TAXATION Case Digests

vii. INVOLVES THE POWER TO DESTROY SO IT MUST BE
EXERCISED WITH CAUTION
CIR V SM PRIME HOLDINGS AND FIRST ASIA REALTY DEVT
FACTS: Respondents were both engaged in the business of
operating cinema houses, among others. On separate occasions, the
BIR sent them formal letters of demand for the alleged tax deficiency
which both of them protested. Both respondents filed Petition for
Review to the CTA. Cases were however consolidated and submitted
for decision of the CTA with the sole issue of whether gross receipts
derived from admission tickets by cinema/ theater operators or
proprietors are subject to VAT. CTA ruled in favor of the respondents
saying that the activity of showing cinematographic films is not a
“service” covered by VAT under NIRC of 1997 but an activity subject
to amusement tax under LGC. CTA en banc affirmed. Hence, this
petition.

implemented, it exempted persons subject to amusement tax
under the NIRC from the coverage of VAT. When the Local Tax
Code was repealed by the LGC of 1991, the local government
continued to impose amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of
amusements. Amendments to the VAT law have been consistent in
exempting persons subject to amusement tax under the NIRC
from the coverage of VAT. Only lessors or distributors of
cinematographic films are included in the coverage of VAT.

HELD: NO.

These reveal the legislative intent not to impose VAT on
persons already covered by the amusement tax. This holds true even
in the case of cinema/theater operators taxed under the LGC of 1991
precisely because the VAT law was intended to replace the
percentage tax on certain services. To hold otherwise would impose
an unreasonable burden on cinema/theater houses operators or
proprietors, who would be paying an additional 10% VAT on top of
the 30% amusement tax imposed by Section 140 of the LGC of
1991, or a total of 40% tax. Such imposition would result in injustice.

Petition is bereft of merit. While (1) the enumeration under Section
108 on the VAT-taxable services is not exhaustive, (guys ito ay nasa
full text page 3) and (2) the said list includes “the lease of motion
picture films, films, tapes and discs”, the said activity however is not
the same as showing or exhibition of motion pictures or films. Thus,
since the showing or exhibition of motion pictures or films is not in
the enumeration, the CIR must show that it falls under the phrase
“similar services”. The intent of the legislature must therefore be
ascertained.

“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.”

ISSUE: Whether or not gross receipts derived from admission tickets
by cinema/ theater operators or proprietors are subject to VAT.

Historically, the activity of showing motion pictures, films or
movies by cinema/theater operators or proprietors has always been
considered as a form of entertainment subject to amusement tax
imposed by the national government. When the Local Tax Code
was enacted, amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government. Under the
NIRC of 1977, the national government imposed amusement tax
only on proprietors, lessees or operators of cabarets, day and night
clubs, Jai-Alai and race tracks. When the VAT law was

vii. INVOLVES THE POWER TO DESTROY SO IT MUST BE
EXERCISED WITH CAUTION

CIR V TOKYO SHIPPING CO LTD.
FACTS: Private respondent, a foreign corporation, owns and
operates M/V Gardenia. NASUTRA (company) chartered M/V
Gardenia to load tons of raw sugar in the Philippines. Private
respondent then already paid the income and common carrier’s tax
based on the expected gross receipts of the vessel. Upon arriving,
however in Iloilo, the vessel found no sugar for loading. Parties then
agreed to have the vessel sail in Japan without any cargo. Claiming
the pre-payment of income and common carrier's taxes as erroneous
since no receipt was realized from the charter agreement, private
respondent instituted a claim for tax credit or refund. Petitioner failed
to act promptly on the claim, hence private respondent filed a petition
for review before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative
defenses, it alleged that taxes are presumed to have been collected
in accordance with law and that in an action for refund, the burden
of proof is upon the taxpayer to show that taxes are erroneously
or illegally collected. CTA ruled in favor of respondent. Hence, this
petition for review on certiorari.
ISSUE: Whether or not private respondent is entitled to a refund or
tax credit for amounts representing pre-payment of income and
common carrier's taxes under the National Internal Revenue Code
HELD: YES.
Pursuant to Sec. 24 of NIRC, a resident foreign corporation
engaged in the transport of cargo is liable for taxes depending on the
amount of income it derives from sources within the Philippines.
Thus, before such a tax liability can be enforced the taxpayer must

be shown to have earned income sourced from the Philippines. The
Court affirmed the findings of CTA that sufficient evidence has been
adduced by the private respondent proving that it derived no receipt
from its charter agreement with NASUTRA. This finding of fact rests
on a rational basis, and hence must be sustained.
However, the Court cannot but bewail the unyielding position
taken by the government in refusing to refund the sum of
P107,142.75 erroneously prepaid by private respondent. The tax
was paid way back in 1980 and despite the clear showing that it was
erroneously paid, the government succeeded in delaying its
refund for fifteen (15) years. After fifteen (15) long years and the
expenses of litigation, the money that will be finally refunded to the
private respondent is just worth a damaged nickel. This is not,
however, the kind of success the government, especially the BIR,
needs to increase its collection of taxes. Fair deal is expected by
our taxpayers from the BIR and the duty demands that BIR
should refund without any unreasonable delay what it has
erroneously collected.
“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.”

favor of the taxing authority Taxation is the rule and exemption is the
exception, the exemption may thus be withdrawn at the pleasure of
the taxing authority.

NOT THE POWER TO DESTROY
Mactan Cebu International Airport Authority v Marcos
FACTS: Petitioner was created by virtue of RA 6958. Section 14
thereof states that the authority shall be exempt from realty taxes
imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities. However, the Treasurer
of Cebu City demanded payment for realty taxes from petitioner.
Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 which
exempt it from payment of realty taxes. It was also asserted that it is
an instrumentality of the government performing governmental
functions, citing section 133 of the Local Government Code of 1991
which puts limitations on the taxing powers of local government
units. Petitioner filed a declaratory relief before the Regional Trial
Court. The trial court dismissed the petitioner ruling that the Local
Government Code withdrew the tax exemption granted to
Government
owned
and
controlled
corporation.
ISSUE: Whether or not the city of Cebu has the power to impose
taxes
on
petitioner
HELD: Yes.
Our Constitution provides that the rule of taxation shall be
uniform and equitable and Congress shall evolve a progressive
system of taxation. So potent indeed is the power that it was once
opined that "the power to tax involves the power to destroy." Verily,
taxation is a destructive power which interferes with the personal and
property for the support of the government. Accordingly, tax statutes
must be construed strictly against the government and liberally in
favor of the taxpayer. But since taxes are what we pay for civilized
society, or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are
thus construed strictissimi juris against the taxpayers and liberally in

As to tax exemptions or incentives granted to or presently
enjoyed by natural or juridical persons, including government- owned
and controlled corporations, section 193 of the LGC prescribes the
general rule: they are withdrawn upon the effectivity of the LGC,
except those granted to local water districts, cooperatives, duly
registered under RA 6938, non stock and nonprofit hospitals and
educational institutions and unless otherwise provided in the LGC.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from real
property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in
the said section, and the petitioner is, undoubtedly, a governmentowned corporation, it necessarily follows that its exemption from
such tax granted it in Section 14 of its charter, R.A. No. 6958, has
been withdrawn.
NOTE: DECISION also provides the 2 doctrines based on
US SC decisions.(these doctrines are at issue on Coconut planters v
Torres)
HOLMES VIEW: make references to the entire
absence of power on the part of the States to touch,
in that way (taxation) at least, the instrumentalities of
the United States and it can be agreed that no state
or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them.
MARSHALL’S VIEW: Otherwise, mere creature of
the State can defeat National policies thru
extermination of what local authorities may perceive
to be undesirable activities or enterprise using the
power to tax as "a toll for regulation" The power to
tax which was called by Justice Marshall as the
"power to destroy" cannot be allowed to defeat an

instrumentality or creation of the very entity which
has the inherent power to wield it.

issued EO No. 97 and subsequently, EO No. 97-A to Clarifying the
Tax and Duty Free Incentive within the Subic Special Economic Zone
Pursuant to RA No. 7227. EO No. 97-A further provides that
$100monthly and $200 yearly tax-free shopping privileges is granted
to SSEZ residents living outside the Secured Area of the SSEZ and
to Filipinos aged 15 and over residing outside the SSEZ
ISSUE: Whether or not the assailed issuances are unconstitutional,
illegal and void for being an exercise of executive law making,
contrary to RA No. 7227

RECONCILIATION OF MARSHALL’S VIEW WITH THE HOLMES
VIEW
COCONUT OIL REFINERS ASSOCIATION, INC. vs. HON. RUBEN TORRES
FACTS: RA No. 7227 was enacted, providing for, among other
things, the sound and balanced conversion of the Clark and Subic
military reservations and their extensions into alternative
productive uses in the form of special economic zones in order
to promote the economic and social development of Central
Luzon in particular and the country in general. Among the salient
provisions are as follows:
SECTION 12. x x x The Subic Special Economic Zone shall be
operated and managed as a separate customs territory ensuring
free flow or movement of goods and capital within, into and
exported out of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free importations of
raw materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special Economic
Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines; x x x´On April 3, 1993,
President Fidel V. Ramos issued EO No. 80, which declared, among
others, (Sec. 5) that Clark (CSEZ) shall have all the applicable
incentives granted to the Subic Special Economic and Free Port
Zone under RA No. 7227.
Pursuant to the directive under EO No. 80, the BCDA
passed Board Resolution No. 93-05-034 (Sec 4) allowing the tax
and duty-free sale at retail of consumer goods imported via Clark for
consumption outside the CSEZ. On June 10, 1993, the President

HELD: PARTIAL 
Petitioners contend that the wording of RA No. 7227 clearly
limits the grant of tax incentives to the importation of raw materials,
capital and equipment only. Hence, they claim that the assailed
issuances constitute executive legislation for invalidly granting tax
incentives in the importation of consumer goods such as those being
sold in the duty-free shops, in violation of the letter and intent of RA
No. 7227.
The Court held that Section12 of RA No. 7227 clearly does
not restrict the duty-free importation only to 'raw materials, capital
and equipment. To limit the tax-free importation privilege of
enterprises located inside the special economic zone only to raw
materials, capital and equipment clearly runs counter to the intention
of the Legislature to create a free port where the 'free flow of goods
or capital within, into, and out of the zones' is insured. The phrase
'tax and duty-free importations of raw materials, capital and
equipment was merely cited as an example of incentives that may be
given to entities operating within the zone. Moreover, the records of
the Senate containing the discussion of the concept of 'special
economic zone in Section 12 (a)of Republic Act No. 7227 show the
legislative intent that consumer goods entering the SSEZ which
satisfy the needs of the zone and are consumed there are not
subject to duties and taxes in accordance with Philippine laws.
However, the second sentences of paragraphs 1.2 and 1.3
of EO No. 97-A, allowing tax and duty-free removal of goods to
certain individuals, even in a limited amount, from the Secured
Area of the SSEZ, are null and void for being contrary to Section12
of RA No. 7227. Said Section clearly provides that exportation or
removal of goods from the territory of the Subic Special Economic

Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines.
On the other hand, insofar as the CSEZ is concerned, the
case for an invalid exercise of executive legislation is tenable.
“The nature of most of the assailed privileges is one of tax
exemption. It is the legislature, unless limited by a provision of a
state constitution that has full power to exempt any person or
corporation or class of property from taxation, its power to
exempt being as broad as its power to tax. Other than Congress,
the Constitution may itself provide for specific tax exemptions, or
local governments may pass ordinances on exemption only from
local taxes. The challenged grant of tax exemption would circumvent
the Constitution’s imposition that a law granting any tax exemption
must have the concurrence of a majority of all the members of
Congress.”
While Section 12 of RA No. 7227 expressly provides for the
grant of incentives to the SSEZ, it fails to make any similar grant in
favor of other economic zones, including the CSEZ. Tax and dutyfree incentives being in the nature of tax exemptions, the basis
thereof should be categorically and unmistakably expressed from the
language of the statute. Consequently, in the absence of any
express grant of tax and duty-free privileges to the CSEZ in RA
No. 7227, there would be no legal basis to uphold the
questioned portions of two issuances: Section 5 of Executive
Order No. 80 and Section 4 of BCDA Board Resolution No. 9305-034, which both pertain to the CSEZ.

POWER OF TAXATION COMPARED TO OTHER POWER (POLICE
POWER)
MMDA V GARIN
FACTS: Respondent Garin was issued a traffic violation receipt and
his driver’s license was confiscated for parking illegally. Garin wrote
MMDA Chairman Prospero Oreta requesting the return of his license
and expressed his preference for case to be filed in Court. Without
an immediate reply from the Chairman, Garin filed a complaint for
preliminary injunction assailing among other that Sec 5(f) of
RA 7942 violates the constitutional prohibition against undue
delegation of legislative authority, allowing MMDA to fix and impose
unspecified and unlimited fines and penalties. RTC rules in his favor
directing MMDA to return Garin’s driver’s license and for MMDA to
desist from confiscating driver’s license without first giving the driver
to opportunity to be heard in an appropriate proceeding.
ISSUE: Whether or not MMDA has the power to fix and impose fines
HELD: NO.
The MMDA is not vested with police power. Police power, as
an inherent attribute of sovereignty, is the power vested by the
Constitution in the legislature to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes and
ordinances, either with penalties or without, not repugnant to the
Constitution, as they shall judge to be for the good and welfare of the
commonwealth, and for the subjects of the same.

Our Congress delegated police power to the LGUs in the
Local Government Code of 1991. Metropolitan or Metro Manila is a
body composed of several local government units. With the passage
of Rep. Act No. 7924 in 1995, Metropolitan Manila was declared as a
"special development and administrative region" and the
administration of "metro-wide" basic services affecting the region
placed under "a development authority" referred to as the MMDA.
The powers of the MMDA are limited to the following acts:
formulation, coordination, regulation, implementation, preparation,
management, monitoring, setting of policies, installation of a system
and administration. There is no syllable in R. A. No. 7924 that
grants the MMDA police power, let alone legislative power.
Unlike the legislative bodies of the local government units, there is
no provision in R. A. No. 7924 that empowers the MMDA or its
Council to "enact ordinances, approve resolutions and
appropriate funds for the general welfare" of the inhabitants of
Metro Manila. The MMDA is, as termed in the charter itself, a
"development authority."
The MMDA is not a political unit of government. The power
delegated to the MMDA is that given to the Metro Manila Council to
promulgate administrative rules and regulations in the
implementation of the MMDA's functions. There is no grant of
authority to enact ordinances and regulations for the general
welfare of the inhabitants of the metropolis.

For this reason, when the conditions so demand as determined by
the legislature, property rights must bow to the primacy of police
power because property rights, though sheltered by due process,
must yield to general welfare.
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive pricing component of
the business. While the Constitution protects property rights,
petitioners must accept the realities of business and the State, in the
exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the
process.

POWER OF TAXATION COMPARED TO OTHER POWER (POLICE
POWER)
CARLOS SUPERDRUG CORP V DSWD
FACTS: Petitioners are domestic corporations and proprietors
operating drugstores in the Philippines. Petitioners assail the
constitutionality of Section 4(a) of RA 9257, otherwise known as the
“Expanded Senior Citizens Act of 2003.” Section 4(a) of RA 9257
grants twenty percent (20%) discount as privileges for the Senior
Citizens in the purchase of medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.
Petitioner contends that said law is unconstitutional and confiscatory
because it constitutes deprivation of private property without just
compensation.
ISSUE: Whether or not RA 9257 is unconstitutional
HELD: NO. The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general welfare for its
object. Accordingly, it has been described as “the most
essential, insistent and the least limitable of powers, extending as it
does to all the great public needs.” It is the power vested in the
legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the
commonwealth,
and
of
the
subjects
of
the
same.”

Held: NO. The assailed universal charge is not a tax, but an exaction
in the exercise of the State’s police power. That public welfare is
promoted may be gleaned from Sec. 2 of the EPIRA, which
enumerates the policies of the State regarding electrification.
Moreover, the Special Trust Fund feature of the universal charge
reasonably serves and assures the attainment and perpetuity of the
purposes for which the universal charge is imposed (e.g. to ensure
the viability of the country’s electric power industry), further boosting
the position that the same is an exaction primarily in pursuit of the
State’s police objectives
If generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is incidentally raised does not
make the imposition a tax.

POWER OF TAXATION COMPARED TO OTHER POWER (POLICE
POWER)
GEROCHI VS. DOE
Facts: RA 9136, otherwise known as the Electric Power Industry
Reform Act of 2001 (EPIRA), which sought to impose a universal
charge on all end-users of electricity for the purpose of funding
NAPOCOR’s projects, was enacted and took effect in 2001.
Petitioners who were end- users and to whom universal charge was
imposed by several electric company due to the EPIRA, contest the
constitutionality of the EPIRA, stating that the imposition of
the universal charge on all end-users is oppressive and confiscatory
and amounts to taxation without representation for not giving the
consumers a chance to be heard and be represented. The universal
charge provided for under Sec. 34 of the EPIRA and sought to be
implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax which
is to be collected from all electric end-users and self-generating entities. The
power to tax is strictly a legislative function and as such, the delegation of
said power to any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority

Issue: Whether or not the universal charge is a tax.

The taxing power may be used as an implement of policepower. The
theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.

The petitioner Chevron Philippines Inc (formerly Caltex Philippines
Inc) who is a fuel supplier to Nanox Philippines, a locator inside the
CSEZ, received a Statement of Account from CDC billing them to
pay the royalty fees amounting to Php115,000 for its fuel sales from
Coastal depot to Nanox Philippines from August 1 to September 21,
2002.

Petitioner, contending that nothing in the law authorizes CDC to
impose royalty fees based on a per unit measurement of any
commodity sold within the special economic zone, protested against
the CDC and Bases Conversion Development Authority (BCDA).
They alleged that the royalty fees imposed had no reasonable
relation to the probably expenses of regulation and that the
imposition on a per unit measurement of fuel sales was for a revenue
generating purpose, thus, akin to a “tax”.
G.R. No. 173863 September 15, 2010
CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES,
INC.), Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK
DEVELOPMENT CORPORATION, Respondents

Facts:
On June 28, 2002, the Board of Directors of respondent Clark
Development Corporation (CDC) issued and approved Policy
Guidelines on the Movement of Petroleum Fuel to and from the Clark
Special Economic Zone. In one of its provisions, it levied royalty fees
to suppliers delivering Coastal fuel from outside sources for Php0.50
per liter for those delivering fuel to CSEZ locators not sanctioned by
CDC and Php1.00 per litter for those bringing-in petroleum fuel from
outside sources. The policy guidelines were implemented effective
July 27, 2002.

BCDA denied the protest. The Office of the President dismissed the
appeal as well for lack of merit.

Upon appeal, CA dismissed the case. CA held that in imposing the
royalty fees, CDC was exercising its right to regulate the flow of fuel
into CSEZ under the vested exclusive right to distribute fuel within
CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc.
(CSBTI) dated April 11, 1996. The appellate court also found that
royalty fees were assessed on fuel delivered, not on the sale, by
petitioner and that the basis of such imposition was petitioner’s
delivery receipts to Nanox Philippines. The fact that revenue is
incidentally also obtained does not make the imposition a tax as long
as the primary purpose of such imposition is regulation.

When elevated in SC, petitioner argued that: 1) CDC has no power
to impose fees on sale of fuel inside CSEZ on the basis of income
generating functions and its right to market and distribute goods
inside the CSEZ as this would amount to tax which they have no
power to impose, and that the imposed fee is not regulatory in nature
but rather a revenue generating measure; 2) even if the fees are
regulatory in nature, it is unreasonable and are grossly in excess of
regulation costs.

Respondents contended that the purpose of royalty fees is to
regulate the flow of fuel to and from the CSEZ and revenue (if any) is
just an incidental product. They viewed it as a valid exercise of police
power since it is aimed at promoting the general welfare of public;
that being the CSEZ administrator, they are responsible for the safe
distribution of fuel products inside the CSEZ.
Issue:
Whether the act of CDC in imposing royalty fees can be considered
as valid exercise of the police power.

Held:
Yes. SC held that CDC was within the limits of the police power of
the State when it imposed royalty fees.

In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the
purpose is primarily to raise revenue, then it will be deemed a tax
even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a
regulation and an exercise of the police power of the state, even
though incidentally, revenue is generated.

In this case, SC held that the subject royalty fee was imposed for
regulatory purposes and not for generation of income or profits. The
Policy Guidelines was issued to ensure the safety, security, and good
condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to
ensure “free flow or movement” of petroleum fuel to and from the
CSEZ. The fact that respondents have the exclusive right to
distribute and market petroleum products within CSEZ pursuant to its
JVA with SBMA and CSBTI does not diminish the regulatory purpose
of the royalty fee for fuel products supplied by petitioner to its client
at the CSEZ.

However, it was erroneous for petitioner to argue that such exclusive
right of respondent CDC to market and distribute fuel inside CSEZ is
the sole basis of the royalty fees imposed under the Policy
Guidelines. Being the administrator of CSEZ, the responsibility of
ensuring the safe, efficient and orderly distribution of fuel products
within the Zone falls on CDC. Addressing specific concerns
demanded by the nature of goods or products involved is
encompassed in the range of services which respondent CDC is
expected to provide under Sec. 2 of E.O. No. 80, in pursuance of its
general power of supervision and control over the movement of all
supplies and equipment into the CSEZ.

There can be no doubt that the oil industry is greatly imbued with
public interest as it vitally affects the general welfare. Fuel is a highly
combustible product which, if left unchecked, poses a serious threat
to life and property. Also, the reasonable relation between the royalty
fees imposed on a “per liter” basis and the regulation sought to be
attained is that the higher the volume of fuel entering CSEZ, the
greater the extent and frequency of supervision and inspection
required to ensure safety, security, and order within the Zone.

Respondents submit that the increased administrative costs were
triggered by security risks that have recently emerged, such as
terrorist strikes. The need for regulation is more evident in the light of
9/11 tragedy considering that what is being moved from one location
to another are highly combustible fuel products that could cause loss
of lives and damage to properties.

As to the issue of reasonableness of the amount of the fees, SC held
that no evidence was adduced by the petitioner to show that the fees
imposed are unreasonable. Administrative issuances have the force
and effect of law. They benefit from the same presumption of validity
and constitutionality enjoyed by statutes. These two precepts place a
heavy burden upon any party assailing governmental regulations.
Petitioner’s plain allegations are simply not enough to overcome the
presumption of validity and reasonableness of the subject imposition.
WHEREFORE, the petition is DENIED for lack of merit and the
Decision of the Court of Appeals dated November 30, 2005 in CAG.R. SP No. 87117 is hereby AFFIRMED.

because "incidence of the levy fell on the ultimate consumer or the
farmers themselves, not on the seller fertilizer company.

Planters Products Inc vs Fertiphil Corp
166006
March 14, 2008

G.R.

No.

FACTS:
Petitioner PPI and respondent Fertiphil are private corporations
incorporated under Philippine laws, both engaged in the importation
and distribution of fertilizers, pesticides and agricultural chemicals.

Marcos issued Letter of Instruction (LOI) 1465, imposing a capital
recovery component of Php10.00 per bag of fertilizer. The levy was
to continue until adequate capital was raised to make PPI financially
viable. Fertiphil remitted to the Fertilizer and Pesticide Authority
(FPA), which was then remitted the depository bank of PPI. Fertiphil
paid P6,689,144 to FPA from 1985 to 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. Fertiphil demanded from PPI a refund of
the amount it remitted, however PPI refused. Fertiphil filed a
complaint for collection and damages, questioning the
constitutionality of LOI 1465, claiming that it was unjust,
unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process. PPI argues that Fertiphil has
no locus standi to question the constitutionality of LOI No. 1465
because it does not have a "personal and substantial interest in the
case or will sustain direct injury as a result of its enforcement." It
asserts that Fertiphil did not suffer any damage from the imposition

ISSUE: Whether or not Fertiphil has locus standi to question the
constitutionality of LOI No. 1465.

What is the power of taxation?

RULING: Fertiphil has locus standi because it suffered direct injury;
doctrine of standing is a mere procedural technicality which may be
waived.

The imposition of the levy was an exercise of the taxation power of
the state. While it is true that the power to tax can be used as an
implement of police power, the primary purpose of the levy was
revenue generation. If the purpose is primarily revenue, or if revenue
is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax.
Police power and the power of taxation are inherent powers of the
State. These powers are distinct and have different tests for validity.

Police power is the power of the State to enact legislation that may
interfere with personal liberty or property in order to promote the
general welfare, while the power of taxation is the power to levy
taxes to be used for public purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is
revenue generation. The "lawful subjects" and "lawful means" tests
are used to determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is circumscribed by
inherent and constitutional limitations.

Terminal Facilities TEFASCO/ Vs. PPA
GRN 135826 February 27, 2002
De Leon, Jr. &:
Facts:
Tefasco proposed to construct as specialized terminal complex with
part facilities and a provision for sport services in Davao City. On
May 7, 1976, PPA accepted the projects TOCs and was authorized
to start work. Tefasco contracted dollar lessons concern from private
commercial institution abroad to construct its specialized facilities
and long after the ground breaking, PPA passed a resolution which
imposed a construction; PPA issued another permit the provision of
which states that 10% of arrastre and stevedoring gross income and
100% wharf age and berthing charges be given as government
share it had paid and for damage as a result of alleged illegal

exaction from its clients of 100% berthing and wharf age fees. RTC
ruled for Tefasco.
Issue:
Whether or not the collection of 100% wharf age fees and berthing
charge are valid.
Ruling:
The authorization for a Tefasco to construct a port was truly a binding
construct between the parties. It was a 2-way advantage for both
parties which were the consideration for the contract. The rightprivilege dechotomy came to an end when courts realized that
individuals should not be subjected to the unfettered whims of
government officials to withhold privileges previously given them.
In as much as the part is privately owned and maintained, we rule
that applicable rate for imported or exported articles loaded or
unloaded thereat is not

more

than

100% but

only 50%.

As regards berthing charges, the Court’s opinion is that only vessels
berthing at the national ports arte liable for berthing fees. The
Berthing fees imposed upon vessels berthing are national ports are
applied by the national government for the maintenance ports. The
national ports does not maintain municipal ports which are solely
maintain by private entities or municipalities. Thus, PPA erred in
collecting berthing fees.

Republic vs ICC

In time, ICC moved for a reconsideration. This time, the CA, reversed
itself.

ISSUE: WON the NTC has arrogated upon itself to tax an entity.

Facts
On April 4, 1995, respondent ICC, holder of a legislative franchise
under Republic Act (RA) No. 7633 to operate domestic
telecommunications, filed with the NTC an application for a
Certificate of Public Convenience and Necessity to install, operate,
and maintain an international telecommunications leased circuit
service between the Philippines and other countries, and to charge
rates therefor, with provisional authority for the purpose.
On June 4, 1996, the NTC approved the application for a provisional
authority subject, among others, to the condition:
2. That applicant [ICC] shall pay a permit fee in the amount
of P1,190,750.00, in accordance with section 40(g) of the
Public Service Act, as amended;
Respondent ICC filed a motion for partial reconsideration of the
Order insofar as the same required the payment of a permit fee. In a
subsequent Order dated June 25, 1997, the NTC denied the motion.
ICC went to the CA on a petition for certiorari with prayer for a
temporary restraining order and/or writ of preliminary injunction,
questioning the NTC's imposition against it of a permit fee
of P1,190,750.50 as a condition for the grant of the provisional
authority applied for.
On January 29, 1999, the CA ruled in favor of the NTC whose
challenged orders were sustained, and accordingly denied ICC's
certiorari petition

HELD:
NEGATIVE. NTC had not arrogated upon itself the power to tax an
entity as the fee in question is not in the nature of a tax, but is merely
a regulatory measure.
Section 40(g) of the Public Service Act provides:
Sec. 40. The Commission is authorized and ordered to
charge and collect from any public service or applicant, as
the case may be, the following fees as reimbursement of
its expenses in the authorization, supervision and/or
regulation of the public services:
xxx

xxx

xxx

g) For each permit, authorizing the increase in equipment,
the installation of new units or authorizing the increase of
capacity, or the extension of means or general extensions in
the services, twenty centavos for each one hundred pesos or
fraction of the additional capital necessary to carry out the
permit. (Emphasis supplied)
Clearly, Section 40(g) of the Public Service Act is not a tax measure
but a simple regulatory provision for the collection of fees
imposed pursuant to the exercise of the State’s police power. A
tax is imposed under the taxing power of government principally for
the purpose of raising revenues. The law in question, however,
merely authorizes and requires the collection of fees for the
reimbursement of the Commission's expenses in the authorization,

supervision and/or regulation of public services. There can be no
doubt then that petitioner NTC is authorized to collect such fees.

and the distribution of the shares of the stock of the bank it [PCA]
acquired free to the coconut farmers” (Sec.2).
Thus, the PCA acquired the First United Bank, later renamed
the United Coconut Planters Bank (UCPB). The PCA bought the
72.2% of PUB’s outstanding capital stock or 137,866 shares at P200
per share (P27, 573,200.00) from Pedro Cojuangco in behalf of the
coconut farmers.” The rest of the Fund was deposited to the UCPB
interest free.
Farmers who had paid the CIF and registered their receipts
with PCA were given their corresponding UCPB stock certificates.
Only 16 million worth of COCOFUND receipts were registered and a

Phil Coconut vs Republic

large number of the coconut farmers opted to sell all/part of their
UCPB shares to private individuals.
Simply put, parts of the coconut levy funds went directly or

FACTS:

indirectly to various projects and/or was converted into different
assets or investments through the years.
After the EDSA Revolution, President Corazon Aquino

In 1971, Republic Act No. 6260 was enacted creating the Coconut

issued Executive Order 1 which created the Presidential Commission

Investment Fund (CIF). The source of the CIF was a P0.55 levy on

on Good Government (PCGG).
The PCGG aimed to assist the President in the recovery of

the sale of every 100 kg. of copra. The Philippine Coconut
Administration was tasked to collect and administer the Fund. Out of
the 0.55 levy, P0.02 was placed at the disposition of the COCOFED,

ill-gotten wealth accumulated by the Marcoses and their cronies.
PCGG was empowered to file cases for sequestration in the

the recognized national association of coconut producers declared

Sandiganbayan.
Among the sequestered properties were the shares of stock

by the PCA. Cocofund receipts were ought to be issued to every

in the UCPB registered in the name of “over a million coconut

copra seller.
During the Martial Law regime, then President Ferdinand

farmers” held in trust by the PCA. The Sandiganbayan allowed the

Marcos issued several Presidential Decrees purportedly for the
improvement of the coconut industry. The most relevant among

sequestration by ruling in a Partial Summary Judgment that the
Coconut Levy Funds are prima facie public funds and that Section 1

these is P.D. No. 755 which permitted the use of the Fund for the

and 2 of PD No. 755 (and some other PDs) were unconstitutional.
The COCOFED representing the “over a million coconut

“acquisition of a commercial bank for the benefit of coconut farmers

farmers” via Petition for review under Rule 45 sought the reversal of

the ruling contending among others that the sequestration amounted
to “taking of private property without just compensation and
impairment of vested right of ownership.”
ISSUE: What is the NATURE of the Coconut Levy Fund?
RULING:
The SC ruled in favor of the REPUBLIC.
To begin with, the Coconut Levy was imposed in the exercise
of the State’s inherent power of taxation. Indeed, the Coconut Levy
Funds partake the nature of TAXES. The Funds were generated by
virtue of statutory enactments by the proper legislative authorities
and for public purpose.
The Funds were collected to advance the government
avowed policy of protecting the coconut industry. The SC took
judicial notice of the fact that the coconut industry is one of the great
economic pillars of our nation, and coconuts and their byproducts
occupy a leading position among the countries’ export products.
Taxation is done not merely to raise revenues to support the
government, but also to provide means for the rehabilitation and
the stabilization of a threatened industry, which is so affected with
public interest.

G.R. Nos. 147036-37 : April 10, 2012
Pambansang Koalisyon vs PCGG
ABAD,J.:
FACTS:
These are consolidated petitions to declare unconstitutional certain
presidential decrees and executive orders of the martial law era and
under the incumbency of Pres. Estrada relating to the raising and
use of coco-levy funds, particularly: Section 2 of P.D. 755, (b)Article
III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313.
On June 19, 1971 Congress enacted R.A. 6260 that established a

Coconut Investment Fund (CI Fund) for the development of the
coconut industry through capital financing. Coconut farmers were to
capitalize and administer the Fund through the Coconut Investment
Company (CIC) whose objective was, among others, to advance the
coconut farmers interests.For this purpose, the law imposed a levy
ofP0.55on the coconut farmers first domestic sale of every 100
kilograms of copra, or its equivalent, for which levy he was to get a
receipt convertible into CIC shares of stock.
In 1975 President Marcos enacted P.D. 755 which approved the
acquisition of a commercial bank for the benefit of the coconut
farmersto enable such bank to promptly and efficiently realize the
industry's credit policy.Thus, the PCA bought 72.2% of the shares of
stock of First United Bank, headed by Pedro Cojuangco.Dueto
changes in its corporate identity and purpose, the banks articles of
incorporation were amended in July 1975, resulting in a change in
the banks name from First United Bank United Coconut Planters
Bank (UCPB).
In November 2000 then President Joseph Estrada issued Executive
Order (E.O.) 312, establishing a Sagip Niyugan Program which
sought to provide immediate income supplement to coconut farmers
and encourage the creation of a sustainable local market demand for
coconut oil and other coconut products.The Executive Order sought
to establish aP1-billion fund by disposing of assets acquired using
coco-levy funds or assets of entities supported by those funds.A
committee was created to manage the fund under this program.A
majority vote of its members could engage the services of a
reputable auditing firm to conduct periodic audits.
At about the same time, President Estrada issued E.O. 313, which
created an irrevocable trust fund known as the Coconut Trust Fund
(the Trust Fund).This aimed to provide financial assistance to
coconut farmers, to the coconut industry, and to other agri-related
programs.The shares of stock of SMC were to serve as the Trust
Funds initial capital.These shares were acquired with CII Funds and
constituted approximately 27% of the outstanding capital stock of
SMC.E.O. 313 designated UCPB, through its Trust Department, as

the Trust Funds trustee bank.The Trust Fund Committee would
administer, manage, and supervise the operations of the Trust Fund.
The Committee would designate an external auditor to do an annual
audit or as often as needed but it may also request the Commission
on Audit (COA) to intervene.
To implement its mandate, E.O. 313 directed the Presidential
Commission on Good Government, the Office of the Solicitor
General, and other government agencies to exclude the 27% CIIF
SMC shares from Civil Case 0033, entitled Republic of the
Philippines v. Eduardo Cojuangco, Jr., et al.,which was then pending
before the Sandiganbayan and to lift the sequestration over those
shares.
On January 26, 2001, however, former President Gloria MacapagalArroyo ordered the suspension of E.O.s 312 and 313. This
notwithstanding, on March 1, 2001 petitioner organizations and
individuals brought the present action in G.R. 147036-37 to declare
E.O.s 312 and 313 as well as Article III, Section 5 of P.D. 1468
unconstitutional.On April 24, 2001 the other sets of petitioner
organizations and individuals instituted G.R. 147811 to nullify Section
2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also for
being unconstitutional.
ISSUE:
Whether or not the coco-levy funds are public funds?
Whether or not(a) Section 2 of P.D. 755, (b)Article III, Section 5 of
P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313 are
unconstitutional?
Whether or not petitioners have legal standing to bring the same to
court?
HELD:
POLITICAL LAW: coco levy as public funds

The Court was satisfied that the coco-levy funds were raised
pursuant to law to support a proper governmental purpose.They
were raised with the use of the police and taxing powers of the State
for the benefit of the coconut industry and its farmers in general.The
COA reviewed the use of the funds.The BIR treated them as public
funds and the very laws governing coconut levies recognize their
public character.
The Court has also recently declared that the coco-levy funds are in
the nature of taxes and can only be used for public purpose.Taxes
are enforced proportional contributions from persons and property,
levied by the State by virtue of its sovereignty for the support of the
government and for all itspublic needs. Here, the coco-levy funds
were imposed pursuant to law, namely, R.A. 6260 and P.D. 276.The
funds were collected and managed by the PCA,an independent
government corporation directly under the President.And, as the
respondent public officials pointed out, thepertinent laws used the
termlevy, which meansto tax, in describing the exaction.
R.A. 6260 and P.D. 276 did not raise money to boost the
governments general funds butto provide means for the rehabilitation
and stabilization of a threatened industry, the coconut industry, which
is so affected with public interest as to be within the police power of
the State. The funds sought to support the coconut industry,one of
the main economic backbones of the country, and to secure
economic benefits for the coconut farmers and farm workers.

effectively authorizing the PCA to utilize portions of theCCS Fundto
pay the financial commitment of the farmers to acquire UCPB and to
deposit portions of the CCS Fund levies with UCPB interest free. And
as there also provided, the CCS Fund, CID Fund and like levies that
PCA is authorized to collect shall be considered as non-special or
fiduciary funds to be transferred to the general fund of the
Government, meaning they shall be deemed private funds.
In any event, such declaration is void.There is ownership when a
thing pertaining to a person is completely subjected to his will in
everything that is not prohibited by law or the concurrence with the
rights of another. An owner is free to exercise all attributes
ofownership: the right, among others, to possess, use and enjoy,
abuse or consume, and dispose or alienate the thing owned. The
owner is free to waive all or some of these rights in favor of
others.But in the case of the coconut farmers, they could not,
individually or collectively, waive what have not been and could not
be legally imparted to them.
Section 2 of P.D. 755, Article III,Section 5of P.D. 961, and Article III,
Section 5 of P.D. 1468 completely ignore the fact that coco-levy
funds are public funds raised through taxation.And since taxes could
be exacted only for a public purpose, they cannot be declared private
properties of individuals although such individuals fall within a distinct
group of persons.

POLITICAL LAW: constitutionality of the assailed p.d.s and e.o.s

These assailed provisions,which removed the coco-levy funds from
the general funds of the government and declared them private
properties of coconut farmers,do not appear to have a color of social
justice for their purpose.The levy on copra that farmers produce
appears, in the first place, to be a business tax judging by its tax
base.The concept of farmers-businessmen is incompatible with the
idea that coconut farmers are victims of social injustice and so
should be beneficiaries of the taxes raised from their earnings.

The Court has already passed upon this question in Philippine
Coconut Producers Federation, Inc. (COCOFED) v. Republic of the
Philippines. It held as unconstitutional Section 2 of P.D. 755 for

On another point, in stating that the coco-levy fund shall not be
construed or interpreted, under any law or regulation, as special
and/or fiduciary funds, or as part of the general funds of the national

Lastly, the coco-levy funds are evidently special funds. Its character
as such fund was made clear by the fact that they were deposited in
the PNB (then a wholly owned government bank) and not in the
Philippine Treasury.

government,P.D.s 961 and 1468 seek to remove such fund from
COA scrutiny.
This is also the fault of President Estradas E.O. 312 which deals with
P1 billion to be generated out of the sale of coco-fund acquired
assets.E.O. 313 has a substantially identical provision governing the
management and disposition of the Coconut Trust Fund capitalized
with the substantial SMC shares of stock that the coco-fund
acquired.
But, since coco-levy funds are taxes, the provisions of P.D.s755,961
and 1468 as well as those of E.O.s 312 and 313 that remove such
funds and the assets acquired through them from the jurisdiction of
the COA violate Article IX-D, Section 2(1) of the 1987
Constitution.Section 2(1) vests in the COA the power and authority to
examine uses of government money and property.The cited P.D.s
and E.O.s also contravene Section 2 of P.D. 898 (Providing for the
Restructuring of the Commission on Audit), which has the force of a
statute.And there is no legitimate reason why such funds should be
shielded from COA review and audit.The PCA, which implements the
coco-levy laws and collects the coco-levy funds, is a governmentowned and controlled corporation subject to COA review and audit.
E.O. 313 suffers from an additional infirmity.Apparently, it intends to
create a trust fund out of the coco-levy funds to provide economic
assistance to the coconut farmers and, ultimately, benefit the coconut
industry.But on closer look, E.O. 313 strays from the special purpose
for which the law raises coco-levy funds in that it permits the use of
coco-levy funds for improving productivity in other food areas.
Clearly, E.O.313 above runs counter to the constitutional provision
which directs thatall money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out for such
purpose only.Assisting other agriculturally-related programs is way
off the coco-funds objective of promoting the general interests of the
coconut industry and its farmers.
A final point,the E.O.s also transgress P.D. 1445,Section 84(2),the

first part by the previously mentioned sections of E.O. 313 and the
second part by Section 4 of E.O. 312 and Sections 6 and 7 of E.O.
313.E.O. 313 vests the power to administer, manage, and supervise
the operations and disbursements of the Trust Fund it established
(capitalized with SMC shares bought out of coco-levy funds) in a
Coconut Trust Fund Committee.
Section 4 ofE.O. 312 does essentially the same thing.It vests the
management and disposition of the assistance fund generated from
the sale of coco-levy fund-acquired assets into a Committee of five
members.
In effect, the provision transfers the power to allocate, use, and
disburse coco-levy funds that P.D. 232 vested in the PCA and
transferred the same, without legislative authorization and in violation
of P.D. 232, to the Committees mentioned above.An executive order
cannot repeal a presidential decree which has the same standing as
a statute enacted by Congress.

domain against respondents spouses Jose Magtoto III and Patricia
Sindayan, the registered owners of a parcel of land covered by
Transfer Certificate of Title No. 117674-R. Petitioner sought to
convert a portion of respondents’ land into Barangay Sindalan’s
feeder road. The alleged public purposes sought to be served by the
expropriation were stated in Barangay Resolution No. 6.

Petitioner claimed that respondents’ property was the most practical
and nearest way to the municipal road. Pending the resolution of the
case at the trial court, petitioner deposited an amount equivalent to
the fair market value of the property.

BARANGAY SINDALAN, SAN FERNANDO, PAMPANGA rep. by
BARANGAY CAPTAIN ISMAEL GUTIERREZ, Petitioner
vs.
COURT OF APPEALS, JOSE MAGTOTO III,

Respondents alleged that the expropriation of their property was for
private use, that is, for the benefit of the homeowners of Davsan II
Subdivision. They contended that petitioner deliberately omitted the
name of Davsan II Subdivision and, instead, stated that the
expropriation was for the benefit of the residents of Sitio Paraiso in
order to conceal the fact that the access road being proposed to be
built across the respondents’ land was to serve a privately owned
subdivision and those who would purchase the lots of said
subdivision. They also pointed out that under Presidential Decree
No. (PD) 957, it is the subdivision owner who is obliged to provide a
feeder road to the subdivision residents.

and PATRICIA SINDAYAN, Respondents
G.R. No. 150640, March 22, 2007

Issues:
Whether or not the taking of the land was for a public purpose or
use.

Facts:
Pursuant to a resolution passed by the barangay council, petitioner
Barangay Sindalan, San Fernando, Pampanga, represented by
Barangay Captain Ismael Gutierrez, filed a Complaint for eminent

Ruling:
The petition lacks merit.

In general, eminent domain is defined as “the power of the nation or
a sovereign state to take, or to authorize the taking of, private
property for a public use without the owner’s consent, conditioned
upon payment of just compensation.” It is acknowledged as “an
inherent political right, founded on a common necessity and interest
of appropriating the property of individual members of the community
to the great necessities of the whole community.”

The exercise of the power of eminent domain is constrained by two
constitutional provisions: (1) that private property shall not be taken
for public use without just compensation under Article III (Bill of
Rights), Section 9 and (2) that no person shall be deprived of his/her
life, liberty, or property without due process of law under Art. III, Sec.
1.
However, there is no precise meaning of “public use” and the term is
susceptible of myriad meanings depending on diverse situations.
The limited meaning attached to “public use” is “use by the public” or
“public employment,” that “a duty must devolve on the person or
corporation holding property appropriated by right of eminent domain
to furnish the public with the use intended, and that there must be a
right on the part of the public, or some portion of it, or some public or
quasi-public agency on behalf of the public, to use the property after
it is condemned.” The more generally accepted view sees “public
use” as “public advantage, convenience, or benefit, and that anything
which tends to enlarge the resources, increase the industrial
energies, and promote the productive power of any considerable
number of the inhabitants of a section of the state, or which leads to
the growth of towns and the creation of new resources for the
employment of capital and labor, which contributes to the general
welfare and the prosperity of the whole community.” In this
jurisdiction, “public use” is defined as “whatever is beneficially
employed for the community.”

It is settled that the public nature of the prospective exercise of
expropriation cannot depend on the “numerical count of those to be

served or the smallness or largeness of the community to be
benefited.” The number of people is not determinative of whether or
not it constitutes public use, provided the use is exercisable in
common and is not limited to particular individuals. Thus, the first
essential requirement for a valid exercise of eminent domain is for
the expropriator to prove that the expropriation is for a public use. In
Municipality of Biñan v. Garcia, this Court explicated that
expropriation ends with an order of condemnation declaring “that the
plaintiff has a lawful right to take the property sought to be
condemned, for the public use or purpose described in the
complaint, upon the payment of just compensation.”

In the case at bar, petitioner harps on eminent domain as an inherent
power of sovereignty similar to police power and taxation. As a basic
political unit, its Sangguniang Barangay is clothed with the authority
to provide barangay roads and other facilities for public use and
welfare.
Petitioner’s delegated power to expropriate is not at issue. The legal
question in this petition, however, is whether the taking of the land
was for a public purpose or use. In the exercise of the power of
eminent domain, it is basic that the taking of private property must be
for a public purpose. A corollary issue is whether private property
can be taken by law from one person and given to another in the
guise of public purpose.

In this regard, the petition must fail.

The power of eminent domain can only be exercised for public use
and with just compensation. Taking an individual’s private property is
a deprivation which can only be justified by a higher good—which is
public use—and can only be counterbalanced by just compensation.
Without these safeguards, the taking of property would not only be
unlawful, immoral, and null and void, but would also constitute a

gross and condemnable transgression of an individual’s basic right to
property as well.

For this reason, courts should be more vigilant in protecting the
rights of the property owner and must perform a more thorough and
diligent scrutiny of the alleged public purpose behind the
expropriation. Extreme caution is called for in resolving complaints
for condemnation, such that when a serious doubt arises regarding
the supposed public use of property, the doubt should be resolved in
favor of the property owner and against the State.

erroneously paid taxes but that there are other situations which may
warrant a tax credit/refund.
CA affirmed CTA decision reasoning that RA 7432 required neither a
tax liability nor a payment of taxes by private establishments prior to
the availment of a tax credit. Moreover, such credit is not tantamount
to an unintended benefit from the law, but rather a just compensation
for the taking of private property for public use.

Commissioner of Internal Revenue vs. Central Luzon
Drug Corporation
GR No. 159647, April 15, 2005
Facts:
Respondent is a domestic corporation engaged in the retailing of
medicines and other pharmaceutical products. In 1996 it operated six
(6) drugstores under the business name and style “Mercury Drug.”
From January to December 1996 respondent granted 20% sales
discount to qualified senior citizens on their purchases of medicines
pursuant to RA 7432. For said period respondent granted a total of ₱
904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year
1996 declaring therein net losses. On Jan. 16, 1998 respondent filed
with petitioner a claim for tax refund/credit of ₱ 904,769.00
alledgedly arising from the 20% sales discount. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to
the CTA via Petition for Review. CTA dismissed the same but on MR,
CTA reversed its earlier ruling and ordered petitioner to issue a Tax
Credit Certificate in favor of respondent citing CA GR SP No. 60057
(May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec.
229 of RA 7432 deals exclusively with illegally collected or

ISSUE: W/N respondent, despite incurring a net loss, may still claim
the 20% sales discount as a tax credit.

RULING:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the
privilege of obtaining a 20% discount on their purchase of medicine
from any private establishment in the country. The latter may then
claim the cost of the discount as a tax credit. Such credit can be
claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is “subtracted directly
from one’s total tax liability.” It is an “allowance against the tax itself”
or “a deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts.
One of these is tax deduction – which is subtraction “from income for
tax purposes,” or an amount that is “allowed by law to reduce income
prior to the application of the tax rate to compute the amount of tax
which is due.” In other words, whereas a tax credit reduces the tax
due, tax deduction reduces the income subject to tax in order to
arrive at the taxable income.

Since a tax credit is used to reduce directly the tax that is due, there
ought to be a tax liability before the tax credit can be applied.
Without that liability, any tax credit application will be useless. There
will be no reason for deducting the latter when there is, to begin with,
no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is
not the same as the availment or use of such credit. While the grant
is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from,
a business establishment, there will obviously be no tax liability
against which any tax credit can be applied. For the establishment
to choose the immediate availment of a tax credit will be premature
and impracticable. Nevertheless, the irrefutable fact remains that,
under RA 7432, Congress has granted without conditions a tax
credit benefit to all covered establishments.However, for the losing
establishment to immediately apply such credit, where no tax is due,
will be an improvident usance.

In addition, while a tax liability is essential to the availment or use of
any tax credit, prior tax payments are not. On the contrary, for
the existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. The Tax Code is in fact replete with
provisions granting or allowing tax credits, even though no taxes
have been previously paid.

Petition is denied.

discount with corresponding cash slips. Thus, the CTA reduced
M.E.'s claim for PhP603,923.46 sales discount to PhP362,574.57
after the CTA disallowed PhP241,348.89 unsupported claims, and
consequently lowered the refundable amount to PhP122,195.74.
M.E. went to the CA on a petition for review. CA pointed out that
forgotten evidence is not newly discovered evidence which can be
presented to the appellate tax court, even after it had already
rendered its decision.
Issue/ Held: W/N the belatedly submitted cash slips by the petitioner
can be considered as sufficient evidence of the sales discounts- NO

M.E. HOLDING CORPORATION, vs. THE HON. COURT OF
APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER
OF INTERNAL REVENUE [G.R. No. 160193. March 3, 2008.]
Facts: M.E. Holding Corporation (M.E.) filed its 1995 Corporate
Annual Income Tax Return, claiming the 20% sales discount it
granted to qualified senior citizens. M.E. treated the discount as
deductions from its gross income purportedly in accordance with
Revenue Regulation No. (RR) 2-94. M.E. sent BIR a letter-claim
dated December 6, 1996, 1 stating that it overpaid its income tax
owing to the BIR's erroneous interpretation of Sec. 4 (a) of RA 7432.
Due to the inaction of the BIR, and to toll the running of the
two-year prescriptive period in filing a claim for refund, M.E. filed an
appeal before the Court of Tax Appeals. TA rendered a Decision in
favor of M.E. Unfortunately, what appears to be the victory of M.E.
before the CTA was watered down by the tax court's declaration that,
while the independent auditor M.E. hired found the amount
PhP603,923.46 as having been granted as sales discount to
qualified senior citizens, M.E. failed to properly support the claimed

Ratio: Lest it be overlooked, the Rules of Court is of suppletory
application in quasi-judicial proceedings. Be this as it may, the CTA
was correct in disallowing and not considering the belatedlysubmitted cash slips to be part of the 20% sales discount for M.E.'s
taxable year 1995. This is as it should be in the light of Sec. 34 of
Rule 132 prescribing that no evidence shall be considered unless
formally offered with a statement of the purpose why it is being
offered. In addition, the rule is that the best evidence under the
circumstance must be adduced to prove the allegations in a
complaint, petition, or protest. Only when the best evidence cannot
be submitted may secondary evidence be considered. But, in the
instant case, the disallowed cash slips, the best evidence at that
time, were not part of M.E.'s offer of evidence. While it may be true
that the authenticated special record books yield the same data
found in the cash slips, they cannot plausibly be considered by the
courts a quo and made to corroborate pieces of evidence that have,
in the first place, been disallowed. Recall also that M.E. offered the
disallowed cash slips as evidence only after the CTA had rendered
its assailed decision. Thus, we cannot accept the excuse of
inadvertence of the independent auditor as excusable negligence. As
aptly put by the CA, the belatedly-submitted cash slips do not
constitute newly-found evidence that may be submitted as basis for a
new trial or reconsideration of the decision

provides that: (1) the excise tax from any brand of cigarettes within
the next three (3) years from the effectivity of R.A. No. 8240 shall not
be lower than the tax, which is due from each brand on October 1,
1996; (2) the rates of excise tax on cigarettes enumerated therein
shall be increased by 12% on January 1, 2000; and (3) the
classification of each brand of cigarettes based on its average retail
price as of October 1, 1996, as set forth in Annex D shall remain in
force until revised by Congress.
The Secretary of Finance issued RR No. 17-99 to implement the
provision for the 12% excise tax increase. RR No. 17-99 added the
qualification that “the new specific tax rate xxx shall not be lower
than the excise tax that is actually being paid prior to January 1,
2000.” In effect, it provided that the 12% tax increase must be based
on the excise tax actually being paid prior to January 1, 2000 and not
on their actual net retail price.
FTC filed 2 separate claims for refund or tax credit of its purportedly
overpaid excise taxes for the month of January 2000 and for the
period January 1-December 31, 2002. It assailed the validity of RR
No. 17-99 in that it enlarges Section 145 by providing the aforesaid
qualification. In this petition, petitioner CIR alleges that the literal
interpretation given by the CTA and the CA of Section 145 would lead
to a lower tax imposable on 1 January 2000 than that imposable
during the transition period, which is contrary to the legislative intent
to raise revenue.
PURPOSE OF TAXATION: REVENUE RAISING
CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75,
July 21, 2008
Facts: Respondent FTC is a domestic corporation that manufactures
cigarettes packed by machine under several brands. Prior to January
1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette
brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the
cigarette brands’ tax classification rates based on their net retail
price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145
thereof now subjects the cigarette brands to specific tax and also

Issue: Should the 12% tax increase be based on the net retail
price of the cigarettes in the market as outlined in Section 145
of the 1997 Tax Code?
Held: YES. Section 145 is clear and unequivocal. It states that
during the transition period, i.e., within the next 3 years from the
effectivity of the 1997 Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1
October 1996. This qualification, however, is conspicuously absent
as regards the 12% increase which is to be applied on cigars and

cigarettes packed by machine, among others, effective on 1 January
2000.
Clearly, Section 145 mandates a new rate of excise tax for cigarettes
packed by machine due to the 12% increase effective on 1 January
2000 without regard to whether the revenue collection starting from
this period may turn out to be lower than that collected prior to this
date.
The qualification added by RR No. 17-99 imposes a tax which is the
higher amount between the ad valorem tax being paid at the end of
the 3-year transition period and the specific tax under Section 145,
as increased by 12%—a situation not supported by the plain wording
of Section 145 of the 1997 Tax Code. Administrative issuances must
not override, supplant or modify the law, but must remain consistent
with the law they intend to carry out.
Revenue generation is not the sole purpose of the passage of the
1997 Tax Code. The shift from the ad valorem system to the specific
tax system in the Code is likewise meant to promote fair competition
among the players in the industries concerned and to ensure an
equitable distribution of the tax burden.
Purpose and Objectives of Taxation
raise revenue
regulate
promote general welfare
reduce social inequality
encourage economic growth – compensatory because the
power to tax necessarily includes the power to grant tax
exemption, providing tax incentives for investors
implement of eminent domain
Sumptuary Purpose of Taxation – non-revenue raising purpose of
taxation; refers to regulatory purpose

PURPOSE OF TAXATION: NONREVENUE/
REGULATORY
CALTEX V. COA 208 SCRA 726

SPECIAL

OR

FACTS: COA sent a letter to petitioner, demanding unpaid
remittances with
regard the OPSF. In its second letter, it mentioned that whatever
claim
petitioner has with respect to the OPSF will be held in abeyance
until
payment. Request was then made by petitioner for the early
release of
its reimbursements based on claims with the Office of Energy
Affairs.
This was denied by the COA and it repeated its demand. By a
counterproposal, petitioner asked again for its collection and claims
prerequisite
to payment. This was denied by COA.
HELD: Petitioner may not offset whatever claims it may have
against the
government in its payment of taxes.
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 taxpayers are not mutually
creditors and
debtors of each other and a claim for taxes is not such a debt,
demand or
contract or judgment as is allowed to be set-off.

Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8, 1992

POLICE POWER: 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.
NO OFFSET: It is settled that a taxpayer may not offset taxes due
from the claims that he may have against he 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.

rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of the
state. PD 1956, as amended by EO 137, explicitly provides that the
source of OPSF is taxation.
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.

Caltex Philippines vs. Commission on Audit (COA)
GR 92585, 8 May 1992
En Banc, Davide (J): 12 concur, 2 took no part
Facts: In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding that
unremitted for 1986 and 188 of the additional tax on petroleum
products authorized under Section 8 of PD 1956; and that pending
such remittance, all its claims for reimbursement from the OPSF
shall be held in abeyance. Caltex requested COA, notwithstanding
an early release of its reimbursement certificates from the OPSF,
which COA denied. On 31 May 1989, Caltex submitted a proposal to
COA for the payment and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offseting remittances and
reimbursements for the current and ensuing years. Caltex moved for
reconsideration.
Issue: Whether the amounts due from Caltex to the OPSF may
be offset Against Caltex’ outstanding claims from said funds.
Held: Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of government; taxes may be
levied with a regulatory purpose to provide means for the

PURPOSE OF
REGULATORY

TAXATION:

NONREVENUE/

SPECIAL

OR

Southern Cross Cement Corp. v. Cement Manufacturers
Association of the Phils., G.R. No. 158540, Aug. 3, 2005
Nowhere in the SMA does it state that the DTI Secretary
may impose general safeguard measures without a positive final
determination by the Tariff Commission, or that the DTI Secretary
may reverse or even review the factual determination made by the
Tariff Commission. Congress has the putative authority to abolish the
Tariff Commission or the DTI. It is similarly empowered to alter or
expand its functions through modalities which do not align with
established norms in the bureaucratic structure. The Court is bound
to recognize the legislative prerogative to prescribe such modalities,

no matter how atypical they may be, in affirmation of the legislative
power to restructure the executive branch of government.
The case centers on the interpretation of the provisions of
Republic Act No. 8800, the Safeguard Measures Act (“SMA”), which
was one of the laws enacted by Congress soon after the Philippines
ratified the General Agreement on Tariff and Trade (GATT) and the
World Trade Organization (WTO) Agreement. The SMA provides for
the structure and mechanics for the imposition of emergency
measures, including tariffs, to protect domestic industries and
producers from increased imports which inflict or could inflict serious
injury on them.
Philcemcor filed with the Department of Trade and Industry (DTI) a
petition seeking for the imposition of safeguard measures on Gray
Portland cement, in accordance with the SMA. After the DTI issued a
provisional safeguard measure, the application was referred to the
Tariff Commission for a formal investigation pursuant to Section 9 of
the SMA and its Implementing Rules and Regulations, in order to
determine whether or not to impose a definitive safeguard measure
on imports of gray Portland cement. After public hearings and
conducting its own investigation, the Tariff Commission came out
with a negative finding. Notwithstanding such finding, the DTI sought
the opinion of the Secretary of Justice whether it could still impose a
definitive safeguard measure. The Secretary of Justice opined that
the DTI could not do so under the SMA, and so the DTI Secretary
then promulgated a Decision wherein he expressed the DTI’s
disagreement with the conclusions of the Tariff Commission, but at
the same time, ultimately denying Philcemcor’s application for
safeguard measures on the ground that the he was bound to do so in
light of the Tariff Commission’s negative findings.
Philcemcor filed with the Court of Appeals a Petition for
Certiorari, Prohibition and Mandamus seeking to set aside the DTI
Decision, as well as the Tariff commission’s Report. Philcemcor
argued that the DTI Secretary, vested as he is under the law with the
power of review, is not bound to adopt the recommendations of the

Tariff Commission; and, that the Report is void, as it is predicated on
a flawed framework, inconsistent inferences and erroneous
methodology. The CA held that the DTI Secretary was not bound by
the factual findings of the Tariff Commission since such findings are
merely recommendatory and they fall within the ambit of the
Secretary’s
discretionary review. It determined that the legislative intent is to
grant the DTI Secretary the power to make a final decision on the
Tariff Commission’s recommendation.
Southern Cross filed the present petition, arguing that the
factual findings of the Tariff Commission on the existence or nonexistence of conditions warranting the imposition of general
safeguard measures are binding upon the DTI Secretary.
ISSUE: Whether or not the factual findings of the Tariff
Commission on the existence or non-existence of conditions
warranting the imposition of safeguard measures are binding
upon the DTI Secretary
HELD: Petition is granted.
The DTI Secretary is barred from imposing a general
safeguard measure absent a positive final determination rendered by
the Tariff Commission. The required positive final determination of
the Tariff Commission exists as a properly enacted constitutional
limitation imposed on the delegation of the legislative power to
impose tariffs and imposts to the President under Section 28(2),
Article VI of the Constitution. The provision states: “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.”
These impositions under Section 28(2), Article VI fall within
the realm of the power of taxation, a power which is within the sole

province of the legislature. But this provision is also an exceptional
grant of legislative power to the President which is why the qualifiers
mandated by the Constitution on this presidential authority attains
primordial consideration. First, there must be a law, such as the
SMA. Second, there must be specified limits, a detail which would be
filled in by the law. And Third, Congress is further empowered to
impose limitations and restrictions on this presidential authority.

in the public interest.

The authority delegated to the President may be exercised by his/her
alter egos, such as department secretaries. For purposes of the
President’s exercise of power to impose tariffs under the above
provision, it is generally the Secretary of Finance who acts as the
alter ego of the President.
The SMA provides an exceptional
instance wherein it is the DTI or Agriculture Secretary who is tasked
by Congress, in their capacities as alter egos of the President, to
impose such measures.

Philcemcor raised a question as to whether such
requirement run counter to our legal order since under the said
provision, a body of relative junior competence as a Tariff
Commission can bind an administrative superior and cabinet officer
such as the DTI Secretary. No provision in the SMA expressly
authorizes the DTI Secretary to impose a general safeguard
measure despite the absence of a positive final recommendation of
the Tariff
Commission. On the other hand, Section 5 expressly states that the
DTI Secretary “shall apply a general safeguard measure upon a
positive final determination of the Tariff Commission.”

Both the Tariff Commission and the DTI Secretary may be
regarded as agents of Congress in the implementation of the said
law. Indeed, even the President may be considered as an agent of
Congress for the purpose of imposing safeguard measures since it is
Congress, not the President, which possesses inherent powers to
impose tariffs and imposts.
The entire SMA provides for a limited framework under
which the President, through the DTI and Agriculture Secretaries,
may impose safeguard measures in the form of tariffs and similar
imposts. The limitation most relevant to this case is contained in
Section 5 of the SMA, captioned “Conditions for the Application of
General Safeguard Measures,” and stating: “The Secretary shall
apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission that a product is being
imported into the country in increased quantities, whether absolute or
relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry; however, in
the case of non-agricultural products, the Secretary shall first
establish that the application of such safeguard measures will be

Section 5 of the SMA operates as a limitation validly
imposed by Congress on the presidential authority under the SMA to
impose tariffs and imposts. The positive final determination by the
Tariff Commission is plainly required by the law and so it must be
strictly complied with.

Under the SMA, it is the Tariff Commission that conducts an
investigation as to whether the conditions exist to warrant the
imposition of the safeguard measures.
These conditions are
enumerated in Section 5, namely; that a product is being imported
into the country in increased quantities, whether absolute or relative
to the domestic production, as to be a substantial cause of serious
injury or threat thereof to the domestic industry.
After the
investigation of the Tariff Commission, it submits a report to the DTI
Secretary, which states whether the above-stated conditions for the
imposition of the general safeguard measures exist. Upon a positive
final determination that these conditions are present, the Tariff
Commission then is mandated to
recommend what appropriate safeguard measures should be
undertaken by the DTI Secretary. Section 13 of the SMA gives five
specific options on the type of safeguard measures the Tariff
Commission recommends to the DTI Secretary.

At the same time, nothing in the SMA obliges the DTI
Secretary to adopt the recommendations made by the Tariff
Commission. In fact, the SMA requires that the DTI Secretary
establish that the application of such safeguard measures is in the
public
interest,
notwithstanding
the
Tariff
Commission’s
recommendation on the appropriate safeguard measure upon its
positive final determination. Thus, even if the Tariff Commission
makes a positive final determination, the DTI Secretary may opt not
to impose a general safeguard
measure, or choose a different type of safeguard measure other than
that recommended by the Tariff Commission.

It is evident from the text of Section 5 that there must be a
positive final
determination by the Tariff Commission that a product is being
imported into the country in increased quantities (whether absolute
or relative to domestic production), as to be a substantial cause of
serious injury or threat to the domestic industry. Any disputation to
the contrary is, at best, the product of wishful thinking.
The Tariff Commission’s finding is
not merely
recommendatory. Section 5 bluntly does require a positive final
determination by the Tariff Commission before the DTI Secretary
may impose a general safeguard measure. This is a duty imposed
on a public officer by the law
itself which must be given a controlling effect. In fact, the Department
of Justice (DOJ) Secretary himself rendered an Opinion with the
same conclusion.
Another issue was raised as to whether the DTI Secretary,
acting either as alter ego of the President or in his capacity as head
of an executive department, may review, modify or otherwise alter
the final determination of the Tariff Commission under the SMA. The
Court answered in the negative. Congress in enacting the SMA and
prescribing the roles to be played therein

by the Tariff Commission and the DTI Secretary did not envision that
the President, or his/her alter ego, could exercise supervisory
powers over the Tariff Commission. If Congress intended to allow
the traditional “alter ego” principle to be established by the SMA, it
would have assigned the role now played by the DTI Secretary
under the law instead to the National Economic and Development
Authority (NEDA). The Tariff Commission is an
attached agency of the NEDA, which in turn is the independent
planning agency of the government.
The Tariff Commission does not fall under the administrative
supervision of the DTI. On the other hand, the administrative
relationship between the NEDA and the Tariff Commission is
established not only by the Administrative Code, but similarly
affirmed by the Tariff and Customs Code.
At the same time, under the Tariff and Customs Code, no
similar role or influence is allocated to the DTI in the matter of
imposing tariff duties. In fact, the long-standing tradition has been for
the Tariff Commission and the DTI to proceed independently in the
exercise of their respective functions. Only very recently have our
statutes directed any significant interplay between the Tariff
Commission and the DTI, with the enactment in 1999 of Republic Act
No.
8751 on the imposition of countervailing duties and Republic Act No.
8752 on the imposition of anti-dumping duties, and of course the
promulgation a year later of the SMA. In all these three laws, the
Tariff Commission is tasked, upon referral of the matter by the DTI, to
determine whether the factual conditions exist to warrant the
imposition by the DTI of a countervailing duty, an anti-dumping duty,
or a general safeguard measure, respectively. In all three laws, the
determination by the Tariff Commission that these required factual
conditions exist is necessary before the DTI Secretary may impose
the corresponding duty or safeguard measure. And in all three laws,
there is no express provision authorizing the DTI Secretary to
reverse the factual determination of the Tariff Commission.

The SMA indubitably establishes that the Tariff Commission
is no mere flunky of the DTI Secretary when it mandates that the
positive final recommendation of the former be indispensable to the
latter’s imposition of a general safeguard measure. What the law
indicates instead is a relationship of interdependence between two
bodies independent of each other under the Administrative Code and
the SMA alike. Indeed, even the ability of the DTI Secretary to
disregard the Tariff Commission’s recommendations as to the
particular safeguard measures to be imposed evinces the
independence from each other of these two bodies. This is properly
so for two reasons – the DTI and the Tariff Commission are
independent of each other under the Administrative Code; and
impropriety is avoided in cases wherein the DTI itself is the one
seeking the imposition of the general safeguard measures, pursuant
to Section 6 of the SMA.
Considering that the power to impose tariffs in the first place
is not inherent in the President but arises only from congressional
grant, we should affirm the congressional prerogative to impose
limitations and restrictions on such powers which do not normally
belong to the executive in the first place. Nowhere in the SMA does it
state that the DTI Secretary may impose general safeguard
measures without a positive final determination by the Tariff
Commission, or that the DTI Secretary may reverse or even review
the factual
determination made by the Tariff Commission.
Congress can enact additional tasks or responsibilities on
either the Tariff Commission or the DTI Secretary, such as their
respective roles on the imposition of general safeguard measures
under the SMA. In doing so, the same Congress, which has the
putative authority to abolish the Tariff Commission or the DTI, is
similarly empowered to alter or expand its functions through
modalities which do not align with established norms in the
bureaucratic structure. The Court is bound to recognize the
legislative prerogative to prescribe such modalities, no matter how
atypical they may be, in affirmation of the legislative power to
restructure the executive branch of government.

Assuming administrative review were available, it is the
NEDA that may conduct such review following the principles of
administrative law, and the NEDA’s decision in turn is reviewable by
the Office of the President. The decision of the Office of the
President then effectively substitutes as the determination of the
Tariff Commission, which now forms the basis of the DTI Secretary’s
decision, which now would be ripe for judicial review by the CTA
under Section 29 of the SMA. This is the only way that administrative
review of the Tariff Commission’s determination may be sustained
without violating the SMA and its constitutional restrictions and
limitations, as well as administrative law.
In any event, even if we concede the possibility of
administrative review of the Tariff Commission’s final determination
by the NEDA, such would not deny merit to the present petition. It
does not change the fact that the Court of Appeals erred in ruling that
the DTI Secretary was not bound by the negative final determination
of the Tariff Commission, or that the DTI Secretary acted without
jurisdiction when he imposed general safeguard measures despite
the absence of the statutory positive final determination of the
Commission.

GR 152675
April 28, 2004
FACTS
In the early 1990’s, the country suffered from a crippling
power crisis. The government, through the National Power
Corporation (NPC), sought to attract investors in power plant
operations by providing them with incentives, one of which was the
NPC’s assumption of their tax payments in the Build Operate and
Transfer (BOT) Agreement.
On June 29, 1993, Enron Power Development Corporation
(Enron) and NPC entered into a Fast Track BOT Project. Enron
agreed to supply a power station to NPC & transfer its plant to the
latter after 10 years of operation. The BOT Agreement provided that
NPC shall be responsible for the payment of all taxes imposed on
the power station except income & permit fees. Subsequently, Enron
assigned its obligation under the BOT Agreement to Batangas Power
Corporation (BPC).
On September 23, 1992, the BOI issued a certificate of
registration to BPC as a pioneer enterprise entitled to a tax holiday of
6 years. On October 12, 1998, Batangas City sent a letter to BPC
demanding payment of business taxes & penalties. BPC refused to
pay citing its tax exemption as a pioneer enterprise for 6 years under
Sec.133(g) of the LGC. The city’s tax claim was modified and it
demanded payment of business taxes for the years 1998-1999. BPC
still refused to pay the tax, insisting that the 6-year tax holiday
commenced from the date of its commercial operation on July 16,
1993, not from the date of its BOI registration in September 1992.

Batangas Power Corporation vs. Batangas City

In the alternative, BPC asserted that the city should collect
the taxes from NPC since the latter assumed responsibility for their
payment under the BOT Agreement. The NPC intervened that while
it admitted assumption of the BPC’s tax obligations under the BOT
Agreement, it refused to pay BPC’s business tax as it allegedly
constituted an indirect tax on NPC which is a tax-exempt corporation
under its Charter.

BPC filed a petition for declaratory relief with the Makati RTC
against Batangas City & NPC alleging that under the BOT
Agreement, NPC is responsible for the payment of such taxes but
since it is exempt from such, both the BPC and NPC aren’t liable for
its payment.
ISSUES
1. Whether BPC’s 6-year tax holiday commenced on the day of
its registration or on the date of its actual commercial operation
as certified by the BOI.
2. Whether NPC’s tax exemption privileges under its Charter
were withdrawn by Sec.193 of the LGC.
HELD
1. Sec.133(g) of the LGC applies specifically to taxes imposed by the
local government. The provision of the LGC should apply on the tax
claim of Batangas City against the BPC. The 6-years tax claim
should thus commence from the date of BPC’s registration with the
BOI on July 16, 1993 and end on July 15, 1999.
2. In the case of NPC vs. City of Cabanatuan, the removal of the
blanket exclusion of government instrumentalities from local taxation
is recognized as one of the most significant provisions of the 1991
LGC. Sec.193 of the LGC withdrew the sweeping tax privileges
previously enjoined by the NPC under its Charter.
The power to tax is no longer exclusively vested on Congress; local
legislative bodies are now given authority to levy taxes, fees and
other charges pursuant to Art.X, Sec.5 of the 1987 Constitution. The
LGC effectively deals with the fiscal constraints faced by the LGUs. It
widens the tax base of LGUs to include taxes which were prohibited
by previous laws.
When NPC assumed tax liabilities of the BPC under their
1992 BOT Agreement, the LGC which removed NPC’s tax exemption
privileges had already been in effect for 6 months. Thus, while the
BPC remains to be the entity doing business in the city, it is the NPC

that is ultimately liable to pay said taxes under the provisions of both
the 1992 BOT Agreement & the 1991 LGC.

CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005
EMINENT DOMAIN: The concept of public use is no longer confined
to the traditional notion of use by the public, but held synonymous
with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior citizens are
entitled is actually a benefit enjoyed by the general public to which
these citizens belong. The discounts given would have entered the
coffers and formed part of the gross sales of the private
establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to
the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432,
respondent becomes entitled to a just compensation. This term
refers not only to the issuance of a tax credit certificate indicating the
correct amount of the discounts given, but also to the promptness in
its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the
grant of the discounts -- cannot be considered as just compensation.
… Besides, the taxation power can also be used as an implement for
the exercise of the power of eminent domain. Tax measures are but
“enforced contributions exacted on pain of penal sanctions” and
“clearly imposed for a public purpose.” In recent years, the power to
tax has indeed become a most effective tool to realize social justice,
public welfare, and the equitable distribution of wealth.
Facts: Respondent is a domestic corporation engaged in the
retailing of medicines and other pharmaceutical products. In 1996 it

operated six (6) drugstores under the business name and style
“Mercury Drug.” From January to December 1996 respondent
granted 20% sales discount to qualified senior citizens on their
purchases of medicines pursuant to RA 7432. For said period
respondent granted a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year
1996 declaring therein net losses. On Jan. 16, 1998 respondent filed
with petitioner a claim for tax refund/credit of ₱ 904,769.00 alledgedly
arising from the 20% sales discount. Unable to obtain affirmative
response from petitioner, respondent elevated its claim to the CTA
via Petition for Review. CTA dismissed the same but on MR, CTA
reversed its earlier ruling and ordered petitioner to issue a Tax Credit
Certificate in favor of respondent citing CA GR SP No. 60057 (May
31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of
RA 7432 deals exclusively with illegally collected or erroneously paid
taxes but that there are other situations which may warrant a tax
credit/refund.
CA affirmed CTA decision reasoning that RA 7432 required neither a
tax liability nor a payment of taxes by private establishments prior to
the availment of a tax credit. Moreover, such credit is not tantamount
to an unintended benefit from the law, but rather a just compensation
for the taking of private property for public use.
ISSUE: W/N respondent, despite incurring a net loss, may still
claim the 20% sales discount as a tax credit.
RULING: Yes, it is clear that Sec. 4a of RA 7432 grants to senior
citizens the privilege of obtaining a 20% discount on their purchase
of medicine from any private establishment in the country. The latter
may then claim the cost of the discount as a tax credit. Such credit
can be claimed even if the establishment operates at a loss.
A tax credit generally refers to an amount that is “subtracted directly
from one’s total tax liability.” It is an “allowance against the tax itself”
or “a deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts.

One of these is tax deduction – which is subtraction “from income for
tax purposes,” or an amount that is “allowed by law to reduce income
prior to the application of the tax rate to compute the amount of tax
which is due.” In other words, whereas a tax credit reduces the tax
due, tax deduction reduces the income subject to tax in order to
arrive at the taxable income.
Since a tax credit is used to reduce directly the tax that is due, there
ought to be a tax liability before the tax credit can be applied.
Without that liability, any tax credit application will be useless. There
will be no reason for deducting the latter when there is, to begin with,
no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is
not the same as the availment or use of such credit. While the grant
is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from,
a business establishment, there will obviously be no tax liability
against which any tax credit can be applied. For the establishment
to choose the immediate availment of a tax credit will be premature
and impracticable. Nevertheless, the irrefutable fact remains that,
under RA 7432, Congress has granted without conditions a tax credit
benefit to all covered establishments.However, for the losing
establishment to immediately apply such credit, where no tax is due,
will be an improvident usance.
In addition, while a tax liability is essential to the availment or use of
any tax credit, prior tax payments are not. On the contrary, for the
existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. The Tax Code is in fact replete with
provisions granting or allowing tax credits, even though no taxes
have been previously paid. Petition is denied.

PRINCIPLE OF SOUND TAX SYSTEM
ABAKADA Guro Party List v. Ermita, G.R. No. 168056, Sept. 1,
2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party
List, et al., filed a petition for prohibition on May 27, 2005 questioning
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions
contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to
12%, effective January 1, 2006, after specified conditions have been
satisfied. Petitioners argue that the law is unconstitutional.
ISSUES:

1. Whether or not there is a violation of Article VI, Section 24 of
the Constitution.
2. Whether or not there is undue delegation of legislative power
in violation of Article VI Sec 28(2) of the Constitution.
3. Whether or not there is a violation of the due process and
equal protection under Article III Sec. 1 of the Constitution.
RULING:
1. Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the House
bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise and franchise taxes.
2. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority; in our complex economy
that is frequently the only way in which the legislative process can go
forward.
3. The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State’s power
is entitled to presumption of validity. As a rule, the judiciary will not
interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.

The VAT is a tax on spending or consumption. It is levied on the sale,
barter, exchange or lease of goods or properties and services. Being
an indirect tax on expenditure, the seller of goods or services may
pass on the amount of tax paid to the buyer, with the seller acting
merely as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.
HISTORICAL PERSPECTIVE
In the Philippines, the value-added system of sales taxation has long
been in existence, albeit in a different mode. Prior to 1978, the
system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The singlestage system was subsequently modified, and a mixture of the "cost
deduction method" and "tax credit method" was used to determine
the value-added tax payable. Under the "tax credit method," an entity
can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports.
It was only in 1987, when President Corazon C. Aquino issued
Executive Order No. 273, that the VAT system was rationalized by
imposing a multi-stage tax rate of 0% or 10% on all sales using the
"tax credit method."
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT
Law, R.A. No. 8241 or the Improved VAT Law, R.A. No. 8424 or the
Tax Reform Act of 1997, and finally, the presently beleaguered R.A.
No. 9337, also referred to by respondents as the VAT Reform Act.
ENROLLED BILL DOCTRINE
Under the "enrolled bill doctrine," the signing of a bill by the Speaker
of the House and the Senate President and the certification of the
Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment.

NATURE OF VAT
COURTS GENERALLY DENIED THE POWER TO INQUIRE INTO
CONGRESS’ FAILURE TO COMPLY WITH ITS OWN RULES

The cases, both here and abroad, in varying forms of expression, all
deny to the courts the power to inquire into allegations that, in
enacting a law, a House of Congress failed to comply with its own
rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmeña
v. Pendatun, it was held: "At any rate, courts have declared that 'the
rules adopted by deliberative bodies are subject to revocation,
modification or waiver at the pleasure of the body adopting them.'
And it has been said that "Parliamentary rules are merely procedural,
and with their observance, the courts have no concern. They may be
waived or disregarded by the legislative body."

. . . it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House
bill or in the Senate bill. If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval
of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus without any
basis.

The foregoing declaration is exactly in point with the present cases,
where petitioners allege irregularities committed by the conference
committee in introducing changes or deleting provisions in the House
and Senate bills. One of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should
conduct its own business expeditiously and in the most orderly
manner. It is also the sole concern of Congress to instill discipline
among the members of its conference committee if it believes that
said members violated any of its rules of proceedings. Even the
expanded jurisdiction of the Supreme Court cannot apply to
questions regarding only the internal operation of Congress.

’NO AMENDEMENT RULE’ ’ NOT VIOLATED BY BCC

BICAMERAL CONFERENCE COMMITTEE (BCC)

There is no reason for requiring that the Committee's Report in these
cases must have undergone three readings in each of the two
houses. If that be the case, there would be no end to negotiation
since each house may seek modification of the compromise bill. . . .

All the changes or modifications made by the Bicameral Conference
Committee were germane to subjects of the provisions referred to it
for reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. The Court
recognized the long-standing legislative practice of giving said
conference committee ample latitude for compromising differences
between the Senate and the House. Thus, in the Tolentino case, it
was held that:

Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members
three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered
in the Journal.

EXTENT OF ’NO AMENDMENT RULE’
The ₱No Amendment Rule₱ must be construed as referring only to
bills introduced for the first time in either house of Congress, not to
the conference committee report.

BILLS WHICH MUST EXCLUSIVELY ORIGINATE IN THE HOUSE
All appropriation, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives but the Senate
may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions
of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out
with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC
provisions on other kinds of taxes. Is the introduction by the Senate
of provisions not dealing directly with the value-added tax, which is
the only kind of tax being amended in the House bills, still within the
purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated
from the House?
YES. In the Tolentino case:
₱. . . To begin with, it is not the law ₱ but the revenue bill ₱ which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. . . . At this
point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue
statute ₱ and not only the bill which initiated the legislative process
culminating in the enactment of the law ₱ must substantially be the
same as the House bill would be to deny the Senate's power not only
to "concur with amendments" but also to "propose amendments." It
would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the
Senate.₱

public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to be
more sensitive to the local needs and problems. On the other hand,
the senators, who are elected at large, are expected to approach the
same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
NON-DELEGATION OF LEGISLATIVE POWER
The principle of separation of powers ordains that each of the three
great branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere. A logical corollary to the doctrine of separation of powers is
the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means "what
has been delegated, cannot be delegated." This doctrine is based on
the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening
mind of another.
The powers which Congress is prohibited from delegating are those
which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described
as the authority to make a complete law ₱ complete as to the time
when it shall take effect and as to whom it shall be applicable ₱ and
to determine the expediency of its enactment. Thus, the rule is that in
order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must appear
that the power involved is purely legislative in nature ₱ that is, one
appertaining exclusively to the legislative department. It is the nature
of the power, and not the liability of its use or the manner of its
exercise, which determines the validity of its delegation.
EXCEPTIONS:

Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the

(1) Delegation of tariff powers to the President under Section 28 (2)
of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section
23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.

is the fact that the word shall is used in the common proviso. The use
of the word shall connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the idea of
discretion.

In every case of permissible delegation, there must be a showing
that the delegation itself is valid. It is valid only if the law (a) is
complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate; and (b) fixes a standard
₱ the limits of which are sufficiently determinate and determinable ₱
to which the delegate must conform in the performance of his
functions. A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public
agency to apply it.

In the present case, in making his recommendation to the President
on the existence of either of the two conditions, the Secretary of
Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of
control and direction of the President. He is acting as the agent of
the legislative department, to determine and declare the event upon
which its expressed will is to take effect. The Secretary of Finance
becomes the means or tool by which legislative policy is determined
and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the
two conditions laid out by Congress is present. His personality in
such instance is in reality but a projection of that of Congress. Thus,
being the agent of Congress and not of the President, the President
cannot alter or modify or nullify, or set aside the findings of the
Secretary of Finance and to substitute the judgment of the former for
that of the latter.

NO DELEGATION OF LEGISLATIVE
PRESIDENT IN THIS CASE

POWER

TO

THE

In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the following
conditions has been satisfied: xxx

The case is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January
1, 2006, contingent upon a specified fact or condition. It leaves the
entire operation or non-operation of the 12% rate upon factual
matters outside of the control of the executive. No discretion would
be exercised by the President. Highlighting the absence of discretion

SECRETARY OF FINANCE AS AGENT OF LEGISLATURE;
PRESIDENT’S POWER OF CONTROL NOT APPLICABLE

NO VIOLATION OF PRINCIPLE OF REPUBLICANISM
As to the argument of petitioners that delegating to the President the
legislative power to tax is contrary to the principle of republicanism,
the same deserves scant consideration. Congress did not delegate
the power to tax but the mere implementation of the law. The intent
and will to increase the VAT rate to 12% came from Congress and
the task of the President is to simply execute the legislative policy.
That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the
law.

EQUAL PROTECTION CLAUSE
NEW TAX NOT OPPRESSIVE
The principle of fiscal adequacy as a characteristic of a sound tax
system was originally stated by Adam Smith in his Canons of
Taxation (1776). It simply means that sources of revenues must be
adequate to meet government expenditures and their variations. The
dire need for revenue cannot be ignored. Our country is in a
quagmire of financial woe. During the Bicameral Conference
Committee hearing, then Finance Secretary Purisima bluntly
depicted the country's gloomy state of economic affairs.
. . . policy matters are not the concern of the Court. Government
policy is within the exclusive dominion of the political branches of the
government. It is not for this Court to look into the wisdom or
propriety of legislative determination. Indeed, whether an enactment
is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether,
in short, the legislative discretion within its prescribed limits should
be exercised in a particular manner are matters for the judgment of
the legislature, and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance.

The equal protection clause under the Constitution means that "no
person or class of persons shall be deprived of the same protection
of laws which is enjoyed by other persons or other classes in the
same place and in like circumstances.₱
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State's power
is entitled to presumption of validity. As a rule, the judiciary will not
interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
The equal protection clause does not require the universal
application of the laws on all persons or things without distinction.
This might in fact sometimes result in unequal protection. What the
clause requires is equality among equals as determined according to
a valid classification. By classification is meant the grouping of
persons or things similar to each other in certain particulars and
different from all others in these same particulars.

NO DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS
UNIFORMITY AND EQUITABILITY OF TAXATION
Petitioners argue that the input tax partakes the nature of a property
that may not be confiscated, appropriated, or limited without due
process of law.
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered
person's entitlement to the creditable input tax is a mere statutory
privilege. The distinction between statutory privileges and vested
rights must be borne in mind for persons have no vested rights in
statutory privileges. The state may change or take away rights, which
were created by the law of the state, although it may not take away
property, which was vested by virtue of such rights.

The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation. Uniformity in taxation
means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class
everywhere with all people at all times.
In this case, the tax law is uniform as it provides a standard rate of
0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6
of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or

lease of properties. These same sections also provide for a 0% rate
on certain sales and transaction.
Neither does the law make any distinction as to the type of industry
or trade that will bear the 70% limitation on the creditable input tax,
5-year amortization of input tax paid on purchase of capital goods or
the 5% final withholding tax by the government. It must be stressed
that the rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands uniformity
within the particular class.
R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales
of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00. Also, basic marine and agricultural food
products in their original state are still not subject to the tax, thus
ensuring that prices at the grassroots level will remain accessible.
R.A. No. 9337 puts a premium on businesses with low profit margins,
and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails,
the law imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or
receipts not exceeding P1.5 Million. This acts as a equalizer because
in effect, bigger businesses that qualify for VAT coverage and VATexempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the
impact of the imposition of the tax on those previously exempt.
Excise taxes on petroleum products and natural gas were reduced.
Percentage tax on domestic carriers was removed. Power producers
are now exempt from paying franchise tax.
Aside from these, Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. Domestic,
foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%. Intercorporate dividends of
non-resident foreign corporations are still subject to 15% final

withholding tax but the tax credit allowed on the corporation's
domicile was increased to 20%. The Philippine Amusement and
Gaming Corporation (PAGCOR) is not exempt from income taxes
anymore. Even the sale by an artist of his works or services
performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of
taxation, which would otherwise rest largely on the consumers.
PROGRESSIVITY OF TAXATION
Progressive taxation is built on the principle of the taxpayer's ability
to pay. Taxation is progressive when its rate goes up depending on
the resources of the person affected. The VAT is an antithesis of
progressive taxation. By its very nature, it is regressive. The principle
of progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income.
In other words, the VAT paid eats the same portion of an income,
whether big or small. The disparity lies in the income earned by a
person or profit margin marked by a business, such that the higher
the income or profit margin, the smaller the portion of the income or
profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the
day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition
of indirect taxes, like the VAT. What it simply provides is that
Congress shall "evolve a progressive system of taxation."
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).eding P1,500,000.00.

factored into the formula for computing toll fees, its imposition would
violate thenon-impairment clause of the constitution.
The government avers that the NIRC imposes VAT on all
kinds of services of franchise grantees,including tollway operations;
that the Court should seek the meaning and intent of the law from
the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several
BIR rulings and circulars.
The government also argues that petitioners have no right to
invoke the non-impairment of contractsclause since they clearly have
no personal interest in existing toll operating agreements (TOAs)
between the government and tollway operators. At any rate, the nonimpairment clause cannot limit the State's sovereign taxing power
which is generally read into contracts.
Issue: May toll fees collected by tollway operators be subject to
VAT?

ADMINISTRATIVE FEASIBILITY
DIAZ VS. SECRETARY OF FINANCE- Value Added Tax (VAT)
Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief assailing the
validity of the impending imposition of value-added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the collections of tollway
operators. Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it
enacted the NIRC, intend to include toll fees within the meaning of
"sale of services" that are subject to VAT; that a toll fee is a "user's
tax," not asale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that,since VAT was never

YES.
(1) VAT is imposed on “all kinds of services” and tollway operators
who are engaged in constructing, maintaining, and operating
expressways are no different from lessors of property, transportation
contractors, etc.
(2) Not only do they fall under the broad term under (1) but also
come under those described as “all other franchise grantees” which
is not confined only to legislative franchise grantees since the law
does not distinguish. They are also not a franchise grantee under
Section 119 which would have made them subject to percentage tax
and not VAT.
(3) Neither are the services part of the enumeration under Section
109 on VAT-exempt transactions.
(4) The toll fee is not a user’s tax and thus it is permissible to impose
a VAT on the said fee. The MIAA case does not apply and the Court

emphasized that toll fees are not taxes since they are not assessed
by the BIR and do not go the general coffers of the government. Toll
fees are collected by private operators as reimbursement for their
costs and expenses with a view to a profit while taxes are imposed
by the government as an attribute of its sovereignty. Even if the toll
fees were treated as user’s tax, the VAT can not be deemed as a ‘tax
on tax’ since the VAT is imposed on the tollway operator and the fact
that it might pass-on the same to the tollway user, it will not make the
latter directly liable for VAT since the shifted VAT simply becomes
part of the cost to use the tollways.

(5) The assertion that the VAT imposed is not administratively
feasible given the manner by which the BIR intends to implement the
VAT (i.e., rounding off the toll rates and putting any excess collection
in an escrow account) is not enough to invalidate the law. Nonobservance of the canon of administrative feasibility will not render a
tax imposition invalid “except to the extent that specific constitutional
or statutory limitations are impaired”.

FRANCISCO I. CHAVEZ VS. JAIME B. ONGPIN AND FIDELINA
CRUZ
G.R. No. 76778. June 6, 1990
FACTS:
Section 21 of Presidential Decree No. 464 provides that every five
years starting calendar year 1978, there shall be a provincial or city
general revision of real property assessments. The revised
assessment shall be the basis for the computation of real property
taxes for the five succeeding years. On the strength of the
aforementioned law, the general revision of assessments was
completed in 1984. However, Executive Order No. 1019 was
issued, which deferred the collection of real property taxes based on
the 1984 values to January 1, 1988 instead of January 1, 1985.On
November 25, 1986, President Corazon Aquino issued Executive

order No.73. It states that beginning January 1, 1987, the 1984
assessments shall be the basis of the real property collection. Thus,
it effectively repealed Executive Order No. 1019.Francisco Chavez, a
taxpayer and a land-owner, questioned the constitutionality of
Executive Order No. 73. He alleges that it will bring unreasonable
increase in real property taxes. In fact, according to him, the
application of the assailed order will cause an excessive increase in
real property taxes by 100% to 400% on improvements and up to
100% on land.
ISSUE:
Whether or not Executive Order no. 73 imposes unreasonable
increase in real property taxes, thus, should be declared
unconstitutional.
RULING:
No.The attack on Executive Order No. 73 has no legal basis as the
general revision of assessments is a continuing process mandated
by Section 21 of Presidential Decree No. 464. If at all, it is
Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection
against said decree. Without Executive Order No. 73, the basis for
collection of real property taxes will still be the 1978 revision of
property values.
Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases
in the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures and
their variations.

ISSUE: Are the impositions of the MCIT on domestic corporations
and CWT on income from sales of real properties classified as
ordinary assets unconstitutional?
RULING: NO. MCIT does not tax capital but only taxes income as
shown by the fact that the MCIT is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the cost of goods
and other direct expenses from gross sales. Besides, there are
sufficient safeguards that exist for the MCIT: (1) it is only imposed on
the 4th year of operations; (2) the law allows the carry forward of any
excess MCIT paid over the normal income tax; and (3) the Secretary
of Finance can suspend the imposition of MCIT in justifiable
instances.

CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATION,
INC. vs. EXECUTIVE SECRETARY ALBERTO ROMULO

FACTS: CREBA assails the imposition of the minimum corporate
income tax (MCIT) as being violative of the due process clause as it
levies income tax even if there is no realized gain. They also
question the creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets stating that (1) they ignore
the different treatment of ordinary assets and capital assets; (2) the
use of gross selling price or fair market value as basis for the CWT
and the collection of tax on a per transaction basis (and not on the
net income at the end of the year) are inconsistent with the tax on
ordinary real properties; (3) the government collects income tax even
when the net income has not yet been determined; and (4) the CWT
is being levied upon real estate enterprises but not on other
enterprises, more particularly those in the manufacturing sector.

The regulations on CWT did not shift the tax base of a real estate
business’ income tax from net income to GSP or FMV of the property
sold since the taxes withheld are in the nature of advance tax
payments and they are thus just installments on the annual tax which
may be due at the end of the taxable year. As such the tax base for
the sale of real property classified as ordinary assets remains to be
the net taxable income and the use of the GSP or FMV is because
these are the only factors reasonably known to the buyer in
connection with the performance of the duties as a withholding
agent.
Neither is there violation of equal protection even if the CWT is levied
only on the real industry as the real estate industry is, by itself, a
class on its own and can be validly treated different from other
businesses.

cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits
of an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities. Nothing prevents Congress from decreeing
that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax.

NAPOCOR VS. CITY OF CABANATUAN
FACTS: City of
Cabanatuan
filed
a
collection suit against
NAPOCOR, a government-owned and controlled corporation
demanding that the latter pay the assessed franchise tax due, plus
surcharge and interest. It alleged that NAPOCOR’s exemption from
local taxes has already been withdrawn by the Local Government
Code. NAPOCOR submitted that it is not liable to pay
an annual franchise because the city’s taxing power is limited to
private entities that are engaged intrade or occupation for profit, and
that the NAPOCOR Charter, being a valid exercise of police power,
should
prevail
over
the
LGC.
ISSUE: Whether NAPOCOR is liable to pay annual franchise tax to
the City of Cabanatuan
RULING: Yes. The power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to
levy taxes, fees and other charges. Although as a general rule, LGUs

A franchise is a privilege conferred by government authority, which
does not belong to citizens of the country generally as a matter of
common right. It may be construed in two senses: the right vested in
the individuals composing the corporation and the right and
privileges conferred upon the corporation. A franchise tax is
understood in the second sense; it is not levied on the corporation
simply for existing as a corporation but on its exercise of the rights or
privileges granted to it by the government. NAPOCOR is covered by
the franchise tax because it exercises a franchise in the second
sense and it is exercising its rights or privileges under this franchise
within the territory of the City.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in
the Mactan case, the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises. With the added burden
of devolution, it is even more imperative for government entities to
share in the requirements of development, fiscal or otherwise, by
paying
taxes
or
other
charges
due
from
them.

injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by the code. An exception to this rule
obtains only when in the opinion of the Court of Tax Appeals (CTA)
the collection thereof may jeopardize the interest of the government
and/or the taxpayer.

ANGELES CITY V. ANGELES ELECTRIC CORPORATION
FACTS: On January 22, 2004, the City Treasurer issued a Notice of
Assessment to AngelesElectric Corporation (AEC) for payment of
business tax, license fee and other charges for the period1993 to
2004 in the total amount of P94, 861,194.10. Within the period
prescribed by law, AEC protested the assessment. When the city
Treasurer denied the protest and ordered petitioner to settle its
obligation, petitioner filed with the RTC a petition praying for the
issuance of a TRO which was granted. The city government opposed
on the ground that per NIRC the collection of taxes cannot be
enjoined.
ISSUE: Whether or not the collection of local government taxes can
be enjoined.
RULING: Yes. A principle deeply embedded in our jurisprudence is
that taxes being the lifeblood of the government should be collected
promptly, without unnecessary hindrance or delay. In line with this
principle, the National Internal Revenue Code of 1997 (NIRC)
expressly provides that no court shall have the authority to grant an

The prohibition on the issuance of a writ of injunction to enjoin the co
llection of taxes applies only to national internal revenue taxes and
not to local taxes. There is no express provision in the Local
Government Code prohibiting courts from issuing injunction to
restrain local governments from collecting taxes. Furthermore, when
there is no other plain, speedy and adequate remedy available to the
petitioner in the ordinary course of law except this application for a
temporary restraining order and/or writ of preliminary injunction to
stop the auction sale and/or to enjoin and/or restrain respondents
from levying, annotating the levy, seizing, confiscating, garnishing,
selling and disposing at public auction the properties of petitioner, or
otherwise exercising other administrative remedies against the
petitioner and its properties, justifies the move of the petitioner
in seeking the injunctive reliefs sought for.

The Court of Appeals reversed the CTA decision stating that there
was no actual carrying over of the excess tax credit, given that BPI
suffered a net loss in 1999, and was not liable for any income tax for
said taxable period, against which the 1998 excess tax credit could
have been applied.
The Court of Appeals further stated that even if Section 76 was to be
construed strictly and literally, the irrevocability rule would still not bar
BPI from seeking a tax refund of its 1998 excess tax credit despite
previously opting to carry over the same. The phrase “for that taxable
period” qualified the irrevocability of the option of BIR to carry over its
1998 excess tax credit to only the 1999 taxable period; such that,
when the 1999 taxable period expired, the irrevocability of the option
of BPI to carry over its excess tax credit from 1998 also expired.
ISSUES:1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayer’s failure to mark the option
chosen is fatal to whatever claim
CIR VS. BPI
FACTS: In filing its Corporate Income Tax Return for the Calendar
Year 2000, BPI carried over the excess tax credits from the previous
years of 1997, 1998 and 1999. However, BPI failed to indicate in its
ITR its choice of whether to carry over its excess tax credits or to
claim the refund of or issuance of a tax credit certificate.
BPI filed with the Commissioner of Internal Revenue (CIR) an
administrative claim for refund. The CIR failed to act on the claim for
tax refund of BPI. Hence, BPI filed a Petition for Review before the
CTA, whom denied the claim.
The CTA relied on the irrevocability rule laid down in Section 76 of
the National Internal Revenue Code (NIRC) of 1997, which states
that once the taxpayer opts to carry over and apply its excess
income tax to succeeding taxable years, its option shall be
irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit shall be allowed for the same.

RULING: 1. The last sentence of Section 76 of the NIRC of 1997
reads: “Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for
tax refund or issuance of a tax credit certificate shall be allowed
therefor.” The phrase “for that taxable period” merely identifies the
excess income tax, subject of the option, by referring to the taxable
period when it was acquired by the taxpayer.
In the present case, the excess income tax credit, which BPI opted to
carry over, was acquired by the said bank during the taxable year
1998. The option of BPI to carry over its 1998 excess income tax
credit is irrevocable; it cannot later on opt to apply for a refund of the
very same 1998 excess income tax credit.
2. No. Failure to signify one’s intention in the FAR does not mean
outright barring of a valid request for a refund, should one still
choose this option later on. The reason for requiring that a choice be
made in the FAR upon its filing is to ease tax administration (Philam

Asset Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14
December 2005). When circumstances show that a choice has been
made by the taxpayer to carry over the excess income tax as credit,
it should be respected; but when indubitable circumstances clearly
show that another choice – a tax refund – is in order, it should be
granted. Therefore, as to which option the taxpayer chose is
generally a matter of evidence.
“Technicalities and legalisms, however exalted, should not be
misused by the government to keep money not belonging to it and
thereby enrich itself at the expense of its law-abiding citizens.”
CIR vs. ALGUE
FACTS: Algue, Inc., a domestic corporation engaged in engineering,
construction and other allied activities. Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process.
There was a sale for which Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. The
payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon, and
there was no distribution of dividends was involved. Algue claimed
the 75,000 to be deductible from their tax, to which the CIR
disallowed.
ISSUE: Whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns.
RULING: NO – CIR is not correct. The burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the
payees in inducing investors and prominent businessmen to venture
in an experimental enterprise and involve themselves in a new

business requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. On the other hand, such collection
should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its part
is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral
and material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of
the tax collector, he may still be stopped in his tracks if the taxpayer
can demonstrate, as it has here, that the law has not been observed.

issued a resolution dismissing the case for failure to timely file the
Petition.
ISSUE:
(1) Does the enforcement of the latter section of the tax ordinance
constitute
double
taxation?

RULING:

CITY OF MANILA VS. COCA-COLA BOTTLERS PHILIPPINES,
INC.- CTA,
FACTS:
Respondent paid the local business tax only as manufacturer as it
was expressly exempted from the business tax under a different
section and which applied to businesses subject to excise, VAT or
percentage tax under the Tax Code. The City of Manila subsequently
amended the ordinance by deleting the provision exempting
businesses under the latter section if they have already paid taxes
under a different section in the ordinance. This amending ordinance
was later declared by the Supreme Court null and void. Respondent
then filed a protest on the ground of double taxation. RTC decided in
favor of Respondent and the decision was received by Petitioner on
April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a
Motion for Extension of Time to File Petition for Review asking for a
15-day extension or until May 20, 2007 within which to file its
Petition. A second Motion for Extension was filed on May 18, 2007,
this time asking for a 10-day extension to file the Petition. Petitioner
finally filed the Petition on May 30, 2007 even if the CTA had earlier

(1) YES. There is indeed double taxation if respondent is subjected
to the taxes under both Sections 14 and 21 of the tax ordinance
since these are being imposed: (1) on the same subject matter —
the privilege of doing business in the City of Manila; (2) for the same
purpose — to make persons conducting business within the City of
Manila contribute to city revenues; (3) by the same taxing authority
— petitioner City of Manila; (4) within the same taxing jurisdiction —
within the territorial jurisdiction of the City of Manila; (5) for the same
taxing periods — per calendar year; and (6) of the same kind or
character — a local business tax imposed on gross sales or receipts
of the business.