OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Tañada, Vivo & Tan for private respondents.
Valentino G. Castro & Associates for CEABA.

QUIASON, J.:
This is a petition for review under Rule 44 of the Revised Rules of Court filed by the Commissioner of Customs to set aside the consolidated
Decision dated September 30, 1969 of the Court of Tax Appeals in C.T.A. Cases Nos. 1836, 1837 and 1839, modifying his decision by
ordering only the payment of a fine, in lieu of the forfeiture of private respondents vessels used in the smuggling of foreign-made cigarettes
and other goods.
Private respondents Manila Star Ferry, Inc. and the United Navigation & Transport Corporation are domestic corporations engaged in the
lighterage business and are the owners and operators, respectively, of the tugboat Orestes and the barge-lighter UN-L-106. Private
respondent Ceaba Shipping Agency, Inc. (Ceaba) is the local shipping agent of the Chiat Lee Navigation Trading Co. of Hongkong, the
registered owner and operator of the S/S Argo, an ocean-going vessel.
On June 12, 1966, the S/S Argo, the Orestes and the UN-L-106, as well as two wooden bancas of unknown ownership, were apprehended
for smuggling by a patrol boat of the Philippine Navy along the Explosives Anchorage Area of Manila Bay. the patrol boat caught the crew of
the S/S Argo in the act of unloading foreign-made goods onto the UN-L-106, which was towed by the Orestes and escorted by the two
wooden bancas. The goods of 330 cases of foreign-made cigarettes, assorted ladies' wear, clothing material and plastic bags, all of which
were not manifested and declared by the vessel for discharge in Manila. No proper notice of arrival of the S/S Argo was given to the local
customs authorities.
Thereafter, seizure and forfeiture proceedings were separately instituted before the Collector of Customs for the Port of Manila against the
S/S Argo (Seizure Identification Case No. 10009, Manila) and its cargo (S.I. No. 10009-C, Manila), the Orestes (S.I. No. 10009-A, Manila),
the UN-L-106 (S.I. No. 1009-B, Manila) and the two bancas (S.I. No. 10009-D, Manila), charging them with violations of Section 2530 (a), (b)
and (c) of the Tariff and Customs Code. Criminal charges were likewise filed against the officers and crew of said vessels and watercraft.
In the seizure and forfeiture proceedings, the Collector of Customs rendered a consolidated decision dated December 27, 1966, declaring
the forfeiture of said vessels and watercraft in favor of the Philippine government by virtue of Section 2530 (a) and (b) of the Tariff and
Customs Code.
All respondents therein, except the owner of the two wooden bancas, separately appealed the consolidated decision of the Collector of
Customs for the Port of Manila to the Commissioner of Customs. In his Decision dated February 1, 1967, the Acting Commissioner of
Customs found the Collector's decision to be in order and affirmed the same accordingly.
The same respondents separately elevated the matter to the Court of Tax Appeals (C.T.A. Cases Nos. 1836, 1837 and 1839), which in a
consolidated decision dated September 30, 1989, substantially modified the decision of the Commissioner of Customs, stating thus:
IN VIEW OF THE FOREGOING, the Manila Star Ferry, Inc., petitioner in C.T.A. Case No. 1836, and the United
Navigation & Transport Corporation, petitioner in C.T.A. Case No. 1837, are each hereby ordered to pay a fine of five
thousand pesos (P5,000.00) and Ceaba Shipping Agency, Inc., petitioner in C.T.A. Case No. 1839, a fine of ten
thousand pesos (P10,000.00), within thirty days from the date this decision becomes final (Rollo, p., 100).
It is this decision of the Court of Tax Appeals that is being questioned by the Commissioner of Customs before this Court.
On February 7, 1978, petitioner filed a Motion to Allow Sale of the Vessel (S/S Argo), informing this Court that the said vessel was
deteriorating and depreciating in value, and was congesting the Cavite Naval Base where it was berthed. Petitioner prayed that it be allowed
to sell the S/S Argo at the best possible price. The Court granted petitioner's motion.
An Urgent Motion for Modification was filed by respondent Ceaba, praying that it, instead of petitioner, be allowed to sell the S/S Argo
through a negotiated sale and not a public sale. In a resolution dated May 12, 1978, this Court granted respondent Ceaba's motion, ordering
it, however, to first pay the fine of P10,000.00 stated in the decision of the Commissioner of Customs and then "deposit the proceeds of the

sale with a reputable commercial bank in an interest bearing account in trust for whosoever will prevail in the cases at bar" (Rollo, p. 317). A
manager's check in the amount of P10,000.00 was made payable to the Commissioner of Customs and was delivered y the respondent
Ceaba to the Cashier of the Supreme Court. In the Resolution of July 9, 1978, this payment was accepted, subject to the Court's decision in
the case (Rollo, p. 327). The S/S Argo was sold, with this Court's approval, for P125,000.00 to one Severino Caperlac. The proceeds were
subjected to the charging lien of respondent Ceaba's attorneys in the amount of P315,000.00 (Rollo, p. 402).
The petition for review posits the theory that the subject vessels and watercraft were engaged in smuggling, and that the S/S Argo should be
forfeited under Section 2530 (a), while the barge UN-L-106 and tugboat Orestes should be forfeited under Section 2530 (c) of the Tariff and
Customs Code.
Section 2530 (a) and (c) of said law reads as follows:
Sec. 2530. Property Subject to Forfeiture under Tariff and Customs Laws. — Any vessel or aircraft, cargo, articles and
other objects shall, under the following conditions, be subject to forfeiture:
(a) Any vessel or aircraft, including cargo, which shall, be used unlawfully in the importation or exportation of articles
into or from any Philippine port or place except a port of entry; and any vessel which, being of less than thirty tons
capacity shall be used in the importation of articles into any Philippine port or place except into a port of the Sulu sea
where importation in such vessel may be authorized by the Commissioner, with the approval of the department head.
xxx xxx xxx
(c) Any vessel or aircraft into which shall be transferred cargo unladen contrary to law prior to the arrival of the
importing vessel or aircraft at her port of destination.
The penalty of forfeiture is imposed on any vessel, engaged in smuggling if the conditions enumerated in Section 2530 (a) are compresent.
These conditions are:
(1) The vessel is "used unlawfully in the importation or exportation of articles into or from" the Philippines;
(2) The articles are imported or exported into or from "any Philippine port or place, except a port of entry;" or
(3) If the vessel has a capacity of less than 30 tons and is "used in the importation of articles into any Philippine Port or place other than a
port of the Sulu Sea, where importation in such vessel may be authorized by the Commissioner, with the approval of the department head."
There is no question that the vessel S/S Argo was apprehended while unloading goods of foreign origin onto the barge UN-L-106 and the
tugboat Orestes, without the necessary papers showing that the goods were entered lawfully though a port of entry and that taxes and duties
on said goods had been paid. The claim that the S/S Argo made an emergency call at the Port of Manila for replacement of crew members
and had to stop at the Explosives Anchorage Area because it was carrying nitric acid, a dangerous cargo, cannot be upheld, much less given
credence by this Court. The facts found by the Court of Tax Appeals are in consonance with the findings of the Collector of Customs, and the
Commissioner of Customs. Absent a showing of any irregularity, or arbitrariness, the findings of fact of quasi-judicial and administrative
bodies are entitled to great weight:, and are conclusive and binding on this Court. (Feeder International Line, Pte., Ltd. v. Court of Appeals,
197 SCRA 842 [1991]; Jaculina v. National Police Commission, 200 SCRA 489 [1991]). Moreover, the Collector of Customs in S.I. No.
10009-C, Manila, ordered on July 28, 1966 the forfeiture of the subject cargo after finding that they were, in truth and in fact, smuggled
articles (Rollo, p. 7). Respondent Ceaba did not appeal from said order and the same has become final.
In its decision, the Court of Tax Appeals held that while the S/S Argo was caught unloading smuggled goods in Manila Bay, the said vessel
and the goods cannot be forfeited in favor of the government because the Port of Manila is a port of entry (R.A. 1937, Sec. 701).
The Commissioner of Customs argues that the phrase "except a port of entry" should mean "except a port of destination," and inasmuch as
there is no showing that the Port of Manila was the port of destination of the S/S Argo, its forfeiture was in order.
We disagree.
Section 2530(a) in unmistakable terms provides that a vessel engaged in smuggling "in a port of entry" cannot be forfeited. This is the clear
and plain meaning of the law. It is not within the province of the Court to inquire into the wisdom of the law, for indeed, we are bound by the
words of the statute. Neither can we put words in the mouths of the lawmaker. A verba legis non est recedendum.
It must be noted that the Revised Administrative Code of 1917 from which the Tariff and Customs Code is based, contained in Section
1363(a) thereof almost exactly the same provision in Section 2530(a) of the Tariff and Customs Code, including the phrase "except a port of
entry." If the lawmakers intended the term "port of entry" to mean "port of destination," they could have expressed facilely such intention
when they adopted the Tariff and Customs Code in 1957. Instead on amending the law, Congress reenacted verbatim the provision of
Section 1363(a) of the Revised Administrative Code of 1917. Congress, in the very same Article 2530 of the Tariff and Customs Code, used

the term "port of destination" in subsections (c) and (d) thereof. This is a clear indication that Congress is aware of the distinction between
the two wordings.
It was only in 1972, after this case was instituted, when the questioned exception ("except a port of entry") in Section 2530(a) of the Tariff
and Customs Code was deleted by P.D. No. 74.
Nevertheless, although the vessel cannot be forfeited, it is subject to a fine of not more than P10,000.00 for failure to supply the requisite
manifest for the unloaded cargo under Section 2521 of Code, which reads as follows:
Sec. 2521. Failure to Supply Requisite Manifests. — If any vessel or aircraft enters or departs from a port of entry
without submitting the proper manifest to the customs authorities, or shall enter or depart conveying unmanifested
cargo other than as stated in the next preceding section hereof, such vessel or aircraft shall be fined in a sum not
exceeding ten thousand pesos.
xxx xxx xxx
The barge-lighter UN-L-106 and the tugboat Orestes, on the other hand, are subject to forfeiture under paragraph (c) of Section 2530 of the
Tariff and Customs Code. The barge-lighter and tugboat fall under the term "vessel" which includes every sort of boat, craft or other artificial
contrivance used, or capable of being used, as a means of transportation on water (R.A. No. 1937, Section 3514). Said section 2530 (c)
prescribes the forfeiture of' any vessel or aircraft into which shall be transferred cargo unladen contrary to law before the arrival of the vessel
or aircraft at her port of destination Manila was not the port of destination, much less a port of call of the S/S Argo, the importing vessel. The
S/S Argo left Hongkong and was bound for Jesselton, North Borneo, Djakarta and Surabaja, Indonesia; and yet it stopped at the Port of
Manila to unload the smuggled goods onto the UN-L-106 and the Orestes.
Forfeiture proceedings are proceedings in rem (Commissioner of Customs v. Court of Tax Appeals, 138 SCRA 581 [1985] citing Vierneza v.
Commissioner of Customs, 24 SCRA 394 [1968]) and are directed against the res. It is no defense that the owner of the vessel sought to be
forfeited had no actual knowledge that his property was used illegally. The absence or lack of actual knowledge of such use is a defense
personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture Commissioner of Customs v. Court of
Appeals, supra; U.S. v. Steamship "Rubi.", 32 Phil. 228, 239 [1915]).
WHEREFORE, the consolidated Decision dated September 30, 1969 of respondent Court of Tax Appeals in C.T.A. Cases Nos. 1836, I837
and 1839 is MODIFIED as follows: (1) that the S/S Argo through respondent Ceaba Shipping Agency, Inc. is ordered to pay a fine of
P10,000.00, to be satisfied from the deposit of the same amount by respondent Ceaba to the Cashier of this Court per Resolution of July 9,
1978; (2) that the Cashier of this Court is ordered to release the said amount for payment to the Commissioner of Customs, within thirty (30)
days from the date this decision becomes final; and 3) the tugboat Orestes and the barge-lighter UN-L-106 of respondents Manila Star Ferry,
Inc. and the United Navigation & Transport. Corporation respectively, are ordered forfeited in favor of the Philippine Government.
SO ORDERED.

G.R. No. 103379 November 23, 1993
SAN CARLOS MILLING, CO., INCORPORATED, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
Valdes, Valdes & Associates for petitioner.
The Solicitor General for respondent Commissioner of Internal Revenue.

PADILLA, J.:
Assailed in this petition for review on certiorari is the decision * of the Court of Appeals in CA-G.R. Sp. No. 22346, dated 23 December 1991,
the dispositive part of which reads:
WHEREFORE, in view of the foregoing consideration, the petition is hereby DISMISSED, without pronouncement as to
1
costs.

The undisputed facts, as succinctly stated by the Court of Tax Appeals and adopted by the Court of
Appeals in its decision under review, are as follows:
Petitioner domestic corporation had for the taxable year 1982 a total income tax
overpayment of P781,393.00 reflected as creditable income tax in its annual final
adjustment return. The application of the amount for the 1983 tax liabilities remained
unutilized in view of petitioner's net loss for the year and still yet had a credible income
tax of P4,470.00 representing the 3% of 15% withholding tax on storage credits.
Accordingly the final adjustment income tax return for the taxable year 1983 reflected the
amount of P781,393.00 carried over as tax credit and P4,470.00 creditable income tax.
In a May 17, 1984 letter to the respondent, petitioner signified its intention to apply the
total creditable amount of P785,863.00 against its 1984 tax dues consistent with the
provision of Section 86, ibid, coupled with a comforting alternative request for a refund or
tax credit of the same.
Respondent disallowed the proffered automatic credit scheme but treated the request as
an ordinary claim for refund/tax credit under Section 292 in relation to Section 295 of the
Tax Code and accordingly subjected the same for verification/investigation.
No sooner than the respondent could act on the claim, petitioner filed a petition for review
on July 18, 1984. And before this Court could formally hear the case, petitioner filed a
supplemental petition on March 11, 1986, after having unilaterally effected a set-off of its
2
credible income tax vis a vis income tax liabilities, earlier denied by the respondent.
On 28 February 1990, the Court of Tax Appeals dismissed the petition and held that prior investigation by
and authority from the Commissioner of Internal Revenue were necessary before a taxpayer could avail
3
of the provisions of Section 86 (now Section 69) of the Tax Code. A motion for reconsideration was then
filed but was denied in a resolution dated 25 June 1990 without prejudice, however, to any administrative
claim for tax refund or tax credit.
Thereafter, petitioner appealed the adverse decision of the Court of Tax Appeals to the Court of Appeals.
On 23 December 1991, respondent Court dismissed the appeal.
Hence, this recourse.

The main issue to be resolved in the petition at bench is whether or not prior authority from the
Commissioner of Internal Revenue is necessary before a corporate taxpayer can credit excess estimated
quarterly income taxes paid against the estimated quarterly income tax liabilities for the succeeding
taxable year, under Section 86 (now Section 69) of the Tax Code.
It is the contention of the petitioner, among others, that in the aforecited provision of the Tax Code,
nowhere is it stated that the "imprimatur" or approval of the Commissioner of Internal Revenue must be
secured prior to crediting a refundable tax amount. Petitioner further posits that neither does Revenue
Regulation No. 10-77 implementing the Tax Code provision require prior approval of the Commissioner of
Internal Revenue to avail of the automatic tax credit scheme.
After a careful study of the records of the present petition, we find the petition to be devoid of merit.
We begin with the subject Tax Code provision under scrutiny, thus:
Sec. 86. Final Adjustment Return. — Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total net income for the preceding calendar
or fiscal year. If the sum of the quarterly tax payments made during the said taxable year
is not equal to the total tax due on the entire taxable net income of that year the
corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to refund of the excess estimated quarterly income tax
paid, the refundable amount shown on its final adjustment return may be credited against
the estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable year. (Emphasis supplied)
On 7 October 1977, the Commissioner of Internal Revenue issued the implementing rules and regulations
pertaining to the subject provision. The procedure laid out in said rules is found in Revenue Regulation
No. 10-77, section 7 thereof, which reads:
Sec. 7. Any excess of the total quarterly payments over the actual income tax computed
and shown in the adjustment or final corporate income tax return shall either (a) be
refunded to the corporation, or (b) may be credited against the estimated quarterly
income tax liabilities for the quarters of the succeeding taxable year. The corporation
must signify in its annual corporate adjustment return its intention whether to request for
the refund of the overpaid income tax or claim for automatic tax credit to be applied
against its income tax liabilities for the quarters of the succeeding taxable year, by filling
up the appropriate box on the corporate tax return, BIR Form No. 1702.
4

The case of Commissioner of Internal Revenue vs. ESSO Standard Eastern, Inc., et al., cited by
petitioner, while not squarely in point, has touched on a significant aspect directly related to the issue at
hand. There it was said:
The Commissioner's position is that income taxes are determined and paid on an annual
basis, and that such determination and payment of annual taxes are separate and
independent transactions; and that a tax credit could not be so considered until it has
been finally approved and the taxpayer duly notified thereof . . . . (Emphasis supplied)

In other words, far from bolstering its position, petitioner's citation of the above case only serves to
weaken the same. What petitioner obviously seeks is judicial sanction of its act of unilaterally declaring as
tax credit its excess estimated quarterly income taxes paid in a given year against its tax liabilities for the
quarters of the succeeding taxable year. If petitioner's theory were to be sustained, this could wreak
havoc and confusion in the tax system.
The respondent Court held that the choice of a corporate taxpayer for an automatic tax credit does not
ipso facto confer on it the right to immediately avail of the same. Respondent court went on to emphasize
the need for an investigation to ascertain the correctness of the corporate returns and the amount sought
to be credited. We agree.
It is difficult to see by what process of ratiocination petitioner insists on the literal interpretation of the word
"automatic." Such literal interpretation has been discussed and precluded by the respondent court in its
decision of 23 December 1991 where, as aforestated, it ruled that "once a taxpayer opts for either a
refund or the automatic tax credit scheme, and signified his option in accordance with the regulation, this
does not ipso facto confer on him the right to avail of the same immediately. An investigation, as a matter
of procedure, is necessary to enable the Commissioner to determine the correctness of the petitioner's
5
returns, and the tax amount to be credited.
Prior approval by the Commissioner of Internal Revenue of the tax credit under then section 86 (now
section 69) of the Tax Code would appear to be the most reasonable interpretation to be given to said
section. An opportunity must be given the internal revenue branch of the government to investigate and
confirm the veracity of the claims of the taxpayer. The absolute freedom that petitioner seeks to
automatically credit tax payments against tax liabilities for a succeeding taxable year, can easily give rise
to confusion and abuse, depriving the government of authority and control over the manner by which the
taxpayers credit and offset their tax liabilities, not to mention the resultant loss of revenue to the
government under such a scheme.
Petitioner points out that the automatic tax credit scheme under the law refers to the amount "shown" in
the final adjustment return of the corporate taxpayer and not as determined by the Commissioner, thereby
recognizing the computation made by the taxpayer. This contention is not impressed with merit. To
reiterate, Section 7 of Revenue Regulation No. 10-77 provides that "(a)ny excess . . . computed and
shown . . . shall either (a) be refunded to the corporation, or (b) may be credited against the estimated
quarterly income tax liabilities. . . ."
The above rule is clear. It does not mean that reference to the amount "shown" in the final adjustment
return prepared by the taxpayer implies that the taxpayer need not seek approval of the Commissioner
prior to its effective availment of the tax credit scheme, it simply cannot credit an amount it deems as
correct. Rather, it provides two (2) remedies, that is, the excess may either be refunded or credited, and
insofar as the option of tax credit is concerned, this right should not be construed as an absolute right
which is available to the taxpayer at his sole option. It is our view that tax credit under the cited provision
should be construed as an alternative remedy (to a refund) subject to the fulfillment of certain
requirements, i.e., prior verification and approval by the Commissioner of Internal Revenue.
Further, the cited legal provision itself employs the word "may" in the phrase "may be credited", implying
that the availability of the remedy of tax credit is not absolute and mandatory; it does not confer an
absolute right on the taxpayer to avail of the tax credit scheme if it so chooses; neither does it impose a
duty on the part of the government to sit back and allow an important facet of tax collection to be at the
sole control and discretion of the taxpayer.
As aptly held by this Court in In re Guarina:

6

Whether the word "may" in the statute is to be construed as mandatory and imposing a
duty, or merely permissive and conferring discretion, is to be determined in each case

from the apparent intention of the statute as gathered from the context, as well as from
the language of the particular provision. The question in each case is whether, taken as a
whole and viewed in the light of surrounding circumstances, it can be said that a purpose
existed on the part of the legislator to enact a law mandatory in character. If it can, then it
should be given a mandatory effect; if not, then it should be given its ordinary permissive
effect. . . .
Anent the issue on petitioner's entitlement to a refund/credit under Sections 292 and 295 (now Sections
230 and 204 of the Tax Code) — since automatic tax credit without prior approval of the Commission of
Internal Revenue under then Section 86 would not be available to the taxpayer — it must be stressed that
the remedy of a refund/credit has never been denied the petitioner. On the contrary, the Commissioner of
Internal Revenue has long informed petitioner that its request for automatic tax credit has been treated as
an ordinary claim for refund/tax credit under Section 292 in relation to Section 295 of the Tax Code, and
that the same has been referred for investigation, report and recommendation to the Chief, Agriculture
and Natural Resources Division of the Bureau of Internal Revenue. All that petitioner had to do, therefore,
is to inquire regarding the status of its claim for refund/credit and await the decision in regard thereto.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is
AFFIRMED with costs against the petitioner.
SO ORDERED.

G.R. No. 104786 January 27, 1994
ALFREDO PATALINGHUG, petitioner,
vs.
HON. COURT OF APPEALS, RICARDO CRIBILLO, MARTIN ARAPOL, CORAZON ALCASID, PRIMITIVA SEDO, respondents.
Gonzales, Batiller, Bilog & Associates for petitioner.
Garcilaso F. Vega for private respondents.

ROMERO, J.:
In the case before us, we are called upon to decide whether or not petitioner's operation of a funeral home constitutes permissible use within
a particular district or zone in Davao City.
On November 17, 1982, the Sangguniang Panlungsod of Davao City enacted Ordinance No. 363, series of 1982 otherwise known as the
"Expanded Zoning Ordinance of Davao City," Section 8 of which states:
Sec. 8. USE REGULATIONS IN C-2 DISTRICTS (Shaded light red in the Expanded Zoning Map) — AC-2 District shall
be dominantly for commercial and compatible industrial uses as provided hereunder:
xxx xxx xxx
xxx xxx xxx
3.1 Funeral Parlors/Memorial Homes with adequate off street parking space (see parking standards of P.D. 1096) and
provided that they shall be established not less than 50 meters from any residential structures, churches and other
institutional buildings. (Emphasis provided)
Upon prior approval and certification of zoning compliance by Zoning Administrator issued on February 10, 1987 Building Permit No. 870254
in favor of petitioner for the construction of a funeral parlor in the name and style of Metropolitan Funeral Parlor at Cabaguio Avenue, Agdao,
Davao City.
Thereafter, petitioner commenced the construction of his funeral parlor.
Acting on the complaint of several residents of Barangay Agdao, Davao City that the construction of petitioner's funeral parlor violated
Ordinance
No. 363, since it was allegedly situated within a 50-meter radius from the Iglesia ni Kristo Chapel and several residential structures, the
Sangguniang Panlungsod conducted an investigation and found that "the nearest residential structure, owned by Wilfred G. Tepoot is only 8
1
inches to the south. . . . ."

Notwithstanding the findings of the Sangguniang Panlungsod, petitioner continued to construct his funeral
parlor which was finished on November 3, 1987.
Consequently, private respondents filed on September 6, 1988 a case for the declaration of nullity of a
building permit with preliminary prohibitory and mandatory injunction and/or restraining order with the trial
2
court.
After conducting its own ocular inspection on March 30, 1989, the lower court, in its order dated July 6,
3
1989, dismissed the complaint based on the following findings:
1. that the residential building owned by Cribillo and Iglesia ni Kristo chapel are 63.25
meters and 55.95 meters away, respectively from the funeral parlor.
2. Although the residential building owned by certain
Mr. Tepoot is adjacent to the funeral parlor, and is only separated therefrom by a

concrete fence, said residential building is being rented by a certain Mr. Asiaten who
actually devotes it to his laundry business with machinery thereon.
3. Private respondent's suit is premature as they failed to exhaust the administrative
remedies provided by Ordinance No. 363.
Hence, private respondents appealed to the Court of Appeals. (CA G.R. No. 23243).
In its decision dated November 29, 1991, the Court of Appeals reversed the lower court by annulling
4
building permit No. 870254 issued in favor of petitioner. It ruled that although the buildings owned by
Cribillo and Iglesia ni Kristo were beyond the 50-meter residential radius prohibited by Ordinance 363, the
construction of the funeral parlor was within the 50-meter radius measured from the Tepoot's building.
The Appellate Court disagreed with the lower court's determination that Tepoot's building was commercial
and ruled that although it was used by Mr. Tepoot's lessee for laundry business, it was a residential lot as
reflected in the tax declaration, thus paving the way for the application of Ordinance No. 363.
Hence, this appeal based on the following grounds:
The Respondent Court of Appeals erred in concluding that the Tepoot building adjacent
to petitioner's funeral parlor is residential simply because it was allegedly declared as
such for taxation purposes, in complete disregard of Ordinance No. 363 (The Expanded
Zoning Ordinance of Davao City) declaring the subject area as dominantly for commercial
and compatible industrial uses.
We reverse the Appellate Court and reinstate the ruling of the lower court that petitioner did not violate
Section 8 of Davao City Ordinance No. 363. It must be emphasized that the question of whether Mr.
Tepoot's building is residential or not is a factual determination which we should not disturb. As we have
repeatedly enunciated, the resolution of factual issues is the function of the lower courts where findings
on these matters are received with respect and are in fact binding on this court, except only where the
5
case is shown as coming under the accepted exceptions.
6

Although the general rule is that factual findings of the Court of Appeals are conclusive on us, this
admits of exceptions as when the findings or conclusions of the Court of Appeals and the trial court are
7
contrary to each other. While the trial court ruled that Tepoot's building was commercial, the Appellate
Court ruled otherwise. Thus we see the necessity of reading and examining the pleadings and transcripts
submitted before the trial court.
In the case at bar, the testimony of City Councilor Vergara shows that Mr. Tepoot's building was used for
8
a dual purpose both as a dwelling and as a place where a laundry business was conducted. But while its
commercial aspect has been established by the presence of machineries and laundry paraphernalia, its
use as a residence, other than being declared for taxation purposes as such, was not fully substantiated.
The reversal by the Court of Appeals of the trial court's decision was based on Tepoot's building being
declared for taxation purposes as residential. It is our considered view, however, that a tax declaration is
not conclusive of the nature of the property for zoning purposes. A property may have been declared by
its owner as residential for real estate taxation purposes but it may well be within a commercial zone. A
discrepancy may thus exist in the determination of the nature of property for real estate taxation purposes
vis-a-vis the determination of a property for zoning purposes.
Needless to say, even if we are to examine the evidentiary value of a tax declaration under the Real
Property Tax Code, a tax declaration only enables the assessor to identify the same for assessment
levels. In fact, a tax declaration does not bind a provincial/city assessor, for under Sec. 22 of the Real
9
Estate Tax Code, appraisal and assessment are based on the actual use irrespective of "any previous
assessment or taxpayer's valuation thereon," which is based on a taxpayer's declaration. In fact, a piece

of land declared by a taxpayer as residential may be assessed by the provincial or city assessor as
commercial because its actual use is commercial.
The trial court's determination that Mr. Tepoot's building is commercial and, therefore, Sec. 8 is
inapplicable, is strengthened by the fact that the Sangguniang Panlungsod has declared the questioned
area as commercial or
C-2. Consequently, even if Tepoot's building was declared for taxation purposes as residential, once a
local government has reclassified an area as commercial, that determination for zoning purposes must
prevail. While the commercial character of the questioned vicinity has been declared thru the ordinance,
private respondents have failed to present convincing arguments to substantiate their claim that Cabaguio
Avenue, where the funeral parlor was constructed, was still a residential zone. Unquestionably, the
operation of a funeral parlor constitutes a "commercial purpose," as gleaned from Ordinance No. 363.
The declaration of the said area as a commercial zone thru a municipal ordinance is an exercise of police
power to promote the good order and general welfare of the people in the locality. Corollary thereto, the
state, in order to promote the general welfare, may interfere with personal liberty, with property, and with
10
business and occupations. Thus, persons may be subjected to certain kinds of restraints and burdens
in order to secure the general welfare of the state and to this fundamental aim of government, the rights
of the individual may be subordinated. The ordinance which regulates the location of funeral homes has
been adopted as part of comprehensive zoning plans for the orderly development of the area covered
thereunder.
WHEREFORE, the decision of the Court of Appeals dated November 29, 1991 is hereby REVERSED
and the order dated July 6, 1989 of the Regional Trial Court of Davao City is REINSTATED.
SO ORDERED.

G.R. No. 104920 April 28, 1994
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MOBIL PHILIPPINES, INC. and THE COURT OF APPEALS, respondents.
The Solicitor General for petitioner.
Cesar Pedro for private respondent.

FELICIANO, J.:
1

which, reversing the
Court of Tax Appeals ("CTA"), held a twenty-five percent (25%) surcharge imposed on private respondent
Mobil Philippines, Inc. ("Mobil") for late payment of additional ad valorem taxes as invalid.
The Commissioner of Internal Revenue asks us to review and set aside the Decision of the Court of Appeals

Private respondent Mobil is a corporation engaged in marketing aviation turbo (jet) fuel, diesel and bunker
fuel oil to international carriers. Mobil obtains its supply of these petroleum products from Caltex
Philippines., Inc. ("Caltex") drawing product from the latter's refinery in Batangas or from Caltex's
entitlement to processed product from the Bataan refinery of the Bataan Refining Corporation at Limay,
Bataan.
By its Resolution No. 87-02, dated 11 February 1987, the Board of Energy ("BOE") (now the Energy
2
Regulatory Board ["ERB"]) increased by an average amount of 30.2 centavos per liter the "cost
recovery" (or "company take" or "company netback") of oil companies on the various petroleum products
refined and marketed by them locally. The effectivity of this Resolution was, by its terms, made retroactive
3
to 1 January 1987.
Mobil received a copy of BOE Resolution No. 87-02 on 16 February 1987.
On 20 February 1987, the Bureau of Internal Revenue ("BIR") addressed a demand letter to Mobil
requiring payment of the amount of P981,435.35 as additional ad valorem taxes. This letter read as
follows:
Mobil Philippines, Inc.
P.O. Box 246
Makati 3117, Metro Manila
Gentlemen:
Per Board of Energy (BOE) Resolution No. 87-02 dated
February [11], 1987, increasing the company netback of the oil companies by an average
amount of 30.2 centavos (P0.302) per liter retroactive to January 1, 1987, please be
informed that there is still due from you the amount of NINE HUNDRED EIGHTY ONE
THOUSAND FOUR HUNDRED THIRTY FIVE PESOS & 35/100 (P981,435.35) for the
month of January, 1987 as the result [of] the corresponding change in the ad valorem tax
of the different petroleum products computed as follows:
PRODUCTS VOLUME Increase in Tax DEFICIENCY
Diesel 581,036 ltrs. P .183 P 106,329.59
Bunker Fuel Oil 677,595 ltrs. .051 34,557.35
Avturbo 2,702,728 ltrs. .311 840,548.41

——————
TOTAL P 981,435.35
In this connection, please be informed that payment of the above amount, may be made
through any authorized bank by presenting the Authority to Issue Tax Receipt which can
be obtained from the Oil & Miscellaneous Tax Division, Room 810, BIR Bldg., Diliman,
Quezon City.

(Signed
)
Bienve
nido A.
Tan, Jr.
Commi
ssioner
4

The amount demanded was paid by Mobil on 12 March 1987.
By its Resolution No. 87-03, dated 16 March 1987, the BOE increased once again the cost recovery of oil
companies by an average amount of 54.7 centavos per liter of product sold. The effectivity of BOE
5
Resolution No. 87-03 was retroactively set at 1 March 1981.
On 24 April 1987, another letter was sent by the BIR to Mobil demanding payment of the amount of
P1,305,455.76 as additional ad valorem taxes on petroleum products withdrawn from the refinery during
the period from
1 January 1987 to 31 March 1987 resulting from the operation of BOE Resolutions Nos. 87-02 and 87-03.
In addition, the letter demanded payment of the amount of P326,363.94 as twenty-five percent (25%)
surcharge for failure to pay the additional ad valorem taxes in a timely manner, i.e., within fifteen (15)
6
days from the respective dates of the two (2) BOE Resolutions.
On 15 May 1987, Mobil paid the amount of P1,305,455.76 comprising the additional ad valorem taxes,
but protested the imposition of the twenty-five percent (25%) surcharge as "arbitrary and unfair." In
respect of the surcharge, the contention of Mobil was set out in a letter dated 15 May 1987 addressed to
the Commissioner of Internal Revenue by Mobil's A.L. Baldoza, Manager-Accounting, in the following
terms:
Reference is your OMTD Demand No. OP-008-87 dated April 24, 1987.
Please be advised that of the total demanded amount of P1,631,819.70 we are herewith
paying by May 15, 1987 the additional
ad valorem tax assessment of P1,305,455.76 in compliance with BOE Resolution Nos.
87-02 and 87-03 dated February 7, 1987 and March 16, 1987, respectively. We feel that
the 25% surcharge that you are including in your demand is arbitrary and unfair.
We did not pay the additional ad valorem tax within 15 days of removal of the products
made subject to the tax as required by Sec. 110, Tax Code, as amended, because the
adjustment in the tax base resulting from the adjustment of the posted price under the
BOE Resolutions dated Feb. 7, 1987 and March 16, 1987 were post facto or retroactive
to January 1, 1987. At the time the excise tax or ad valorem tax on the products were due
(which was 15 days after removal of the products), the additional tax base was not yet in
existence, hence we could not pay the appropriate tax due per said BOE Resolution.

Therefore, to require us to pay the 25% surcharge for payment beyond the 15-day period
required in said Sec. 110, Tax Code, as amended, would be unfair and arbitrary.
We, therefore, request, by this letter, that you delete the 25% penalty charge in your
OMTD Demand No. OP-008-87 dated April 24, 1987, which we received on May 4, 1987.
7

8

The Commissioner, in a subsequent letter of 13 July 1987, rejected the protest and reiterated the
demand for the twenty-five percent (25%) surcharge. In this letter, the Commissioner stated that the dates
of the two (2) BOE Resolutions were "by inference the date of removal of the products from the place of
production mentioned in Section 110 [1977 Tax Code, as amended]." The Commissioner recalled that
before the BOE issued any resolution increasing the cost recovery of oil companies, the BOE invariably
held public hearings on the applications for price increases by the oil companies, and that at these
hearings,
[i]n arriving at a certain rate, it is the group of oil companies that provide the BOE, among
others, with figures used as basis in analyzing the correctness of the [application],
amount of oil company recovery to be added to the current oil company take in arriving at
the posted price, increases in cost of material, cost of manufacturing, sales profits, and
so forth.
Conceiving the above pictures of the process, it becomes unbelievable that you are not
aware of the existence of the posted price of any particular oil product and the period to
be covered by the increase of said particular products, as well as the date of issuance of
the resolution of which you are presumably informed in the course of the hearings as one
of the petitioners. . . . (Emphasis supplied)
Mobil went to the Court of Tax Appeals on a Petition for Review assailing the assessment of the twentyfive percent (25%) surcharge by the BIR. On 31 May 1991, the CTA rendered judgment sustaining the
position taken by the BIR that the date of the promulgation of the BOE Resolutions was to be deemed the
date of the removal of the petroleum products involved, considering that "the liability for the additional ad
valorem taxes arose as a consequence of the promulgation of aforesaid BOE Resolutions and was
determinable only at that time." Mobil's Petition was accordingly dismissed.
Still dissatisfied, Mobil went before the Court of Appeals on Petition for Review. In due course of time, the
Court of Appeals rendered a decision which reversed the CTA judgment. The Court of Appeals rejected
the position of the BIR which had been sustained by the CTA that the date of payment of the adjusted or
additional ad valorem taxes should be fifteen (15) days from the dates of the BOE Resolutions, such
dates being deemed to be the dates of removal of the covered product from the petroleum refinery. The
reasoning of the Court of Appeals is set out in the following paragraphs:
A surcharge is an amount imposed by law as an addition to the main tax in case of
delinquency. Section 282 of the 1987 Tax Code [should be 1977 Tax Code, as amended]
provides that a penalty equivalent to 25% of the amount due shall be imposed in case of
failure to pay the tax within the time prescribed for its payment, among others. In other
words, they are imposed in case of delay in the payment of the tax due.
In the case at bar, the petitioner is not guilty of delay in the payment of the adjusted
exercise tax for the reason that there was no period specified in the Resolutions for the
payment of the said taxes. One cannot incur in delay when there is no period fixed for
payment.
The petitioner also did not incur in delay since the exercise taxes due on the withdrawals
it made in the months of January, February, and March, previous to the effectivity of the

Resolutions in question where duly paid. As regards the adjusted ad valorem tax, the
petitioner likewise paid the same after demand was made by respondent.
The period provided for in the Tax Code cannot be made to apply in the case of the
adjusted taxes which were made retroactive to January 1, and March 1, 1987 for the
reason that such period refers to the "actual" removal of the products. In this case, the
fifteen day period from the actual removal of the petroleum products had already elapsed
even prior to the issuance of the resolutions aforementioned. Respondent Commissioner
claims the date of the Resolutions to be, by inference, the date of removal of the products
(Attachment B, Petition). It is however the established rule in the interpretation of tax
statutes not to extend their provisions by implication (Marinduque Iron Mines v. Municipal
Council of Hinabangan, et al., 11 SCRA 416), beyond the clear import of the language
employed, or to enlarge their scope as to include matters which are not specifically
pointed out. . . .
xxx xxx xxx

9

(Emphasis partly in the original and partly supplied) (Brackets supplied)
The issue now raised by the BIR before this Court is the same issue presented by Mobil to the CTA and
the Court of Appeals: whether or not Mobil was correctly held liable for the twenty-five percent (25%)
surcharge for late payment of additional ad valorem taxes which became due by reason of the operation
of the two (2) BOE Resolutions here involved.
We consider that the Court of Appeals fell into reversible error when it rejected the twenty-five percent
(25%) surcharge assessed against private respondent Mobil.
The first point that should be made is that the problem presently before this Court is an exceptional
problem and should not, in the normal course of events, arise at all. The normal course of events in
respect of excise taxes of petroleum products may be summed up summarily in the following terms.
There are two (2) kinds of excise taxes imposed in respect of the manufacture or production of the
10
particular kinds of petroleum products covered by BOE Resolutions Nos. 87-02 and 87-03. The first
type of excise tax, which is referred to as "specific tax" is "imposed and based on weight or volume
capacity or any other physical unit of measurement;" the second type of excise tax imposed on the
manufacture of petroleum products is "based on selling price or other specified value of the article" and is
11
referred to as "ad valorem tax." More specifically, the "specific tax" on petroleum products is computed
on a per liter basis; the ad valorem tax, in contrast, was computed on the "wholesale posted price, net of
specific and domestic ad valorem taxes on the oil products as approved by the Board of Energy [now
12
ERB]."
The time prescribed for payment of both kinds of excise taxes imposed upon petroleum products was
specified in Section 110 of the 1977 Tax Code, as amended, in the following manner:
Sec. 110. Payment of excise taxes on domestic products. — (a) Persons liable; time for
payment. — Unless otherwise especially allowed, excise taxes on domestic products
shall be paid by the manufacturer or producer before removal from the place of
productions; Provided, however, That excise tax on locally manufactured petroleum
products levied under Section 128 of this Title shall be paid within fifteen (15) days from
the date of removal thereof from the place of production. Should domestic products be
removed from the place of production without the payment of the tax, the owner or
person having possession thereof shall be liable for the tax due thereon.
xxx xxx xxx

13

(Emphasis supplied)
The above paragraph of Section 110 should be read in conjunction with the following provisions of
Section 128 of the same Code:
Sec. 128. Manufactured Oils and Other Fuels. — There shall be collected on refined and
manufactured mineral oils and motor fuels, the following excise taxes which shall attach
14
to the articles hereunder enumerated as soon as they are in existence as such: . . .
(Emphasis supplied)
Reading Section 128 and Section 110 together, it will be seen that domestically refined and manufactured
mineral oils and motor fuels become subject to excise taxes as soon as they come into existence as
such. In respect of most other kinds of articles also subject to excise taxes, the excise taxes are payable
by the manufacturer or producer even before removal from the place of production. In the case of locally
manufactured petroleum products, however, the manufacturer is given what is in effect a fifteen (15)-day
grace period: those excise taxes must be paid within fifteen (15) days from the date of removal of the
petroleum product from the place of production. Specific taxes on petroleum products are simply
computed on the basis of a given number of pesos or centavos per liter or other relevant unit of physical
measurement. Upon the other hand, as already noted, the ad valorem tax on petroleum products was
calculated on the basis of the wholesale posted price at the time of removal from the refinery. As we
understand it, such wholesale posted price was a known or determinable quantity, it being fixed by the
BOE upon consideration of a number of factors such as the landed cost of the raw material (i.e., crude
oil), cost of manufacturing, etc.
The exceptional situation presently before this Court arose because the cost recovery of oil companies
was allowed to increase, and the wholesale posted price correspondingly allowed to adjust upward, not
only in respect of petroleum products removed from the refinery after the date of promulgation of the
relevant BOE Resolution, but also in respect of product removed sometime before the actual
promulgation of such Resolution. In other words, the giving of retroactive effect to the BOE Resolutions
created a problem by permitting the increase of the wholesale posted price (the tax base on which ad
valorem taxes were computed) in respect of product already previously physically removed from the
refinery but not yet sold or otherwise disposed of by the oil companies at the time of the promulgation of
the relevant BOE Resolutions.
The second point that may be stressed is that the giving of retroactive effect to BOE Resolutions Nos. 8702 and 87-03 benefited private respondent Mobil, Caltex and all the other oil companies. The recoverable
value to Mobil of product previously physically removed from the refinery but not yet disposed of at the
time of issuance of the BOE Resolutions obviously increased; Mobil could, thereafter, charge and recover
a higher peso value than the wholesale posted price existing at the time of actual or physical removal of
the product. The BIR thus correctly required the manufacturer to pay additional ad valorem taxes on the
additional amount which the manufacturer would receive from the sale of the product previously or
already removed from the place of production. Mobil did not dispute, as it could not have reasonably
disputed, its liability for such additional ad valorem taxes.
We turn to the contention of Mobil in respect of its liability for the twenty-five percent (25%) surcharge for
late payment of the additional
ad valorem taxes. It is, of course, literally true that the adjusted tax base, or the wholesale posted price as
increased by or as a result of the operation of the two (2) BOE Resolutions, did not exist fifteen (15) days
after physical removal of the product from the refinery provided such product had been physically
removed more than fifteen (15) days before the actual dates of promulgation of the two (2) BOE
Resolutions. The basic contention of Mobil may hence be seen to be that the liability to pay ad valorem
taxes accrued fifteen (15) days after physical removal of product from the oil refinery. At the time such
physical removal had been effected, the adjusted tax base, i.e., the wholesale posted price as increased
by the effects of the two (2) BOE Resolutions, did not exist and was not determinable. There was,
therefore, in Mobil's contention, no prescribed time for payment of the additional ad valorem taxes which

became due by reason of the increases in cost recovery in respect of product withdrawn from the refinery
during the period of the retroactive application of the two (2) BOE Resolutions. If there was no prescribed
time for payment, it followed, as a matter of strict logic (in the mind of Mobil and the Court of Appeals),
that no liability for delay in payment of such additional ad valorem taxes could arise.
The principal difficulty with the basic contention of Mobil is that it proves too much. If that contention were
taken literally and seriously, the additional ad valorem taxes on the previously withdrawn petroleum
products would be payable only when it would please Mobil to pay such taxes. We consider such a result
to be absurd; it is certainly repugnant to public policy, for the additional ad valorem taxes were clearly due
on the additional value undeniably accruing to Mobil's benefit in respect of previously withdrawn product
but not yet disposed of by the time the increase in cost recovery of oil companies was authorized by the
BOE Resolutions.
As noted earlier, petroleum products become subject to excise taxes the moment they come to existence.
It may also be noted that Section 110 which prescribed the time for payment of excise taxes on locally
manufactured petroleum product did not condition liability for such excise taxes upon the existence of any
particular wholesale posted price. The legal liability to pay the excise taxes arose as soon as the relevant
petroleum product came into chemical existence; that liability was, however, unliquidated until the product
was withdrawn and the volume of withdrawal determined, and until the relevant wholesale posted price
was determined. Thus, if Section 110 were to be read as literally and strictly as the Court of Appeals and
Mobil believe it should, then the BIR would have been quite justified in computing the period of delay or
default from the time of actual physical removal of the product involved, upon the theory that the
liquidation of the amount of ad valorem taxes due retroacts to the time of physical removal of the product
15
from the refinery. But the BIR did not do so; instead, it considered, as already seen, the product as
having been constructively removed from the refinery only on the dates of promulgation of the two (2)
BOE Resolutions and counted the statutory fifteen (15) day-grace period from such dates.
Thus, the BIR considered the impracticability of computing the full or adjusted ad valorem taxes in this
case as constituting a justification or excuse for deferring payment of such additional ad valorem taxes.
That justification disappeared as soon as the BOE Resolutions were issued and the increased wholesale
posted prices were determined. We are unable to characterize the position of the BIR as merely
capricious or oppressive; to the contrary, such position appears to this Court as reasonable and moderate
and as close to the intent of Sections 110 and 128, 1977 Tax Code, as it was possible to get under the
situation.
It may well be that the BIR could have gone the full length or course apparently suggested by gentle
reason on this matter, that is, the previously physically withdrawn product could have been regarded as
constructively removed on the date that the oil companies received copies of the official texts of the two
(2) BOE Resolutions. In this connection, we understand the letter (quoted above) dated 24 April 1987 of
the then Commissioner of Internal Revenue Bienvenido A. Tan, Jr. to be saying that at all events, the oil
companies had actual knowledge of the increase in wholesale posted prices resulting from the
authorization of increased cost recovery for the oil companies. The Court notes, however, that whether
the fifteen (15) day grace period for payment be computed from the dates of promulgation of the two (2)
BOE Resolutions, or from the date of actual receipt of a copy of those two (2) BOE Resolutions (which
date may realistically have differed from oil company to oil company), private respondent Mobil paid the
additional ad valorem taxes due after expiration of such fifteen (15) day period. Mobil was, in other words,
late in any case in effecting payment of the additional ad valorem taxes. Mobil paid the additional ad
valorem taxes arising as a result of BOE Resolution No. 87-02 on 12 March 1987, or thirty-one (31) days
after receipt of a copy of that BOE Resolution. Mobil paid the additional ad valorem taxes arising as a
result of BOE Resolution No. 87-03 on 15 May 1987, or fifty-nine (59) days after receipt of a copy of BOE
Resolution No. 87-03.
WHEREFORE, for all the foregoing, the Petition for Review is GRANTED DUE COURSE, the Comment
of private respondent Mobil CONSIDERED as its Answer to the Petition and the challenged Decision of

the Court of Appeals is hereby REVERSED, and the Decision of the Court of Tax Appeals dated 31 May
1991 AFFIRMED. No pronouncement as to costs.
SO ORDERED

G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE
DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.
Damasing Law Office for petitioner.

MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by
1
respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization.

Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members,
individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The
petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991,
which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b)
of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or
distribution.
Respondents represent departments of the executive branch of government charged with the generation
of funds and the assessment, levy and collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added
tax:
(a) Sale of nonfood agricultural, marine and forest products in their original state by the
primary producer or the owner of the land where the same are produced;
(b) Sale or importation in their original state of agricultural and marine food products,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption, and breeding stock and genetic material therefor;
Under §103(a), as above quoted, the sale of agricultural non-food products in their original state is
exempt from VAT only if the sale is made by the primary producer or owner of the land from which the
same are produced. The sale made by any other person or entity, like a trader or dealer, is not exempt
from the tax. On the other hand, under §103(b) the sale of agricultural food products in their original state
is exempt from VAT at all stages of production or distribution regardless of who the seller is.
The question is whether copra is an agricultural food or non-food product for purposes of this provision of
the NIRC. On June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in
question, classifying copra as an agricultural non-food product and declaring it "exempt from VAT only if
2
the sale is made by the primary producer pursuant to Section 103(a) of the Tax Code, as amended."
The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when
copra was classified as an agricultural food product under §103(b) of the NIRC. Petitioner challenges
RMC No. 47-91 on various grounds, which will be presently discussed although not in the order raised in
the petition for prohibition.

First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR
is the competent government agency to determine the proper classification of food products. Petitioner
cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be
considered "food" because it is produced from coconut which is food and 80% of coconut products are
edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged
with the implementation and interpretation of the tax laws, is entitled to great respect.
We agree with respondents. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal
Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly
construed against the taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said that his
classification of copra as food was based on "the broader definition of food which includes agricultural
commodities and other components used in the manufacture/processing of food." The full text of his letter
reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication made by this Office about copra in a letter
dated 05 December 1990 stating that copra is not classified as food. The statement was
made in the context of BFAD's regulatory responsibilities which focus mainly on foods
that are processed and packaged, and thereby copra is not covered.
However, in the broader definition of food which include agricultural commodities and
other components used in the manufacture/ processing of food, it is our opinion that
copra should be classified as an agricultural food product since copra is produced from
coconut meat which is food and based on available information, more than 80% of
products derived from copra are edible products.
Very
truly
yours,
QUINTI
N L.
KINTA
NAR,
M.D.,
Ph.D.
Director
Assista
nt
Secreta
ry of
Health
for
Standar

ds and
Regulat
ions
Moreover, as the government agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to
great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his
power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws, including rulings on the classification of articles for sales tax and
similar purposes."
Second. Petitioner complains that it was denied due process because it was not heard before the ruling
3
was made. There is a distinction in administrative law between legislative rules and interpretative rules.
There would be force in petitioner's argument if the circular in question were in the nature of a legislative
rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of subordinate legislation, designed
to implement a primary legislation by providing the details thereof. In the same way that laws must have
the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be
hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency shall, as far as
practicable, publish or circulate notices of proposed rules and afford interested parties the
opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2) weeks
before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.

4

5

In addition such rule must be published. On the other hand, interpretative rules are designed to provide
guidelines to the law which the administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is
within the delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it
was issued pursuant to proper procedure. But the court is not free to substitute its judgment as to the
desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has
committed those questions to administrative judgments and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a
matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to
the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree
6
of authoritative weight to the interpretative rule.
In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering
copra as an "agricultural food product" within the meaning of § 103(b) of the NIRC. As the Solicitor
General contends, "copra per se is not food, that is, it is not intended for human consumption. Simply
stated, nobody eats copra for food." That previous Commissioners considered it so, is not reason for
holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by
7
the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the
interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection
clause of the Constitution because while coconut farmers and copra producers are exempt, traders and

dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy
tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference between coconut farmers and
copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and
sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of
8
persons so long as there is a reasonable basis for classifying them differently.
It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC, they are subject to 10%
VAT on the sale of services. Under § 104 of the Tax Code, they are allowed to credit the input tax on the
sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by the copra
producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit
the input tax on the sale of copra by other traders and dealers, but there is no tax credit if the sale is
made by the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would
be forced to buy copra from coconut farmers who are exempt from the VAT and that to the extent that
prices are reduced the government would lose revenues as the 10% tax base is correspondingly
diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the
primary producer or owner of the land from which the same is produced, but in the case of agricultural
food products their sale in their original state is exempt at all stages of production or distribution. At any
rate, the argument that the classification of copra as agricultural non-food product is counterproductive is
a question of wisdom or policy which should be addressed to respondent officials and to Congress.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.

G.R. No. 104151 March 10, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX APPEALS,
respondents.
G.R No. 105563 March 10, 1995
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari
separately filed by the Commissioner of Internal Revenue in G.R. No.
104151, and by Atlas Consolidated Mining and Development Corporation
in G.R. No. 105563, which respectively seek the aside of the judgments
of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated
on February 12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on
May 22, 1992. 2
Atlas Consolidated Mining and Development Corporation (herein also
referred to as ACMDC) is a domestic corporation which owns and
operates a mining concession at Toledo City, Cebu, the products of
which are exported to Japan and other foreign countries. On April 9,
1980, the Commissioner of Internal Revenue (also Commissioner, for
brevity), acting on the basis of the report of the examiners of the Bureau
of Internal Revenue (BIR), caused the service of an assessment notice
and demand for payment of the amount of P12,391,070.51 representing
deficiency ad valorem percentage and fixed taxes, including increments,
for the taxable year 1975 against ACMDC. 3
Likewise, on the basis. of the BIR examiner's report in another
investigation separately conducted, the Commissioner had another
assessment notice, with a demand for payment of the amount of
P13,531,466.80 representing the 1976 deficiency ad valorem and
business taxes with P5,000.00 compromise penalty, served on ACMDC
on September 23, 1980. 4
ACMDC protested both assessments but the. same were denied, hence
it filed two separate petitions for review in the Court of Tax Appeals
(also, tax court) where they were docketed as C.T.A. Cases Nos. 3467
and 3825. These two cases, being substantially identical in most

respects except for the taxable periods and the amounts involved, were
eventually consolidated.
On May 31, 1991, the Court of Tax Appeals rendered a consolidated
decision holding, inter alia, that ACMDC was not liable for deficiency ad
valorem taxes on copper and silver for 1975 and 1976 in the respective
amounts of P11,276,540.79 and P12,882,760.80 thereby effectively
sustaining the theory of ACMDC that in computing the ad valorem tax on
copper mineral, the refining and smelting charges should be deducted,
in addition to freight and insurance charges, from the London Metal
Exchange (LME) price of manufactured copper.
However, the tax court held ACMDC liable for the amount of
P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late
payment of the ad valorem tax and late filing of notice of removal of
silver, gold and pyrite extracted during certain periods, and for alleged
deficiency manufacturer's sales tax and contractor's tax.
The particulars of the reduced amount of said tax obligation is
enumerated in detail in the dispositive portion of the questioned
judgment of the tax court, thus:
WHEREFORE, petitioner should and is hereby ORDERED to
pay the total amount of the following:
a) P297,900.39 as 25% surcharge on silver
extracted during the period November 1, 1974 to
December 31, 1975.
b) P161,027.53 as 25% surcharge on silver
extracted for the taxable year 1976.
c) P315,027.30 as 25% surcharge on gold
extracted during the period November 1, 1974 to
December 31, 1975.
d) P260,180.55 as 25% surcharge on gold during
the taxable year 1976.
e) P53,585.30 as 25% surcharge on pyrite
extracted during the period November 1, 1974 to
December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite
extracted during the taxable year 1976.
g) P316,117.53 as deficiency manufacturer's sales
tax and surcharge during the taxable year 1975;
plus 14% interest from January 21, 1976 until fully
paid as provided under Section 183 of P.D. No. 69.
h) P23,631.44 as deficiency contractor's tax and
surcharge on the lease of personal property
during the taxable year 1975; plus 14% interest
from January 21, 1976 until fully paid as provided
under Section 183 of P.D. 69.
i) P91,883.75 as deficiency contractor's tax and
surcharge on the lease of personal property
during the taxable year 1976, plus 14% interest
from April 21, 1976 until fully paid as provided
under. Section 183 of P.D. No. 69.
With costs against petitioner. 5
As a consequence, both parties elevated their respective contentions to
respondent Court of Appeals in two separate petitions for review. The
petition filed by the Commissioner, which was docketed as CA-G.R. SP
No. 25945, questioned the portion of the judgment of the tax court
deleting the ad valorem tax on copper and silver, while the appeal filed
by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that part of
the decision ordering it to pay P1,572,637.48 representing alleged
deficiency assessment.
On February 12, 1992, judgment was rendered by respondent Court of
Appeals in CA-G.R. SP No. 25945, dismissing the petition and affirming
the tax court's decision on the manner of computing the ad valorem tax.
6 Hence, the Commissioner of Internal Revenue filed a petition beforeus in G.R. No. 104151, raising the sole issue of whether or not, in
computing the ad valorem tax on copper, charges for smelting and
refining should also be deducted, in addition to freight and insurance
costs, from the price of copper concentrates.
On May 22, 1992, judgment was likewise rendered by the same
respondent court in CA-G.R. SP No. 26087, modifying the judgment of

the tax court and further reducing the tax liability of ACMDC by deleting
therefrom the following items:
(1) the award under paragraph (a) of P297,900.39 as 25%
surcharge on silver extracted during the period November 1,
1974 to December 31, 1975;
(2) the award under paragraph (c) thereof of P315,027.30 as
25% surcharge on gold extracted during the period
November 1, 1974 to December 31, 1975; and
(3) the award under paragraph (e) thereof of P53,585.30 as
24% (sic, 25%) surcharge on pyrite extracted during the
period November 1, 1974 to December 31, 1975. 7
Still not satisfied with the said judgment which had reduced its tax
liability to P906,124.49, as a final recourse ACMDC came to this Court on
a petition for review on certiorari in G.R. No. 105563, claiming that it is
not liable at all for any deficiency. tax assessments for 1975 and 1976. In
our resolution of September 1, 1993, G.R. No. 104151 was ordered
consolidated with G.R. No. 105563. 8
I. G.R No. 104151
The Commissioner of Internal Revenue claims that the Court of Appeals
and the tax court erred in allowing the deduction of refining and
smelting charges from the price of copper concentrates. It is the
contention of the Commissioner that the actual market value of the
mineral products should be the gross sales realized from copper
concentrates, deducting therefrom mining, milling, refining,
transporting, handling, marketing or any other expenses. He submits
that the phrase "or any other expenses" includes smelting and refining
charges and that the law allows deductions for actual cost of ocean
freight and insurance only in instances where the minerals or mineral
products are sold or consigned abroad by the lessees or owner of the
mine under C.I.F. terms, hence it is error to allow smelting and refining
charges as deductions.
We are not persuaded by his postulation and find the arguments
adduced in support thereof untenable.

The pertinent provisions of the National Internal Revenue Code (tax
code, for facility) at the time material to this controversy, read as
follows:
Sec. 243. Ad valorem taxes on output of mineral lands not
covered by lease. — There is hereby imposed on the actual
market value of the annual gross output of the minerals
mineral products extracted or produced from all mineral
lands not covered by lease, an ad valorem tax in the amount
of two per centum of the value of the output except gold
which shall pay one and one-half per centum.
Before the minerals or mineral products are removed from
the mines, the Commissioner of Internal Revenue or his
representatives shall first be notified of such removal on a
form prescribed for the purpose. (As amended by Rep. Act
No. 6110.)
Sec. 246. Definitions of the terms "gross output," "minerals"
and "mineral products." — Disposition of royalties and ad
valorem taxes. The term "gross output" shall be interpreted
as the actual market value of minerals or mineral products, or
of bullion from each mine or mineral lands operated as a
separate entity without any deduction from mining, milling,
refining, transporting, handling, marketing, or any other
expenses: Provided, however, That if the minerals or mineral
products are sold or consigned. abroad by the lessee or
owner of the mine under C.I.F. terms, the actual cost of ocean
freight and insurance shall be deducted. The output of any
group of contiguous mining claim shall not be subdivided.
The word "minerals" shall mean all inorganic substances
found in nature whether in solid, liquid, gaseous, or any
intermediate state. The term "mineral products" shall mean
things produced by the lessee, concessionaire or owner of
mineral lands, at least eighty per cent of which things must
be minerals extracted by such lessee, concessionaire, or
owner of mineral lands. Ten per centum of the royalties and
ad valorem taxes herein provided shall accrue to the
municipality and ten per centum to the province where themines are situated, and eighty per centum to the National
Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by
Rep. Act No. 1510, approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2%
is imposed on the actual market value of the annual gross output of the
minerals or mineral products extracted or produced from all mineral
lands not covered by lease. In computing the tax, the term "gross
output" shall be the actual market value of minerals or mineral products,
or of bullion from each mine or mineral lands operated as a separate
entity, without any deduction for mining, milling, refining, transporting,
handling, marketing or any other expenses. If the minerals or mineral
products are sold or consigned abroad by the lessee or owner of the
mine under C.I.F. terms, the actual cost of ocean freight and insurance
shall be deducted.
In other words, the assessment shall be based, not upon the cost of
production or extraction of said minerals or mineral products, but on the
price which the same — before or without undergoing a process of
manufacture — would command in the ordinary course of business. 9
In the instant case, the allowance by the tax court of smelting and
refining charges as deductions is not contrary to the above-mentioned
provisions of the tax code which ostensibly prohibit any form of
deduction except freight and insurance charges. A review of the records
will show that it was the London Metal Exchange price on wire bar which
was used as tax base by ACMDC for purposes of the 2% ad valorem tax
on copper concentrates since there was no available market price
quotation in the commodity exchange or markets of the world for copper
concentrates nor was there any market quotation locally obtainable. 10
Hence, the charges for smelting and refining were assessed not on the
basis of the price of the copper extracted at the mine site which is
prohibited by law, but on the basis of the actual market value of the
manufactured copper which in this case is the price quoted for copper
wire bar by the London Metal Exchange.
The issue of whether the ad valorem tax should be based upon the value
of the finished product, or the value upon extraction of the raw materials
or minerals used in the manufacture of said finished products, has been
passed upon by us in several cases wherein we held that the ad valorem
tax is to be computed on the basis of the market value of the mineral in
its condition at the time of such removal and before it undergoes a
chemical change through manufacturing process, as distinguished from
a purely physical process which does not necessarily involve the
change or transformation of the raw material into a composite distinct
product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of
Internal Revenue, 12 this Court ruled:
. . . ad valorem tax is a tax not on the minerals, but upon the
privilege of severing or extracting the same from the earth,
the government's right to exact the said impost springing
from the Regalian theory of State ownership of its natural
resources.
. . . While cement is composed of 80% minerals, it is not
merely an admixture or blending of raw materials, as lime,
silica, shale and others. It is the result of a definite the
crushing of minerals, grinding, mixing, calcining, cooling,
adding of retarder or raw gypsum. In short, before cement
reaches its saleable form, the minerals had already
undergone a chemical change through manufacturing
process, This could not have been the state of mineral
products' that the law contemplates for purposes of
imposing the ad valorem tax. . . . this tax is imposed on the
privilege of extracting or severing the minerals from the
mines. To our minds, therefore the inclusion of the term
mineral products is intended to comprehend cases where the
mined or quarried elements may not be usable in its original
state without application of simple treatments . . . which
process does not necessarily involve the change or
transformation of the raw materials into a composite, distinct
product. . . . While the selling price of cement may reflect the
actual market value of cement, said selling price cannot be
taken as the market value also of the minerals composing the
cement. And it was not the cement that was mined, only the
minerals composing the finished product.
This view was subsequently affirmed in the resolution of the Court
denying the motion for reconsideration of its aforesaid decision, 13
reiterated that the pertinent part of which reiterated that —
. . . the ad valorem tax in question should be based on the
actual market value of the quarried minerals used in
producing cement, . . . the law intended to impose the ad
valorem tax upon the market value of the component mineral
products in their original state before processing into
cement. . . . the law does not impose a tax on cement qua

cement, but on mineral products at least 80% of which must
be minerals extracted by the lessee, concessionaire or owner
of mineral lands.
The Court did not, and could not, rule that cement is a
manufactured product subject to sales tax, for the reason
that such liability had never been litigated by the parties.
What it did declare is that, while cement is a mineral product,
it is no longer in the state or condition contemplated by the
law; hence the market value of the cement could not be the
basis for computing the ad valorem tax, since the ad valorem
tax is a severance tax i.e., a charge upon the privilege of
severing or extracting minerals from the earth, (Dec. p. 4) and
is due and payable upon removal of the mineral product from
its bed or mine (Tax Code s. 245).
Therefore, the imposable ad valorem tax should be based on the selling
price of the quarried minerals, which is its actual market value, and not
on the price of the manufactured product. If the market value chosen for
the reckoning is the value of the manufactured. or finished product, as
in the case at bar, then all expenses of processing or manufacturing
should be deducted in order to approximate as closely as is humanly
possible the actual market value of the raw mineral at the mine site.
It was copper ore that was extracted by ACMDC from its mine site which,
through a simple physical process of removing impurities therefrom,
was converted into copper concentrate In turn, this copper concentrate
underwent the process of smelting and refining, and the finished
product is called copper cathode or copper wire bar.
The copper wire bar is the manufactured copper. It is not the mineral
extracted from the mine site nor can it be considered a mineral product
since it has undergone a manufacturing process, to wit:
I. The physical process involved in the production of copper
concentrate are the following (p. 19, BIR records; Exh. ‘H’, p.
43, Folder I of Exhibits.)
A Mining Process —
(1) Blasting — The ore body is broken
up by blasting.

(2) Loading — The ore averaging about
1/2 percent
copper is loaded into ore trucks by
electric shovels.
(3) Hauling — The trucks of ore are
hauled to the mill.
B Milling Process —
(1) Crushing — The ore is crushed to
pieces the size of peanuts.
(2) Grinding — The crushed ore is
ground to powder form.
(3) Concentrating — The mineral
bearing particles in the powdered ore
are concentrated.
The ores or rocks, transported by conveyors, are crushed
repeatedly by steel balls into size of peanuts, when they are
ground and pulverized. The powder is fed into concentrators
where it is mixed with water and other reagents. This is
known in the industry as a flotation phase. The copperbearing materials float while the non-copper materials in the
rock sink. The material that floats is scooped and dried and
piled. This is known as copper concentrate. The material at
the bottom is waste, and is known in the industry as tailings.
In Toledo City, tailings are disposed of through metal pipes
from the flotation mills to the open sea. Copper concentrate
of petitioner contains 28-31% copper. The concentrate is
loaded in ocean vessels and shipped to Mitsubishi Metal
Corporation mills in Japan, where the smelting, refining and
fabricating processes are done. (Memorandum of petitioner,
p. 71, CTA records.)
II. The chemical or manufacturing process in the production
of wire bar is as follows: (Exh. 'H', p. 43, Folder I of exhibits.)
A. Smelting —

(1) Drying — The copper concentrates (averaging
about 30 percent copper) are dried.
1. Flash Furnace — The dried concentrate is smelted
autogenously and a matte containing 65 percent is
produced.
2. Converter — The matte is converted to blister copper
with a purity of about 99 per cent.
B. Refining —
(1) Casting Wheel — Blister copper is treated in
an anode furnace where. copper requiring further
treatment is sent to the casting wheel to produce
cathode copper.
(2) Electrolytic Refining — Anode copper is
further refined by electrolytic refining to produce
cathode copper.
C. Fabricating —
(1) Rolling — Fire refined or electroly-tic copperand/or brass (a mixture Of copper and zinc) is
made into tubes, sheets, rods and wire.
(2) Extruding — Sheet tubes, rods and wire are
further fabricated into the copper articles in
everyday use.
The records show that cathodes, with purity of 99.985% are
cast or fabricated into various shapes, depending on their
industrial destination. Cathodes are metal sheets of copper 1
meter x 1 meter x 16-16 millimeter thick and 160 kilograms in
weight, although this thickness is not uniform for all the
sheets. Cathodes sheets are not suitable for direct
fabrication, hence, are further fabricated into the desired
shape, like wire bar, billets and cakes. (p. 1, deposition,
London,) Wire bars are rectangular pieces, 100 millimeter x
100 millimeter x 1.37 meters long and weigh some 125 kilos.
They are suited for copper wires and copper rods. Billets are
fabricated into tubes and heavy electric sections. Cakes are

in the form of thick sheets and strips. (pp. 13, 18-21,
deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2,
deposition, London, see pp. 70-72, CTA records.) 14
Significantly, the finding that copper wire bar is a product of a
manufacturing process finds support in the definition of a
"manufacturer" in Section 194 (x) of the aforesaid tax code which
provides:
"Manufacturer" includes every person who by physical or
chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such a manner as to prepare it for a
special use or uses to which it could not have been put in its
original condition, or who by any such process alters the
quality of any such raw material or manufactured or partially
manufactured product so as to reduce it to marketable shape
or prepare it for any of the uses of industry, or who by any
such process combines any such raw material or
manufactured or partially manufactured products with other
materials: or products of the same or different kinds and in
such manner that the finished product of such process or
manufacture can be put to a special use or uses to which
such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished
products for the purpose of their sale or distribution to
others and not for his own use or consumption.
Moreover, it is also worth noting at this point that the decision of the tax
court was based on its previous ruling in the case of Atlas Consolidated
Mining and Development Corporation vs. Commissioner of Internal
Revenue, 15 dated January 23, 1981, which we quote with approval:
. . . The controlling law is clear and specific; it should
therefore be applied as Since the mineral or mineral product
removed from its bed or mine at Toledo City by petitioner is
copper concentrate as admitted by respondent himself, not
copper wire bar, the actual market value of such copper
concentrate in its condition at the time of such removal
without any deduction from mining, milling, refining,
transporting, handling, marketing, or any other expenses
should be the basis of the 2% ad valorem tax.

The conclusion reached is rendered clearer when it is taken
into consideration that the ad valorem tax is a severance tax,
a charge upon the privilege of severing or extracting
minerals from the earth, and is due and payable upon
removal of the mineral product from its bed or mine, the tax
being computed on the basis of the market value of the
mineral in its condition at the time of such removal and
before its being substantially changed by chemical or
manufacturing (as distinguished from purely physical)
processing. (Cebu Portland Cement Co. vs. Commissioner of
Internal Revenue, supra.) Copper wire bars, as discussed
above,, have already undergone chemical or manufacturing
processing in Japan, they are not extracted or produced from
the earth by petitioner in its mine site at Toledo City. Since
the ad valorem tax is computed on the basis of the actual
market value of the mineral in its condition at the time of its
removal from the earth, which in this case is copper
concentrate, there is no basis therefore for an assertion that
such tax should be measured on the basis of the London
Metal Exchange price quotation of the manufactured wire
bars without any deduction of smelting and refining charges.
In resume:
1. The mineral or mineral product of petitioner the
extraction or severance from the soil. of which the
ad valorem tax is directed is copper concentrate.
2. The ad valorem tax is computed on the basis of
the actual market value of the copper concentrate
in its condition at the time of removal from the
earth and before substantially changed by
chemical or manufacturing process without any
deduction milling, refining, from mining,
transporting, handling, marketing, or any other
expenses. However, since the copper concentrate
is sold abroad by petitioner under C.I.F. terms, the
actual cost of ocean freight and insurance is
deductible.
3. There being no market price quotation of
copper concentrate locally or in the commodity

exchanges or markets of the world, the London
Metal Exchange price quotation of copper wire
bar, which is used by petitioner and Mitsubishi
Metal Corporation as reference to determine the
selling price of copper concentrate, may likewise
be employed in this case as reference point in
ascertaining the actual market value of copper
concentrate for ad valorem tax purposes. By
deducting from the London Metal Exchange price
quotation of copper wire bar all charges and costs
incurred after the copper concentrate has been
shipped from Toledo City to the time the same
has been manufactured into wire bar, namely,
smelting, electrolytic refining and fabricating, the
remainder represents to a reasonable degree the
actual market value of the copper concentrate in
its condition at the time of extraction or removal
from its bed in Toledo City for the purposes of the
ad valorem tax.
The Commissioner of Internal Revenue argues that the ruling in the case
above stated is not binding, considering that the incumbent
Commissioner of Internal Revenue is not bound by decisions or rulings
of his predecessor when he finds that a different construction of the law
should be adopted, invoking therefor the doctrine enunciated in Hilado
vs. Collector of internal Revenue, et a1, 16 This trenches on specious
reasoning. What was involved in the Hilado case was a previous ruling
of a former Commissioner of Internal Revenue. In the case at bar, the
Commissioner based his findings on a previous decision rendered by
the Court of Tax Appeals itself.
The Court of Tax Appeals is not a mere superior administrative agency
or tribunal but is a part of the judicial system of the Philippines. 17 It
was created by Congress pursuant to Republic Act No. 1125, effective
June 16, 1954, as a centralized court specializing in tax cases. It is a
regular court vested with exclusive appellate jurisdiction over cases
arising under the National Internal Revenue Code, the Tariff and
Customs Code, and the Assessment Law. 18
Although only the decisions of the Supreme Court establish
jurisprudence or doctrines in this jurisdiction, nonetheless the decisions
of subordinate courts have a persuasive effect and may serve as judicial

guides. It is even possible that such a conclusion or pronouncement can
be raised to the status of a doctrine if, after it has been subjected to test
in the crucible of analysis and revision the Supreme Court should find
that it has merits and qualities sufficient for its consecration as a rule of
jurisprudence. 19
Furthermore, as a matter of practice and principle, the Supreme Court
will not set aside the conclusion reached by an agency such as the
Court of Tax Appeals, which is, by the very nature of its function,
dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject, unless there
has been an abuse or improvident exercise of authority on its part. 20
II. G.R. No. 105563
The petition herein raises the following issues for resolution:
A. Whether or not petitioner is liable for payment,
of the 25% surcharge for alleged late filing of
notice of removal/late payment of the ad valorem
tax on silver, gold and pyrite extracted during the
taxable year 1976.
B. Whether or not petitioner is liable for payment
of the manufacturer' s sales tax and surcharge
during the taxable year 1975, plus interest, on
grinding steel balls borrowed by its competitor;
and
C. 'Whether or not petitioner is liable for payment
of the contractor's tax and surcharge on the
alleged lease of personal property during the
taxable years 1975 and 1976 plus interest. 21
A. Surcharge on Silver, Gold and Pyrite
ACMDC argues that the Court of Appeals erred in holding it liable to pay
25% surcharge on silver, gold and pyrite extracted by it during tax year
1976.
Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad
valorem taxes. — The royalties or ad valorem taxes as the
case may be, shall be due and payable upon the removal of
the mineral products from the locality where mined. However,
the output of the mine may be removed from such locality
without the pre-payment of such royalties or ad valorem
taxes if the lessee, owner, or operator shall file a bond in the
form and amount and with such sureties as the
Commissioner of Internal Revenue may require,. conditioned
upon the payment of such royalties or ad valorem taxes, in
which case it shall be the duty of every lessee, owner, or
operator of a mine to make a true and complete return in
duplicate under oath setting forth the quantity and the actual
market value of the output of his mine removed during each
calendar quarter and pay the royalties or ad valorem taxes
due thereon within twenty days after the close of said
quarter.
In case the royalties or ad valorem taxes are not paid within
the period prescribed above, there shall be added thereto a
surcharge of twenty-five per centum. Where a false or
fraudulent return is made, there shall be added to the
royalties or ad valorem taxes a surcharge of fifty per centum
of their amount. The surcharge So, added: shall be collected
in the same manner and as part of the royalties or ad valorem
taxes, as the case may be.
Under the aforesaid provision, the payment of the ad valorem tax shall
be made upon removal of the mineral products from the mine site or if
payment cannot be made, by filing a bond in the form and amount to be
approved by the Commissioner conditioned upon the payment of the
said tax.
In the instant case, the records show that the payment of the ad valorem
tax on gold, silver and pyrite was belatedly made. ACMDC, however,
maintains that it should not be required to pay the 25% surcharge
because the correct quantity of gold and silver could be determined only
after the copper concentrates had gone through the process of smelting
and refining in Japan while the amount of pyrite cannot be determined
until after the flotation process separating the copper mineral from the
waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for
the imposition of the 25% surcharge for late payment of the ad valorem
tax. Hence,

MISSING PAGE 19
Q. Now, what do
you do with the
result of your
analysis?
A. These are
tabulated and then
averaged out to
represent one
shipment.
Q. Will you tell this
Honorable Court
whether in that

laboratory testing
you physically
separate the gold,
you physically
separate the silver
and you physically
separate the
copper content of
that 40 to 50
kilos?
A. No, no, we
analyze this in one
sample. This
sample is
analyzed for gold,

silver, and copper,
but there is no
recovery made.
Q. You mean there
is no physical
separation?
A. No, no physical
separation.
Q. So these three
minerals —
copper, gold and
silver — are in that
same powder that
you have tested?

A Yes, it is in the
same powder.
Q. Now how do
you reflect the
results of the
testing?
A. You mean in
analysis?
Q. In the analysis,
yes.
A. Copper is
reported in
percent.

Q. Percentage?
A. Yes.
Q. How about
gold?
A. Gold and silver
part is
represented as
grams per dmt or
parts per million.
Q. Based on the
results of your
data gathered in
the laboratory?

A. Yes.
Q. Now where do
you submit the
results of the
laboratory
testing?
A When a
shipment is made
we prepare a
certificate of
analysis signed by
me and then
which (sic) is sent
to Manila.

Q. Now, as far as
you know in
connection with
your duty do you
know what Manila
what do you say,
Manila, ACMDC?
A. Makati.
Q. Makati. What
does Makati
ACMDC do with
your assay
report?

A. As far as I know
it is used as the
basis for the
payment of ad
valorem tax. 24
The above-quoted testimony accordingly supports these findings of the
tax court in its decision in this case:
We see it (sic) that even if the silver and gold cannot as yet
be physically separated from the copper concentrate until the
process of smelting and refining was completed, the
estimated commercial quantity of the silver and gold could
have been determined in much the same way that petitioner
is able to estimate the commercial quantity of copper during
the assay. If, as stated by petitioner, it is able to estimate the
grade of the copper ore, and it has determined the grade not
only of the copper but also those of the gold and silver
during the assay (Petitioner's Memorandum, p. 207, Record),
ergo, the estimated commercial quantity of the silver and
gold subject to ad valorem tax could have also been
determined and provisionally paid as for copper. 25
The other allegation of ACMDC is that there was no removal of pyrite
from the mine site because the pyrite was delivered to its sister
company, Atlas Fertilizer Corporation, whose plant is located inside the
mineral concession of ACMDC in Sangi, Toledo City. ACMDC, however,
is already barred by estoppel in pais from putting that matter in issue.
An ad valorem tax on pyrite for the same tax year was already declared
and paid by ACMDC. In fact, that payment was used as the basis for
computing the 25% surcharge. It was only when ACMDC was assessed
for the 25% surcharge that said issue was raised by it. Also, the

evidence shows that deliveries of pyrite were not exclusively made to its
sister company, Atlas Fertilizer Corporation. There were shipments of
pyrite to other companies located outside of its mine site, in addition to
those delivered to its aforesaid sister company. 26
B. Manufacturer's Tax and Contractor's Tax
The manufacturer's tax is imposed under Section 186 of the tax code
then in force which provides:
Sec. 186. Percentage tax on sales of other articles. — There
shall be levied, assessed and collected once only on every
original sale, barter, exchange, or similar transaction either
for nominal or valuable consideration, intended to transfer
ownership of, or title to, the articles not enumerated in
sections one hundred and eighty-four-A, one hundred and
eighty five, one hundred and eighty-five-A, one hundred
eighty-five-B, and one hundred eighty-six-B, a tax equivalent
to seven per centum of the gross selling price or gross value
in money of the articles so sold, bartered, exchanged, or
transferred, such tax to be paid by the manufacturer or
producer: Provided, That where the articles subject to tax
under this Section are manufactured out of materials likewise
subject to tax under this section and section one hundred
eighty-nine, the total cost of such materials, as duly
established, shall be deductible from the gross selling price
or gross value in money of such manufactured articles. (As
amended by Rep. Act No. 6110 and by Pres. Decree No. 69.)
On the other hand, the contractor's tax is provided for under Section 191
of the same code, paragraph 17 of which declares that lessors of
personal property shall be subject to a contractor's tax of 3% of the
gross receipts.
Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege
Taxes on Business and Occupation." These "privilege taxes on
business" are taxes imposed upon the privilege of engaging in
business. They are essentially excise taxes. 27 To be held liable for the
payment of a privilege tax, the person or entity must be engaged in
business, as shown by the fact that the drafters of the tax code had
purposely grouped said provisions under the general heading adverted
to above.

"To engage" is to embark on a business or to employ oneself therein.
The word "engaged" connotes more than a single act or a single
transaction; it involves some continuity of action. "To engage in
business" is uniformly construed as signifying an employment or
occupation which occupies one's time, attention, and labor for the
purpose of a livelihood or profit. The expressions "engage in business,"
"carrying on business" or "doing business" do not have different
meanings, but separately or connectedly convey the idea of
progression, continuity, or sustained activity. "Engaged in business"
means occupied or employed in business; carrying on business" does
not mean the performance of a single disconnected act, but means
conducting, prosecuting, and continuing business by performing
progressively all the acts normally incident thereto; while "doing
business" conveys the idea of business being done, not from time to
time, but all the time. 28
The foregoing notwithstanding, it has likewise been ruled that one act
may be sufficient to constitute carrying on a business according to the
intent with which the act is done. A single sale of liquor by one who
intends to continue selling is sufficient to render him liable for
"engaging in or carrying on" the business of a liquor dealer. 29
There may be a business without any sequence of acts, for if an isolated
transaction, which if repeated would be a transaction in a business, is
proved to have been undertaken with the intent that it should be the first
of several transactions, that is, with the intent of carrying on a business,
then it is a first transaction in an existing business. 30
Thus, where the end sought is to make a profit, the act constitutes
"doing- business." This is not without basis. The term "business," as
used in the law imposing a license tax on business, trades, and so forth,
ordinarily means business in the trade or commercial sense only,
carried on with a view to profit or livelihood; 31 It is thus restricted to
activities or affairs where profit is the purpose, or livelihood is the
motive. Since the term "business" is being used without any
qualification in our aforesaid tax code, it should therefore be therefore
be construed in its plain and ordinary meaning, restricted to activities
for profit or livelihood. 32
In the case at bar, ACMDC claims exemptions from the payment of
manufacturer's tax. It asserts that it is not engaged in the business of
selling grinding steel balls, but it only produces grinding steel balls

solely for its own use or consumption, However, it admits having lent its
grinding steel balls to other entities but only in very isolated cases.
After a careful review of the records and on the basis of the legal
concept of "engaging in business" hereinbefore discussed, we are
inclined to agree with ACMDC that it should not and cannot be held
liable for the payment of the manufacturer's tax.
First, under the tax code then in force, the 7% manufacturer's sales tax
is imposed on the manufacturer for every original sale, barter, exchange
and other similar transaction intended to transfer ownership of articles.
As hereinbefore quoted, and we repeat the same for facility of reference,
the term "manufacturer" is defined in the tax code as including "every
person who by physical or chemical process alters the exterior texture
or form or inner substance of any raw material or manufactured or
partially manufactured product in such manner as to prepare it for a
special use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any such raw
material or manufactured or partially manufactured product so as to
reduce it to marketable shape or prepare it for any of the uses of
industry, or who by any such process combines any such raw material
or manufactured or partially manufactured products with other materials
or products of the same or of different kinds and in such manner that
the finished product of such process or manufacture can be put to a
special use or uses to which such raw materials or manufactured or
partially manufactured products in their original condition could not
have been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines the same
to produce such finished products for the purpose of their sale or
distribution to others and not for his own use or consumption. 33
Thus, a manufacturer, in order to be subjected to the necessity of paying
the percentage tax imposed by Section 186 of the tax code, must be
'engaged' in the sale, barter or exchange of; personal property. Under a
statute which imposes a tax on persons engaged in the sale, barter or
exchange of merchandise, a person must be occupied or employed in
the sale, barter or exchange of personal property. A person can hardly
be considered as occupied or employed in the sale, barter or exchange
of personal property when he has made one purchase and sale only. 34
Second, it cannot be legally asserted, for purposes of this particular
assessment only, that ACMDC was engaged in the business of selling

grinding steel balls on the basis of the isolated transaction entered into
by it in 1975. There is no showing that said transaction was undertaken
by ACMDC with a view to gaining profit. therefrom and with the intent of
carrying on a business therein. On the contrary, what is clear for us is
that the sale was more of an accommodation to the other mining
companies, and that ACMDC was subsequently replaced by other
suppliers shortly thereafter.
This finding is strengthened by the investigation report, dated March 11,
1980, of the B.I.R. Investigation Team itself which found that —
ACMDC has a foundry shop located at Sangi, Toledo City,
and manufactures grinding steel balls for use in its ball mills
in pulverizing the minerals before they go to the
concentrators, For the grinding steel balls manufactured by
ACMDC and used in its operation, we found it not subject to
any business tax. But there were times in 1975 when other
mining companies were short of grinding steel balls and
ACMDC supplied them with these materials manufactured in
its foundry shop. According to the informant, these were
merely accommodations and they were replaced by the other
suppliers. 35
At most, whatever profit ACMDC may have realized from that single
transaction was just incidental to its primordial purpose of
accommodating other mining companies. Well-settled is the rule that
anything done as a mere incident to, or as a necessary consequence of,
the principal business is not ordinarily taxed as an independent
business in itself. 36 Where a person or corporation is engaged in a
distinct business and, as a feature thereof, in an activity merely
incidental which serves no other person or business, the incidental and
restricted activity is not considered as intended to be separately taxed.
37
In fine, on this particular aspect, we are consequently of the considered
opinion and so hold that ACMDC was not a manufacturer subject to the
percentage tax imposed by Section 186 of the tax code.
The same conclusion; however, cannot be made with respect to the
contractor's tax being imposed on ACMDC. It cannot validly claim that
the leasing out of its personal properties was merely an isolated
transaction. Its book of accounts shows that several distinct payments

were made for the use of its personal properties such as its plane, motor
boat and dump truck. 38 The series of transactions engaged in by
ACMDC for the lease of its aforesaid properties could also be deduced
from the fact that for the tax years 1975 and 1976 there were profits
earned and reported therefor. It received a rental income of P630,171.56
for tax year 39 and P2,450,218.62 for tax year 1976. 40
Considering that there was a series of transactions involved, plus the
fact that there was an apparent and protracted intention to profit from
such activities, it can be safely concluded that ACMDC was habitually
engaged in the leasing out of its plane, motor boat and dump truck, and
is perforce subject to the contractor's tax.
The allegation of ACMDC that it did not realize any profit from the
leasing out of its said personal properties, since its income therefrom
covered only the costs of operation such as salaries and fuel, is not
supported by any documentary or substantial evidence. We are not,
therefore, convinced by such disavowal.
Assessments are prima facie presumed correct and made in good faith.
Contrary to the theory of ACMDC, it is the taxpayer and not the Bureau
of Internal Revenue who has the duty of proving otherwise. It is an
elementary rule that in the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. All
presumptions are in favor of tax assessments. 41 Verily, failure to
present proof of error in assessments will justify judicial affirmance of
said assessment. 42
Finally, we deem it opportune to emphasize the oft-repeated rule that tax
statutes are to receive a reasonable construction with a view to carrying
out their purposes and intent. 43 They should not be construed as to
permit the taxpayer to easily evade the payment of the tax. 44 On this
note, and under the confluence of the weighty. considerations and
authorities earlier discussed, the challenged assessment against
ACMDC for contractor's tax must be upheld.
WHEREFORE, the impugned judgment of respondent Court of Appeals
in CA-G.R. SP No. 25945, subject of the present petition in G.R. No.
104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP
No. 26087 is hereby MODIFIED by exempting Atlas Consolidated Mining
and Development Corporation, petitioner in G.R. No. 105563 of this

Court, from the payment of manufacturer's sales tax, surcharge and
interest during the taxable year 1975.
SO ORDERED.

G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance; LIWAYWAY VINZONSCHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY
AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents.

RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all,
have been filed by the several petitioners in these cases, with the exception of the Philippine Educational Publishers Association, Inc. and
the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc., petitioner in G.R.
No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each
filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines
(PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716
did not "originate exclusively" in the House of Representatives as required by Art. VI, §24 of the Constitution. Although they admit that H. No.
11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino
adds that what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the
House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill by enacting its
own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills,
which, in consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5) YEARS TO TEN
YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the
President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the House on January 29, 1992,
and S. No. 1920, which was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE WINNING A
MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which
was approved by the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and Senate bills.
These are the following, with indications of the dates on which the laws were approved by the President and dates the separate bills of the
two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE PERTINENT
SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF THE
VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT
REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR
AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT
AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT
FOR THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED
BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS
UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP
TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23,
1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING
FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW
SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills
required to originate in the House, passed its own version of a House revenue measure. It is noteworthy that, in the particular case of S. No.
1630, petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of form. Petitioner has
not shown what substantial difference it would make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
§69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill (rider)
shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct from that
proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power than the U.S.
Senate because of textual differences between constitutional provisions giving them the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
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.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills" in the American
version, according to petitioners, shows the intention of the framers of our Constitution to restrict the Senate's power to propose amendments
to revenue bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other
bills' (sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the procedure for
lawmaking by the Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by the
National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon,
the bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the
event that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members
of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President
for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything after the first
sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No. 38, as amended by Resolution

No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by
them in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present Constitution was derived. It explains why
the word "exclusively" was added to the American text from which the framers of the Philippine Constitution borrowed and why the phrase
"as on other Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House
of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to it
by the House, however, the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction. It would seem that by
virtue of this power, the Senate can practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the United States Congress
contained provisions for the imposition of an inheritance tax . This was changed by the Senate into a corporation tax.
The amending authority of the Senate was declared by the United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more numerous
in membership and therefore also more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with amendments to
the bills initiated by the House of Representatives. Thus, in one case, a bill introduced in the U.S. House of
Representatives was changed by the Senate to make a proposed inheritance tax a corporation tax. It is also accepted
practice for the Senate to introduce what is known as an amendment by substitution, which may entirely replace the bill
initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or
concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner
Tolentino states in a high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its
language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee
bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the number of the
House bill and its other parts up to the enacting clause must be preserved although the text of the Senate amendment may be incorporated
in place of the original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a
substitute measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is an independent and
distinct bill. Hence their repeated references to its certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between the reference to S. No.
1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate
and that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the corresponding provisions of
H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition
of petitioner Tolentino, while showing differences between the two bills, at the same time indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of the House bill, H.
No. 11197 in its original form did not have to pass the Senate on second and three readings. It was enough that after it was passed on first
reading it was referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of
Representatives before the two bills could be referred to the Conference Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and Senate bill, which
became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference committee, the question was raised
whether the two bills could be the subject of such conference, considering that the bill from one house had not been passed by the other and
vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the House but not
passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never passed in the House, can
the two bills be the subject of a conference, and can a law be enacted from these two bills? I understand that the
Senate bill in this particular instance does not refer to investments in government securities, whereas the bill in the
House, which was introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks
but also investigation of investments in government securities. Now, since the two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where a conference
should be had. If the House bill had been approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the conference committee had to be
created, and we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated measures also accounts
for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately certified to the need for the immediate
enactment of these measures, his certification was ineffectual and void. The certification had to be made of the version of the same revenue
bill which at the moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as
many bills as are presented in a house of Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being considered by the House. This bill was later substituted,
together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase "except when the
President certifies to the necessity of its immediate enactment, etc." in Art. VI, §26 (2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the members three days before its passage" but also the requirement that before a bill can
become a law it must have passed "three readings on separate days." There is not only textual support for such construction but historical
basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final form
furnished its Members at least three calendar days prior to its passage, except when the President shall have certified
to the necessity of its immediate enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and printed copies thereof in its
final form have been distributed to the Members three days before its passage, except when the Prime Minister
certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a
bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its Members three days before its passage, except when
the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are required and a bill has to be
printed in final form before it can be passed, the need for a law may be rendered academic by the occurrence of the very emergency or
public calamity which it is meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines where budget
deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not make the need for R.A. No. 7716 any less
urgent or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an urgent need for
consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on second and third readings on the
same day. While the judicial department is not bound by the Senate's acceptance of the President's certification, the respect due coequal
departments of the government in matters committed to them by the Constitution and the absence of a clear showing of grave abuse of
discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six days. Only its
distribution in advance in its final printed form was actually dispensed with by holding the voting on second and third readings on the same
day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second reading and its approval
on March 24, 1994 elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of Congress of what they
must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others
interested in the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION §10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for Brotherhood, Integrity
and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public disclosure and the people's right to know (Art. II, §28
and Art. III, §7) the Conference Committee met for two days in executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the conferees and their staffs
in attendance and it was only in 1975 when a new rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were present. These were
staff members of the Senators and Congressmen, however, who may be presumed to be their confidential men, not stenographers as in this
case who on the last two days of the conference were excluded. There is no showing that the conferees themselves did not take notes of
their proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the public's right to know was fully served because the Conference Committee in this case
submitted a report showing the changes made on the differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed, sufficiently explicit
statement of the changes in or other amendments." These changes are shown in the bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what changes had been made in the original bills without the need of a statement detailing the
changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was reported by the
Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the conference committee regarding
House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the Rules of this House which provides
specifically that the conference report must be accompanied by a detailed statement of the effects of the amendment
on the bill of the House. This conference committee report is not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this provision applies
to those cases where only portions of the bill have been amended. In this case before us an entire bill is presented;
therefore, it can be easily seen from the reading of the bill what the provisions are. Besides, this procedure has been
an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the Rules, and
the reason for the requirement in the provision cited by the gentleman from Pangasinan is when there are only certain
words or phrases inserted in or deleted from the provisions of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect the bill as a whole; but when the entire bill itself is

copied verbatim in the conference report, that is not necessary. So when the reason for the Rule does not exist, the
Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld by viva voce and
when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane to the subject of
the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice
Cruz, the jurisdiction of the conference committee is not limited to resolving differences between the Senate and the House. It may propose
an entirely new provision. What is important is that its report is subsequently approved by the respective houses of Congress. This Court
ruled that it would not entertain allegations that, because new provisions had been added by the conference committee, there was thereby a
violation of the constitutional injunction that "upon the last reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the
last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not distributed
among the members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances
from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may be given instructions by their
parent bodies or they may be left without instructions. Normally the conference committees are without instructions,
and this is why they are often critically referred to as "the little legislatures." Once bills have been sent to them, the
conferees have almost unlimited authority to change the clauses of the bills and in fact sometimes introduce new
measures that were not in the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it this way: "I killed a bill on export
incentives for my interest group [copra] in the conference committee but I could not have done so anywhere else." The
conference committee submits a report to both houses, and usually it is accepted. If the report is not accepted, then the
committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference committees here
are no different from their counterparts in the United States whose vast powers we noted in Philippine Judges Association v. Prado, supra. At
all events, under Art. VI, §16(3) each house has the power "to determine the rules of its proceedings," including those of its committees. Any
meaningful change in the method and procedures of Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26 (1) of the Constitution which provides
that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties, royalties,
registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed or collected by
any municipal, city, provincial or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by §103 of the National Internal Revenue Code, which provides as
follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending §103, as follows:

§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No. 1590. It is
unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a
law that is required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to
§103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No. 7354 is entitled AN
ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision
repealing all franking privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of the law. In
holding that there was sufficient description of the subject of the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its title, but matter germane to the
subject as expressed in the title, and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in the same act the machinery by
which the act is to be enforced, to prescribe the penalties for its infraction, and to remove
obstacles in the way of its execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have special mention in the title.
(Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from the taxing power
of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging
to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A.
No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the
privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago
been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press Co.,
297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers
whose weekly circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large
papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was
found to be discriminatory because although it could have been made liable for the sales tax or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It was,
however, later made to pay a special use tax on the cost of paper and ink which made these items "the only items subject to the use tax that
were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that the
goal of regulation is not related to suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that
even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716.
Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort
to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented, continue to
enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage
agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton
seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the
Philippines) or for professional use, like professional instruments and implements, by persons coming to the Philippines
to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not
so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected
by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike.
Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are
in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of
religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of
a preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance
requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the
sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely

for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize
the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to
make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in §108 of the
NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because
it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed
this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA asserts that R.A. No. 7716
(1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule
that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property by installment
or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the plaintiffs, but
none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation,
within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person
and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense."
(La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the
rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio
R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum,
and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property
for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the
middle class, who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under
§103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the
"homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148,
153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1) which provides that "The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that
the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra;
Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of
the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA
383 (1988) on grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in
violation of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower
and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc. (CUP), while
petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because
the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes
are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton
seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the
Philippines) and or professional use, like professional instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers,
services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at retail but at
wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the law to actual contracts and exemplify its effect on property rights. For the fact is that
petitioner's members have not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would
condemn such a provision as void on its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of adjudication would result
in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give rise to such a case. A test case, provided it is
an actual case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different
from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only arise if an
actual case or controversy is before us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, §1, ¶2 can
plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by
any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a court to hear and decide cases pending
between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power. This power cannot be directly appropriated until it is apportioned among several courts
either by the Constitution, as in the case of Art. VIII, §5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906))
Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP), after briefly
surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes but
in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No.
2008 again granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the government adverse to
the interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of
strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:
§1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations,
shall be encouraged to broaden the base of their ownership.
§15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social
justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by withdrawing their
exemption from income and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business enterprises in general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, §2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by
E.O. No. 93, §1, but then again cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives
applied to all, including government and private entities. In the second place, the Constitution does not really require that cooperatives be
granted tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's
policy toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to
this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and there is no discrimination to
cooperatives, no violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to
the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the law because
electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide
cheaper electric power to as many people as possible, especially those living in the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the conclusion that the law suffers
from none of the infirmities attributed to it by petitioners and that its enactment by the other branches of the government does not constitute a
grave abuse of discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of
the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that
those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto power over
legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted.
SO ORDERED.

G.R. No. 125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975

1

2

affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 ordering it to
pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to
the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections
248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for
the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
————— ————— —————— ——————
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
————— ————— —————— ——————
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
————— ————— —————— ——————
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
————— ————— —————— ——————
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

3

========= ========= ========= =========
4

Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the
5
tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.
In a letter dated August 20, 1992,

6

In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex's position. Since these
pending claims have not yet been established or determined with certainty, it follows that no legal
compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise
7
tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. In the course
of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88
which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax
obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated" debts
are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol.
IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and
still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor
8
(see Compañia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34).

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since
9
10
claim for taxes is not a debt or contract." The dispositive portion of the CTA decision provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to
PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Section 248 and 249 of the Tax Code, as amended.
11

Nonetheless,
on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The pertinent
12
portion of which reads:
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No. 36975.

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995
is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.

13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT
input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as
14
follows:
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities

since both had already become "due and demandable, as well as fully liquidated;"
compensation can properly take place.

16

15

hence, legal

We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are not
17
creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are
due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign
18
capacity. We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,
taxes cannot be subject to set-off or compensation, thus:

19

we categorically held that

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit,

20

which reiterated

that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be
the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending
21
refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner,
is no

longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section
51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of
1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was
22
omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified.
Philex posits the theory that it had no obligation to pay the excise tax liabilities within the prescribed
23
period since, after all, it still has pending claims for VAT input credit/refund with BIR.
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law
that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
24
Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system.
Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the government which has not yet been granted. It must be
25
noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.
26
Hence, a tax does not depend upon the consent of the taxpayer. If any taxpayer can defer the payment
of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely
affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due
simply because he has a claim against the government or that the collection of the tax is contingent on
27
the result of the lawsuit it filed against the government. Moreover, Philex's theory that would
automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion

and abuse, depriving the government of authority over the manner by which taxpayers credit and offset
their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is
immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax
Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to
28
29
waive the collection thereof. The same cannot be condoned for flimsy reasons, similar to the one
advanced by Philex in justifying its non-payment of its tax liabilities.
30

Finally, Philex asserts that the BIR violated Section 106 (e) of the National Internal Revenue Code of
31
1977, which requires the refund of input taxes within 60 days, when it took five years for the latter to
32
grant its tax claim for VAT input credit/refund.
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to
33
establish the factual basis of his or her claim for tax credit or refund, however, once the claimant has
submitted all the required documents it is the function of the BIR to assess these documents with
purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government
34
render fair service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple
35
justice requires the speedy refund of wrongly-held taxes. Fair dealing and nothing less, is expected by
the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax
36
Appeals:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg" And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation.
37

Again, while we understand Philex's predicament, it must be stressed that the same is not a valid
reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can seek
38
judicial remedy before the Court of Tax Appeals in the manner prescribed by law. Second, if the
inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax
Code can also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without
just cause, to perform his official duty may file an action for damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoyed by law.

39

In no
uncertain terms must we stress that every public employee or servant must strive to render service to the
people with utmost diligence and efficiency. Insolence and delay have no place in government service.
The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic
and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the
country's development. We take judicial notice of the taxpayer's generally negative perception towards
the BIR; hence, it is up to the latter to prove its detractors wrong.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official duties.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into
his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision
of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.

G.R. No. 112675 January 25, 1999
AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION;
CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION;
COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE CO.,
INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINE; EASTERN ASSURANCE COMPANY
& SURETY CORP; EMPIRE INSURANCE COMPANY; EQUITABLE INSURANCE
CORPORATION; FEDERAL INSURANCE CORPORATION INC.; FGU INSURANCE
CORPORATION; FIDELITY & SURETY COMPANY OF THE PHILS., INC.; FILIPINO
MERCHANTS' INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE
SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE CO.;
INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN INSURANCE
COMPANY; METRO-TAISHO INSURANCE CORPORATION; NEW ZEALAND
INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE CORPORATION;
PARAMOUNT INSURANCE CORPORATION; PEOPLE'S TRANS-EAST ASIA
INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS, INC.;
PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO.,
INC.; PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL
INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF THE
PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY &
INSURANCE COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO
INSURANCE CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.;
SOLID GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO., INC.; STATE
BONDING & INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION;
TABACALERA INSURANCE CO., INC. — all assessed as "POOL OF MACHINERY
INSURERS, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMISSIONER OF
INTERNAL REVENUE, respondent.

PANGANIBAN, J.:
Pursuant to "reinsurance treaties," a number of local insurance firms formed themselves
into a "pool" in order to facilitate the handling of business contracted with a nonresident
foreign insurance company. May the "clearing house" or "insurance pool" so formed be
deemed a partnership or an association that is taxable as a corporation under the
National Internal Revenue Code (NIRC)? Should the pool's remittances to the member
companies and to the said foreign firm be taxable as dividends? Under the facts of this
case, has the goverment's right to assess and collect said tax prescribed?
The Case

These are the main questions raised in the Petition for Review on Certiorari before us,
1
2
assailing the October 11, 1993 Decision of the Court of Appeals in CA-GR SP

25902, which dismissed petitioners' appeal of the October 19, 1992 Decision 3
of the Court of Tax Appeals 4 (CTA) which had previously sustained petitioners' liability for deficiency income tax,
interest and withholding tax. The Court of Appeals ruled:

WHEREFORE, the petition is DISMISSED, with costs against petitioner

5

The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution 6 denying reconsideration.
The Facts
The antecedent facts, 7 as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized
and existing under the laws of the Philippines. Upon issuance by
them of Erection, Machinery Breakdown, Boiler Explosion and
Contractors' All Risk insurance policies, the petitioners on August
1, 1965 entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a
non-resident foreign insurance corporation. The reinsurance
treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a
financial statement and filed an "Information Return of
Organization Exempt from Income Tax" for the year ending in
1975, on the basis of which it was assessed by the Commissioner
of Internal Revenue deficiency corporate taxes in the amount of
P1,843,273.60, and withholding taxes in the amount of
P1,768,799.39 and P89,438.68 on dividends paid to Munich and
to the petitioners, respectively. These assessments were
protested by the petitioners through its auditors Sycip, Gorres,
Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue
denied the protest and ordered the petitioners, assessed as "Pool
of Machinery Insurers," to pay deficiency income tax, interest, and
with [h]olding tax, itemized as follows:
Net income per information return P3,737,370.00

===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60
——————
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE
Dividend paid to Munich
Reinsurance Company P3,728,412.00
——————
35% withholding tax at
source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penaltynon-filing of return 300.00
late payment 300.00
——————
TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========
Dividend paid to Pool Members P655,636.00

===========
10% withholding tax at
source due thereon P65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penaltynon-filing of return 300.00
late payment 300.00
——————
TOTAL AMOUNT DUE & P89,438.68
COLLECTIBLE =========== 8
The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter's collection of
premiums on behalf of its members, the ceding companies, was taxable
income. It added that prescription did not bar the Bureau of Internal Revenue
(BIR) from collecting the taxes due, because "the taxpayer cannot be located
at the address given in the information return filed." Hence, this Petition for
Review before us. 9
The Issues
Before this Court, petitioners raise the following issues:
1. Whether or not the Clearing House, acting as a mere agent and
performing strictly administrative functions, and which did not
insure or assume any risk in its own name, was a partnership or
association subject to tax as a corporation;
2. Whether or not the remittances to petitioners and MUNICHRE
of their respective shares of reinsurance premiums, pertaining to

their individual and separate contracts of reinsurance, were
"dividends" subject to tax; and
3. Whether or not the respondent Commissioner's right to assess
the Clearing House had already prescribed.
10

The Court's Ruling
The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is taxable as a corporation, and that the
government's right to assess and collect the taxes had not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that the pool of clearing house was an informal partnership, which was taxable
as a corporation under the NIRC. They point out that the reinsurance policies were written by them "individually and separately," and that

11

Hence, the pool did not
act or earn income as a reinsurer. Its role was limited to its principal function
of "allocating and distributing the risk(s) arising from the original insurance
among the signatories to the treaty or the members of the pool based on their
ability to absorb the risk(s) ceded[;] as well as the performance of incidental
functions, such as records, maintenance, collection and custody of funds, etc."
their liability was limited to the extent of their allocated share in the original risk thus reinsured.

12

13

Petitioners belie the existence of a partnership in this case, because (1) they,
the reinsurers, did not share the same risk or solidary liability, 14 (2) there was no common
15

(3) the executive board of the pool did not exercise
control and management of its funds, unlike the board of
directors of a corporation; 16 and (4) the pool or clearing
house "was not and could not possibly have engaged in
the business of reinsurance from which it could have
derived income for itself." 17
fund;

The Court is not persuaded. The opinion or ruling of the Commission of
Internal Revenue, the agency tasked with the enforcement of tax law, is
accorded much weight and even finality, when there is no showing. that it is
patently wrong, 18 particularly in this case where the findings and conclusions
of the internal revenue commissioner were subsequently affirmed by the CTA,
a specialized body created for the exclusive purpose of reviewing tax cases,
and the Court of Appeals. 19 Indeed,
[I]t has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies,
such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and

consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an
abuse or improvident exercise of its authority.

20

This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no
reversible error. Section 24 of the NIRC, as worded in the year ending 1975,
provides:
Sec. 24. Rate of tax on corporations. — (a) Tax on domestic
corporations. — A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by
every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized, but not including
duly registered general co-partnership (compañias colectivas),
general professional partnerships, private educational institutions,
and building and loan associations . . . .
Ineludibly, the Philippine legislature included in the concept of corporations
those entities that resembled them such as unregistered partnerships and
associations. Parenthetically, the NIRC's inclusion of such entities in the tax
on corporations was made even clearer by the tax Reform Act of 1997, 21
which amended the Tax Code. Pertinent provisions of the new law read as
follows:
Sec. 27. Rates of Income Tax on Domestic Corporations. —
(A) In General. — Except as otherwise provided in this Code, an
income tax of thirty-five percent (35%) is hereby imposed upon
the taxable income derived during each taxable year from all
sources within and without the Philippines by every corporation,
as defined in Section 22 (B) of this Code, and taxable under this
Title as a corporation . . . .
Sec. 22. — Definition. — When used in this Title:
xxx xxx xxx
(B) The term "corporation" shall include partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations, or insurance companies,
but does not include general professional partnerships [or] a joint
venture or consortium formed for the purpose of undertaking

construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or
consortium agreement under a service contract without the
Government. "General professional partnerships" are partnerships
formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived
from engaging in any trade or business.
xxx xxx xxx
Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that
Section 24 covered these unregistered partnerships and even associations or
joint accounts, which had no legal personalities apart from their individual
members. 23 The Court of Appeals astutely applied Evangelista. 24
. . . Accordingly, a pool of individual real property owners dealing
in real estate business was considered a corporation for purposes
of the tax in sec. 24 of the Tax Code in Evangelista v. Collector of
Internal Revenue, supra. The Supreme Court said:
The term "partnership" includes a syndicate, group,
pool, joint venture or other unincorporated
organization, through or by means of which any
business, financial operation, or venture is carried on.
*** (8 Merten's Law of Federal Income Taxation, p.
562 Note 63)
Art. 1767 of the Civil Code recognizes the creation of a contract of partnership
when "two or more persons bind themselves to contribute money, property, or
Industry to a common fund, with the intention of dividing the profits among
themselves." 25 Its requisites are: "(1) mutual contribution to a common stock,
and (2) a joint interest in the profits." 26 In other words, a partnership is formed
when persons contract "to devote to a common purpose either money,
property, or labor with the intention of dividing the profits between
themselves." 27 Meanwhile, an association implies associates who enter into a "joint enterprise . . .
for the transaction of business."

28

In the case before us, the ceding companies entered into a Pool Agreement 29
or an association 30 that would handle all the insurance businesses covered
under their quota-share reinsurance treaty 31 and surplus reinsurance treaty 32
with Munich. The following unmistakably indicates a partnership or an association covered by Section 24
of the NIRC:

(1) The pool has a common fund, consisting of money and other valuables that are deposited in the name
33

This common fund pays for the
administration and operation expenses of the pool. 24
and credit of the pool.

(2) The pool functions through an executive board, which resembles the board
of directors of a corporation, composed of one representative for each of the
ceding companies. 35
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically useful
to the business of the ceding companies and Munich, because without it they
would not have received their premiums. The ceding companies share "in the
business ceded to the pool" and in the "expenses" according to a "Rules of
Distribution" annexed to the Pool Agreement. 36 Profit motive or business is,
therefore, the primordial reason for the pool's formation. As aptly found by the
CTA:
. . . The fact that the pool does not retain any profit or income
does not obliterate an antecedent fact, that of the pool being used
in the transaction of business for profit. It is apparent, and
petitioners admit, that their association or coaction was
indispensable [to] the transaction of the business, . . . If together
they have conducted business, profit must have been the object
as, indeed, profit was earned. Though the profit was apportioned
among the members, this is only a matter of consequence, as it
implies that profit actually resulted. 37
The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced,
because the facts obtaining therein are not on all fours with the present case.
In Pascual, there was no unregistered partnership, but merely a co-ownership
which took up only two isolated transactions. 39 The Court of Appeals did not err in
applying Evangelista, which involved a partnership that engaged in a series of transactions spanning
more than ten years, as in the case before us.
Second Issue:
Pool's Remittances are Taxable
Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not
dividends subject to tax. They insist that such remittances contravene Sections 24 (b) (I) and 263 of the
1977 NIRC and "would be tantamount to an illegal double taxation as it would result in taxing the same
40
taxpayer" Moreover, petitioners argue that since Munich was not a signatory to the Pool Agreement, the remittances it received from
the pool cannot be deemed dividends.

41

They add that even if such remittances were treated

as dividends, they would have been exempt under the previously mentioned
sections of the 1977 NIRC, 42 as well as Article 7 of paragraph 1 43 and Article
5 of paragraph 5 44 of the RP-West German Tax Treaty. 45
Petitioners are clutching at straws. Double taxation means taxing the same
property twice when it should be taxed only once. That is, ". . . taxing the
same person twice by the same jurisdiction for the same thing" 46 In the instant
case, the pool is a taxable entity distinct from the individual corporate entities
of the ceding companies. The tax on its income is obviously different from the
tax on the dividends received by the said companies. Clearly, there is no
double taxation here.
The tax exemptions claimed by petitioners cannot be granted, since their
entitlement thereto remains unproven and unsubstantiated. It is axiomatic in
the law of taxation that taxes are the lifeblood of the nation. Hence,
"exemptions therefrom are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right." 47 Petitioners have failed
to discharge this burden of proof. The sections of the 1977 NIRC which they
cite are inapplicable, because these were not yet in effect when the income
was earned and when the subject information return for the year ending 1975
was filed.
Referring, to the 1975 version of the counterpart sections of the NIRC, the
Court still cannot justify the exemptions claimed. Section 255 provides that no
tax shall ". . . be paid upon reinsurance by any company that has already paid
the tax . . ." This cannot be applied to the present case because, as previously
discussed, the pool is a taxable entity distinct from the ceding companies;
therefore, the latter cannot individually claim the income tax paid by the former
as their own.
On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign
corporations; hence, it cannot be claimed by the ceding companies which are
domestic corporations. Nor can Munich, a foreign corporation, be granted
exemption based solely on this provision of the Tax Code, because the same
subsection specifically taxes dividends, the type of remittances forwarded to it
by the pool. Although not a signatory to the Pool Agreement, Munich is
patently an associate of the ceding companies in the entity formed, pursuant
to their reinsurance treaties which required the creation of said pool.
Under its pool arrangement with the ceding companies; Munich shared in their
income and loss. This is manifest from a reading of Article 3 49 and 10 50 of the
51
Quota-Share Reinsurance treaty and Articles 3
and 10 52 of the Surplus Reinsurance Treaty. The

foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a
tax exemption must be construed strictissimi juris, and the statutory exemption
claimed must be expressed in a language too plain to be mistaken. 53
Finally the petitioners' claim that Munich is tax-exempt based on the RP- West
German Tax Treaty is likewise unpersuasive, because the internal revenue
commissioner assessed the pool for corporate taxes on the basis of the
information return it had submitted for the year ending 1975, a taxable year
when said treaty was not yet in effect. 54 Although petitioners omitted

in their pleadings the date of effectivity of the treaty, the
Court takes judicial notice that it took effect only later, on
December 14, 1984. 55
Third Issue:
Prescription
Petitioners also argue that the government's right to assess and collect the
subject tax had prescribed. They claim that the subject information return was
filed by the pool on April 14, 1976. On the basis of this return, the BIR
telephoned petitioners on November 11, 1981, to give them notice of its letter
of assessment dated March 27, 1981. Thus, the petitioners contend that the
five-year statute of limitations then provided in the NIRC had already lapsed,
and that the internal revenue commissioner was already barred by
prescription from making an assessment. 56
We cannot sustain the petitioners. The CA and the CTA categorically found
that the prescriptive period was tolled under then Section 333 of the NIRC, 57
because "the taxpayer cannot be located at the address given in the
information return filed and for which reason there was delay in sending the
assessment." 58 Indeed, whether the government's right to collect and assess
the tax has prescribed involves facts which have been ruled upon by the lower
courts. It is axiomatic that in the absence of a clear showing of palpable error
or grave abuse of discretion, as in this case, this Court must not overturn the
factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for Reconsideration before
the Court of Appeals that the pool changed its address, for they stated that the
pool's information return filed in 1980 indicated therein its "present address."
The Court finds that this falls short of the requirement of Section 333 of the

NIRC for the suspension of the prescriptive period. The law clearly states that
the said period will be suspended only "if the taxpayer informs the
Commissioner of Internal Revenue of any change in the address."
WHEREFORE, the petition is DENIED. The Resolution of the Court of
Appeals dated October 11, 1993 and November 15, 1993 are hereby
AFFIRMED. Cost against petitioners.1âwphi1.nêt
SO ORDERED.